Economic Growth and the Dynamics of
Health Care Systems:
The Experience of Three East-Asian Countries and
Implications for China’s Health Care Reform
Chee-Ruey Hsieh (谢启瑞)
Professor of Health Economics
Duke Global Health Institute &
Global Health Research Center, Duke Kunshan University
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. Decision Analysis at Individual and Firm Levels
Demand Side (Part I)
Demand for Health and
Health Behavior (2)
Demand for Health Care
(3)
Demand for Health
Insurance (4)
Supply Side (Part II)
Physician Firms
(5)
Quality (7)
Hospitals (6)
Nurses (8)
Pharmaceutical Firms (9)
Private Insurer Firms (10)
System Analysis at Market Level (Part III)
Cash System and Private System (11)
Semi-Public System (12)
Public-System (13)
Performance of Health Care Sector: Positive and Normative Aspects (Part IV)
Cost-Effectiveness Analysis (14)
Cost-Benefit Analysis (15)
The Link Between Health and Economic Sector (16)
Frontiers of Health Economics (17)
Fig. 1.6. Health Economics Roadmap
.
Health Systems: Two Dimensions
Is financing private or public?
Is provision of services private or public?
Countries differ in both dimensions.
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. The Relationship between Public Financing Share and Public Supply Share
Share of Public Supply (%)
Norway
Denmark
Finland United Kingdom
Poland
100
Canada
Turkey
90
Czech Republic
80
Portugal
Italy
Mexico
70
Greece
Spain
France
New Zealand
Austria
60
50
Germany
Australia
40
United States
30
Japan
Taiwan
20
10
Korea
0
0
10
20
30
40
50
60
70
Share of Public Financing (%)
80
90
100
Four Quadrants in country health
system classification scheme
Quadrant I: High on public financing from general tax revenue
and from ear-market payroll taxes and high on public provision
(hospital provision): Great Britain; Canada; Scandinavian
countries
Quadrant II: High public provision, but largely privately
financed (high share of patient out-of-pocket payments=“cash
systems”): India and many low-income countries
Quadrant III: High shares of private financing (largely out of
private health insurance) and private provision: U.S.
Quadrant IV: Public financing (often public single payer) and
private provision: Germany; Japan; South Korea; Taiwan among
others..
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. Does the Health System Change
Over Time?
The answer is “no” for some countries,
such as UK and Germany. Their systems
remain almost constant for more than half
century or even a century.
However, the answer is “yes” for other
countries with rapid economic growth, such
as South Korea, Taiwan and China.
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. Why Economic Growth Leads to a
Change in Health System?
High income increases the capacity of the
government to increase the investment on
health care which in turn increases the share
of public financing.
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. Percentage of population with health insurance in
Taiwan between 1950 and 2000
Percent of insured population
（％）
100
90
80
70
60
50
40
30
20
10
0
1950 1956 1961 1966 1971 1976 1981 1986 1991 1996
Implementation of LI
FHI was introduced
Implementation of GEI
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. Year
FHI phased in
Implementation of NHI
Trends in the Out‐of‐Pocket (OOP) Share in Japan and other East Asian Countries
Source: Wagstaff (2007)
The Relationship between Share of Public Financing and Share of Health Expenditures from Out‐of –Pocket Payments
70
% of out-of-pocket
payment
60
MEX
50
40
KOR
SUI
30
POL
HUN
ESP
POR ITA
BEL
ISL
FIN
NZL
AUS
DEN NOR
AUT
CAN
JPN
GER
IRL
20
USA
10
NED
FRA
CZE
LUX
0
30
40
50
60
70
Source: OECD Health Data (2008)
80
90
100
% of public financing
The Relationship between GDP Per Capita and the Public Financing Share
Y (Log of Share of Public
Financing,%)
5
Y=3.07+0.12X
R-Square=0.22
N=166
4
3
2
4
5
6
7
8
9
10
X (Log of GDP
Per Capita
in 2000
US dollar)
11
Source: Public financing share is from 2006 the World Health Report; GDP per capita is from 2007 World Development Indicators (Sample Size=166); and the regression line is calculated by authors.
Why Economic Growth Leads to a
Change in Health System?
• High income increases the demand in
health care, indicating an increase in the
size of health care market, which in turn
induces the entry of new hospitals or the
expansion of the existing hospitals.
• Private firms are more responsive to
public firms. As a result, the share of
private supply increases over time.
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. Question in the individual level:
What do you plan to do when
you become rich?
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. The Answer from Economic Analysis
As people get richer and consumption rises, the
marginal utility of consumption falls rapidly.
Spending on health to extend life allows individuals
to purchase additional periods of utility. The
marginal utility of life extension does not decline. As
a result, the optimal composition of total spending
shifts toward health, and the health share grows
along with income.
In projections based on the quantitative analysis of
our model, the optimal health share of spending
seems likely to exceed 30 percent by the middle of
the century.
Hall, R. E. and C. I. Jones (2007). "The Value of Life and the Rise in Health
Spending." Quarterly Journal of Economics 122(1): 39-72.
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. The Story of Chinese Empire
Seeking for Elixir
Qin Shi Huang united 6 kingdoms and became
the very first emperor of ancient China in 221
B.C. Right after two years later, he sent Xu Fu,
a diviner, with ships carrying hundreds of boys
and girls in quest of the legendry elixir of life.
But Xu Fu never came back. Then several other
teams were sent for the same goal, but Qin Shi
Huang never got the elixir.
Take Home Message
People are willing to pay more relative to
other consumption goods to be in good
health when they become more affluent.
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. The Relationship between Share of GDP Spent on Health Care and GDP Per Capita
Share of GDP spent on
health care
16
USA
14
12
FRA
SUI
BEL
10
GRE
NZL
HUN
8
SVK
MEX
ESP
ITA
DEN
SWE
FIN
JPN
CAN
ISL
NED
AUS
GBA
NOR
IRL
LUX
CZE
POL
6
AUT
GER
POR
KOR
TUR
4
5000
10000
15000
20000
25000
30000
35000
Source: OECD Health Data (2008)
40000
45000
50000
55000
GDP per capita(unit: US dollar)
Who hear the people’s voice?
Market (private sector) or government
(public sector)?
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. The Evolution of Health Care
System in Taiwan, 1950-2000
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. How about China?
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. Share of Out‐of‐Pocket (OOP) Cost in Health Care Financing, 1978‐2010
Ownership Structure of Hospitals in China 20052012 (in terms of number of hospitals)
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. Ownership Structure of Hospitals in China 20052012 (in terms of number of hospital beds)
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. Summary
• Economic growth seems bringing a
convergence of the health care systems
across middle-income or newly industrial
countries.
• Economic growth leads to an increase in
share of public financing and an increase
in the share of private supply.
• As the result, the system moves toward
quasi-public system (or social insurance
system), a system with higher share of
public financing and a higher share of
private supply.
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. Major Characteristics of Quasi-Public
System
Government or public payer steps in to set
the regulated prices
Private providers account for a larger share
of market, they compete each other on a
non-price basis.
Payment system is based on the quantity of
services instead of quality.
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. The composition structure of hospital revenues
in Sichuan province, China, 2002-2012
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. The average size of hospitals and the market
share of tertiary and secondary hospitals in
outpatient / inpatient visits in China, 2002-2012
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. Policy Challenges Arising from the Dynamic
Change of Health Care System in China
Payment system: How to pay physicians and
hospitals?
Quality of Health Care: How to design a
payment system to reward the good quality
of health care?
COPYRIGHT © 2014 DUKE KUNSHAN UNIVERSITY. Question and Answer