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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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4. The impact of the New Cooperative Medical Scheme on access to rural health care and reducing medical expenditures


Subsidized health insurance scheme has become an increasingly important health financing mechanism in developing countries attempting to minimize unbalanced distribution of health care services. However, the potential distributional gains from such subsidized health insurance schemes are usually accompanied by efficiency losses, due to distortions in both the participants’ behavior and the allocation of resources to the health care sector as a whole (Trujillo et al., 2005). As a result, it is imperative for policy makers to carefully evaluate and design these programs to achieve their desired objectives.

This chapter evaluates the impact of the Chinese government-subsidized health insurance scheme, henceforth the New Rural Cooperative Medical Scheme (NCMS), on the level of medical care utilization and expenditure for rural residents. As stated in chapter 3, rural residents in China have been excluded from the social security system ever since the collapse of the Cooperative Medical Scheme (CMS) following the economic reforms of the early 1980s. Many difficulties impede the poor from accessing basic health services, with financial barriers perhaps the most acute. The incidence of poverty increases as health shocks and poor health care interweaved (Smith, 1999; Wagstaff, 2005), as those seeking care often incur medical debts while those who forego medical care lose productivity. Initiated in 2002, the NCMS is a demand-side government subsidized insurance scheme intended to resolve illness-led poverty and the poor state of health care in rural China.

This evaluation extends our knowledge about the impact of the NCMS differentiated across regions. Given...

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