The health care system reform in China: Effects on out-of-pocket expenses and saving

• This paper focuses on the Chinese health care reform undertaken in 1998 in urban areas.
• We investigate the impact of this reform on out-of-pocket (OOP) expenses and on saving using nationally representative data.
• Taking into account unobservable heterogeneity and income distribution, we find that out-of-pocket expenses and saving rate are affected by the reform in a differentiated way.
• Out-of-pocket expenses decrease only for high income individuals with good health status.
• The saving rate increases only for low income individuals with good health status.

This paper aims to evaluate the impact of 1998 Chinese health care reform on out-of-pocket expenditure and on saving. Existing evidence on the results achieved by this reform in terms of reduction of out-of-pocket medical expenditures is still mixed and contradictory, and very little is known about the impact of these measures on the consumption and saving behavior of the Chinese population. To shed more light on this issue we use data collected in 1995 and 2002 by the Chinese Household Income Project (CHIP). Contrary to previous evidence, our findings suggest that the effects of the reform have been more articulated and heterogeneous. In fact, we find that once properly accounting for income distribution and unobserved heterogeneity (potentially induced by health status), out-of-pocket medical expenses and saving rate are affected by the reform in a differentiated way. In particular, we find that out-of-pocket expenses decrease only for high income individuals with good health status and the saving rate increases only for low income individuals with good health status. This result is actually worrisome, as it suggests that the public health coverage after the reform provides financial protection only to individuals that are relatively better off (with good health status and/or high income).