National health insurance key to reshaping China's economy

HONG KONG — Wang Huijuan and her husband braved an overnight train ride to Beijing from Anhui Province to see a doctor about her ailing intestines. The clinic back home could only take her temperature and blood pressure.

"They don't have the equipment or expertise to treat more serious illnesses," said Wang, 47, who shivered in the cold as she waited in vain last week to see a physician at Beijing Xiehe Hospital. "We'll come back at 4 a.m. tomorrow."

The $1,460 in life savings the couple brought to pay their costs may become an expense of the past after the Chinese government spends $125 billion to start a national health-insurance system. The benefits will be felt beyond the sick as General Electric and Philips Electronics compete to sell imaging equipment and household savings are freed up to buy clothes and cars.

More than 300 million Chinese are without health insurance, the World Bank says, and the remaining 1 billion have only partial coverage. In part to pay for those costs, Chinese save about one-quarter of their income each year and have accumulated as much as $5 trillion, said Stephen Green, chief China economist for Standard Chartered Bank in Shanghai.

Unlocking those savings is key to China's plan to shift its economic drivers from exports and investment to domestic consumption after the global crisis and a 16 percent export decline in 2009 laid bare the country's vulnerability to swings in external demand.

"If they want to broaden out the economy they have got to be serious about building the social safety net," said Stephen Roach, Hong Kong-based chairman of Morgan Stanley Asia and author of "The Next Asia." "Health care is absolutely critical in accomplishing that."

The Politburo, China's top decision-making body, called for that transformation to be speeded up this year, the official Xinhua News Agency reported last month after the group met with President Hu Jintao.

While China accounts for 20 percent of the world's population of 7 billion people, it is responsible for just 3 percent of global consumption. The United States, with about one-fifth of all global consumer spending, has just 5 percent of the global population, according to 2008 data compiled by Bloomberg.

Urban-rural divide

China's leaders have emphasized for years the need to improve the country's health system as part of a broad goal of addressing the divide between urban and rural income levels. In 2007, when China's GDP was growing by almost 12 percent, Wen described the economy as "unbalanced, unsustainable, uncoordinated and unsustainable."

The patchwork health system has its roots in the 1990s as China, embracing a market economy, abandoned what was called the "iron rice bowl" system of guaranteed lifelong jobs and benefits. State hospitals, which still account for about 90 percent of medical services, became self-funding, inducing physicians to overprescribe drugs and tests.

China trails in health-care delivery: Its spending per person was just $121 in 2007, according to the Ministry of Health. The United States spent $7,290 and Germany $3,588 in the same year, according to a November 2009 report by the Organization for Economic Cooperation and Development.

That spending has been concentrated in urban areas.

"In the big cities there are state-of-the art hospitals that can handle any complex disease as well as any big hospital in a fully developed country," said Marcelo Mosci, CEO of GE Healthcare China, which expects its China sales to exceed $1 billion in 2010. GE Healthcare declined to disclose its 2009 revenue for China.

Outside the major urban centers, where 800 million people live, a different picture emerges.

"Village clinics and township health centers are sometimes not very inviting," John Langenbrunner, the World Bank's lead economist for health in Beijing, said. "You see very elderly people, stroke victims and people who are clearly vulnerable with no money."

Universal coverage

The money that Wang and her husband are spending for transport, rent and doctors in Beijing is more than five times what they earn each year from farming corn, wheat and soybeans.

"The local clinic is for minor sicknesses like colds," Wang said, noting that her village doctor, now 60, began practicing medicine at 14.

The Chinese government said in April that it would earmark $125 billion between 2009 and 2012 in additional health-care spending as part of a plan to offer universal basic health-care coverage by 2020. Two-thirds will go toward broadening access to health care for migrant workers, the unemployed and the elderly who aren't covered by work-related plans.

To keep a lid on the cost of drugs, last August the government placed a cap on reimbursement prices for 307 essential drugs used in rural hospitals and community health-care centers.

In November, it announced 770 other drugs would be included in the price controls.