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China’s New Rural Cooperative Medical Scheme

Evolution, Design and Impacts


Dan Liu

The New Cooperative Medical Scheme (NCMS) was implemented in 2003 in response to the poor state of health care in rural China. It holds the primary objective of insuring rural residents against catastrophic health expenses, protecting them from impoverishment caused by medical expenses. The objective of this study, therefore, is to explore variation in the determinants of household enrolment in this scheme and the impact of enrolment on health care utilization and medical expenditures in three large geographic regions in China and further to simulate the reimbursement package design in order to achieve better financing protection and policy effectiveness.
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1. Introduction

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Health and economic development should be understood as a mutual process. There are four pathways through which health can contribute to economic prosperity (Bloom and Canning, 2000): first, healthier people can work longer hours and are physically energetic and mentally robust, and consequently tend to be more productive; second, healthier people enjoy a longer life expectancy, creating stronger incentives for human capital investment such as education and skills development; third, greater longevity induces higher individual savings during their productive years, providing more investment in physical capital, with a healthy and educated workforce acting as a strong magnet for foreign direct investment; fourth, mortality declines concentrated among infants and children typically initiate the transition and trigger subsequent declines in fertility, leading to reduced population growth and increases in the proportion of population at the working age1, an important determinant of economic growth and per capita income. Conversely, economic growth and income increases should result in improved health through providing greater demand on better nutrition, living environments and health-related merchandise and services. However, the case of China does not fully correspond with this process, specifically in the latter relationship.

Since the beginning of the economic reform in China, the World Bank report series (1984, 1992, 1993) on health and health care services have consistently warned the potentially negative impact of a more market-oriented economy for vulnerable segments of the population. A trend of marketization in China health systems, similar to the experience in the economic sector, leads to health care...

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