China takes first step in health care overhaul Overhead cripples old cradle-to-grave system

ZHENJIANG, CHINA — ZHENJIANG, China -- In the good old days of socialism, the state paid for everything when Comrade Lu got sick, including the medicine he consumed and the hospital bed he used.

"The old system encouraged a lot of waste," says Lu, who had to spend about $100 of his own money last year -- more than a month's salary -- to help cover the cost of treating a liver infection. "Now, the government cannot pay so much for everybody."


Lu is among several hundred thousand state workers participating in a pilot health care program in this Chinese coastal city. As the world's most populous country prepares to overhaul its medical care system, his experience provides a glimpse of what lies ahead.

China once promised its workers extraordinary cradle-to-grave benefits, such as free housing, health care and heavily subsidized education. The government is now trying to dismantle much of the system it created to cut crippling overhead, build a more market-oriented economy and encourage self-reliance.


In recent years, creaking state-owned businesses have laid off millions of workers. Government factories are selling public housing to employees and requiring young laborers to contribute to their own pension programs.

Zhu Rongji, who became China's premier last month, has pushed to reform the bloated medical care system with experimental programs like Zhenjiang's -- one of more than 50 now operating in Chinese cities. A hard-nosed technocrat, Zhu says the government will unveil a national health program later this year. Officials are expected to craft it to local conditions.

City is test site

Zhenjiang, a Chang River port city of about 2.3 million, lies along China's prosperous east coast, several hours by train from Shanghai. Three years ago, local officials implemented a system in which employees must contribute to health costs.

The worker pays 1 percent of his salary and the state company 10 percent into a pool which is split between a public insurance fund and a personal medical account.

Employees use the personal account to pay health bills. When the account runs out and the employee has spent an additional 5 percent of his salary on health expenses, he taps into the public fund, which pays the majority of the remaining medical costs on a sliding scale.

Vice Mayor Jiang Licheng says the Zhenjiang program has helped trim the increase in medical expenses from 33 percent a year before the program began in 1995 to 5.5 percent since.

"After three years of experiment, we think it works quite well," said Jiang, 44, who studied economic management and health care at the University of Maryland, College Park as part of an exchange program two years ago.


Trying to weave a new social safety net in a rapidly evolving economy is a difficult task.

State workers complain that the new program leaves thousands essentially unprotected. As part of the restructuring of China's state sector, some factories in Zhenjiang have shut down and don't contribute to the fund. After decades of enjoying all-inclusive health care, their employees suddenly have little or no coverage.

Two years ago, a 79-year-old pensioner fell down the stairs and broke her leg, according to her son. Her factory, on the brink of bankruptcy, was selling off its assets and couldn't afford to contribute to the fund.

The woman receives only $24 a month in pension, so her children paid her $840 hospital bill. Her son hasn't told her because he doesn't want to upset her. To date, the family has received $84 in reimbursement.

Many firms failing

Cai Wenjun, director of the city's Social Insurance Bureau, says that failing enterprises must set aside some of their assets to cover employee health care. He says about 5,000 people work for companies facing bankruptcy.


Workers in Zhenjiang say the number is much higher.

"This is very common," says Lu, who, like other state employees interviewed, asked that only his surname be used.

Workers for failing state businesses aren't the only ones without medical coverage. In fact, only about 10 percent of the nation's rural population has health insurance, according to the World Bank. About 800 million rural Chinese must pay for most services out of their own pockets.

Cutting out kickbacks

Zhenjiang's program, in addition to making employees pay some bills, also has tried to cut costs by limiting the types of medicine doctors can prescribe and cracking down on a common form of graft: kickbacks from drug companies.

Zhang Shunxing, chief of urology at Zhenjiang's First People's Hospital, says pharmaceutical firms routinely paid him and other doctors a small fee for every pill prescribed. He says he received about $120 in "commissions" annually and put them into a hospital fund for parties and banquets.


Zhang says the once-accepted practice is now forbidden and First People's gives doctors bonuses to make up for the money they used to make from kickbacks.

Kickbacks were just part of a shamelessly corrupt system.

Some people who had good relations with medical staff checked into the hospital for days even when they weren't sick. Hospital workers bought them frying pans, blankets, rice cookers and other household items. Physicians billed the goods as medical supplies.

"You can make the hospital like a home," says Qing, a 50-year-old state worker. "My aunt did that."

Under the old system, physicians' pay depended in part on how much they billed. Now, doctors are paid in part on how quickly they turn over beds.

Requiring patients to cover part of the costs of procedures has helped reduce expenses, says Zheng Guoqiang, the hospital's chief physician. Before 1995, First People's took 10 magnetic resonance images (MRI) a day -- many of them optional. Now, physicians order about two.


Echoing the concerns of colleagues in the United States, doctors in Zhenjiang complain that insurance does not provide enough money to treat some patients properly. Zheng says that the cost ceiling for outpatient procedures, $6.62, and in-patient procedures, $245, is too low and that the hospital, which profited handsomely under the old system, is losing money under the new one.

Local officials recognize that the pilot program has failings and say that they will change and improve it over time.

While patients complain about having to pay for the new system, they acknowledge that the old one had to go.

Says Qing, whose aunt used her hospital like the Home Shopping Network: "The reform was inevitable."

Pub Date: 4/24/98