Reform of How Health Care Is Paid for in China: Challenges and Opportunities

David de Ferranti,
David de Ferranti Former Brookings Expert
Maria-Luisa Escobar,
Maria-Luisa Escobar Former Brookings Expert
Shanlian Hu, Shenglan Tang,
Shenglan Tang
Shenglan Tang Mary & James Semans Professor of Medicine and Global Health, Deputy Director, Duke Global Health Institute - Duke University
Yuanli Liu, and Yuxin Zhao

November 22, 2008

Editor’s Note: China’s current strategy to improve how health services are paid for is headed in the right direction, but much more remains to be done. In a recent article in The Lancet, Brookings scholars David de Ferranti and Maria-Luisa Escobar, along with Shanlian Hu, Shenglan Tang, Yuanli Liu, and Yuxin Zhao, examine key challenges that need to be met and explore lessons from other countries. This article is the sixth in a series of seven papers on health system reform in China.


To implement the ambitious strategy that China is now rolling out to improve its health system, several key challenges need to be met. One challenge is already being resolved: the central government’s spending on health, after languishing for many years at exceptionally low levels compared with that in other countries, is now being increased substantially.3 Other financial and systemic issues include reversal of the upward spiral in the out-of-pocket payments that households pay to get health services; achievement of adequate financial protection for the entire population through insurance or other prepaid coverage; control of the rapid escalation of health-care costs; curtailment of inefficiencies and reducing waste; improvement of the quality of care; and enhancement of equity, including addressing disparities among China’s diverse regions.

These challenges affect global health, not only because China’s 1·3 billion people comprise a fifth of the world population, but also because its innovations and experiences will be helpful and influential for other countries. China’s renewed quest to modernise its health system is part of a larger process worldwide. If the 20th century was transformed by two great health-related transitions (the demographic revolution that increased longevity and reduced fertility and the epidemiological revolution that reduced the incidence of many infectious diseases), the 21st century may be fundamentally changed by a third great transition in how health care is financed, provided, and organised. Some countries are well advanced in this third transition, having already replaced arrangements in which the cost of health care is borne mainly by the few who get sick, with policies by which cost is shared by all, equitable access to services is assured, and protection against financial ruin because of illness is widespread. But many countries still have a long journey ahead, and their citizens are impatient for faster advances.

In China major steps toward this third transition were made in the four decades after 1949 and the formation of the People’s Republic, but advances then stalled and were partly reversed in subsequent years.4–9 Now China is trying to recover lost ground and finish the job, helped by a strong economic base and a new development policy centred on people rather than economic growth alone.