See Thin Protection
In Insurance Plans
'Big Sickness' Is Pricey;
Doctors Demand Cash
Staff Reporter of THE WALL STREET JOURNAL
December 30, 2005; Page A1
SHANGHAI -- Hu Cunxi thought he understood the financial risks of "big sickness" -- or "da bing" -- the common Chinese term for cancer, stroke and other life-threatening diseases.
He had edited a popular Chinese manual on household finances that encourages readers to load up on medical insurance. He himself had bought a policy from a unit of New York-based insurer American International Group Inc. He saw it as prudent backup to the government-mandated coverage he received as an editor at the state-owned Shanghai Financial News.
Five years ago, Mr. Hu's wife, Cao Meihua, a high-school teacher, was diagnosed with "big sickness." Then Mr. Hu himself fell ill. Now both husband and wife, who are in their late 40s, are battling advanced cancer, and occupy adjacent wards of a Shanghai hospital.
China's high-cost hospital system swiftly overwhelmed the insurance coverage they had through their state jobs. Mr. Hu's AIG policy wasn't designed to cover such medical calamities. Their treatments have consumed their life savings and his parents' retirement nest egg. They are now broke.
"We used to be white-collar workers," says Mr. Hu, who seethes with anger about the quality of his government insurance. "Now, we're in poverty."
More than two-thirds of China's 1.3 billion people have no health insurance at all, and many cannot afford any medical care. But under China's pay-as-you-go health-care system, even those with insurance are often forced to make agonizing decisions about whether they can afford treatment for serious illness. Problems with insurance coverage have become a crisis for China's growing urban middle class, eating into support for the ruling Communist Party.
As recently as the late 1970s, the Chinese government controlled all hospitals, employed all doctors, and offered almost universal health-care coverage. In the cities, the state provided insurance to civil servants, factory workers and their families. Collective farms provided care in the countryside. But the entire system began breaking down in the early 1980s as market-style reforms led collective farms to disband and money-losing factories to close. Tens of millions of workers were left without jobs or insurance.
A decade ago, Beijing began looking for a new health-insurance model. In 1998, government authorities introduced a national program called Basic Medical Insurance. All employers are required to provide employees with some coverage for both routine medical problems and "big sickness." To fund the plan, workers contribute 2% of their salaries, on average, and employers contribute an additional 7.5%. Family members, however, are not covered, and children must rely on limited insurance programs provided by schools. Authorities enforce the requirements for state companies, but large parts of the booming private sector ignore it.
The government plan has many gaps. At the end of 2003, it offered insurance protection to 109 million urban workers. That constitutes less than 20% of China's approximately 600 million urban dwellers. Coverage in rural areas is even spottier. Studies show that three-quarters of private-sector employees remain uninsured.
The Basic Medical Insurance itself is limited. Typically, it covers 70% to 80% of hospital charges. Patients must pay the rest, in cash. Seriously ill patients who cannot raise sufficient money are forced to check out of hospitals, or to opt for less expensive courses of treatment. Basic drugs are covered, but expensive new medicines such as powerful anti-cancer drugs are not.
"It's a real problem," concedes Mao Qunan, spokesman for the Ministry of Health. "People should consider commercial insurance."
Chen Ailian, a 65-year-old volunteer at the Shanghai Cancer Recovery Club, was diagnosed with breast cancer 17 years ago. "If I had got sick today, I would never have survived," she says. She needed surgery, so her state-owned sewing-machine factory sent a note to the hospital promising payment. The operation cost $500, but she didn't have to pay any of it.
Today, hospital emergency rooms demand cash up front, whether or not a patient has insurance. Insured patients pay for everything from gurneys to emergency surgery, then apply for reimbursement later. Those without cash are denied treatment.
A Wrenching Decision
In 2003, He Guofu turned up at a Shanghai emergency room six hours after suffering a stroke. The surgeon told Mr. He's wife, Sun Yuanzhen, that her husband needed surgery to relieve pressure on his brain. He told her it would cost $7,000 to operate, paid in advance, but warned her there was only a 50-50 chance the procedure would help.
Mr. He, who worked at a state-owned construction company, and his wife, a retired statistician, were not poor. They both had insurance. But they didn't have that kind of cash on hand, and Mr. He's employer refused to advance it, even though insurance was likely to reimburse at least some of it.
Ms. Sun hesitated. It was a Friday night. She decided to think about it over the weekend. The 50-50 odds worried her. By Monday, she had decided to borrow the money, but the surgeon told her it was too late to operate.
Her indecision still tortures her. Her husband, who is 54, is now bedridden and requires spoon-feeding, and Ms. Sun struggles to pay her teenage son's school fees. She regrets that she didn't scramble to raise the money and gamble on the surgery. "Everything was a blur," she says. "I was so confused."
Health-care costs in China are rising rapidly, turning hospitals into symbols of unfettered capitalism. Chinese and international health experts blame runaway costs in part on an effort to make treatment more affordable for the poor. Authorities capped prices for basic drugs and procedures at below-market rates. But they let hospitals compensate by profiting on almost everything else, from advanced drugs to sophisticated diagnostic tests.
That decision created an incentive to provide high-end treatment that has transformed Chinese hospitals, making world-class care available to those who can afford it. Even small-city hospitals, once technological backwaters, boast CT scanners. In each of the past five years, Shanghai hospitals have spent nearly $100 million on sophisticated medical equipment, says Hu Shanlian, a professor of health management at the city's Fudan University and an adviser to the Chinese government. Drug sales account for 45% of the revenues of Shanghai hospitals, he says. "The health system is really in a crisis," he says.
Doctors, many of them employees of state-owned hospitals, also have an incentive to steer patients toward high-cost treatments and drugs. The average monthly pay for Shanghai doctors is less than $400, not much more than a taxi driver working overtime can make. But they can double their incomes through bonuses earned by prescribing tests and by dispensing drugs with high profit margins. Few medical systems in the world link doctors' pay so directly to revenue from patients, health-care economists say.
Mr. Mao, the Ministry of Health spokesman, contends that market forces have gone too far. "If you only trust the market, you will have a disaster," he argues. The government needs to play a leading role, he says.
The practices of hospitals and doctors are only lightly regulated by Beijing, and there is little self-regulation. China lacks the kind of medical professional associations that set ethical standards, hear complaints and punish wrongdoers in the U.S. and other countries.
When Chinese authorities decided on the national insurance plan, they failed to recognize an inherent design flaw: The system reimburses hospitals for at least a portion of whatever care they choose to deliver. In effect, government economists acknowledge, the state has become a blank check for doctors. The system encourages doctors to overprescribe expensive drugs and tests, economists say, then to charge patients for whatever their insurance does not cover.
In the U.S., health insurers guard against that outcome through "utilization review," a process under which they evaluate the medical necessity of hospital treatment. Tests and procedures deemed unnecessary are not reimbursed. Although the effectiveness of such reviews varies, the process discourages blatantly unnecessary treatments. In China, there are typically no such review procedures.
Most health-insurance plans in the U.S. also set out-of-pocket maximums for patients facing medical catastrophes. In addition to protecting seriously ill patients from financial ruin, the caps provide another incentive for hospitals to control costs: Large bills have to be justified to the insurance companies responsible for paying them.
A World Bank study of China by economists Adam Wagstaff and Magnus Lindelow concluded that patients with insurance are sometimes persuaded to undergo far more expensive treatments than the uninsured. Chinese doctors have "strong incentive to favor high-tech care over basic care," which may be more costly and sophisticated than necessary, the report said. Insurance may "actually increase the probability of large out-of-pocket payments," the report concluded. There is no formal complaint procedure for patients, the economists added.
The Ministry of Health's Mr. Mao says the government has spent two years negotiating with hospitals over how to make drug prices and profit incentive systems more reasonable. "It's a very complicated issue," he says. "It takes time. We don't want to get it wrong and then have to start all over again."
The Chinese government's share of total health spending has plummeted. Between 1978 and 2003, private outlays as a percentage of total health-care spending rose from to 60% from 20%, government figures show. The shift comes as chronic diseases such as cancer, which are costly to treat, replace contagious ones like tuberculosis as the biggest burden on the medical system.
Chinese government officials have acknowledged that health care has become such a financial burden to people, even to those with insurance, that it threatens social stability. President Hu Jintao has pledged to increase government health spending.
The government is trying to expand state insurance coverage to more people in cities and the countryside. In cities, officials are trying to set up a network of government-funded community health centers as a first stop for patients. They would provide basic care and advise patients about treatment options, drugs and hospitalization.
Before "big sickness" struck in 2000, Mr. Hu, the editor, and Ms. Cao, his wife, were making nearly $5,000 a year. In China, that put them at the bottom edge of the middle class. They had married late and were childless, which gave them some financial freedom. They bought a two-bedroom apartment with a $25,000 mortgage from China Construction Bank.
They both had insurance through their state employers. Like growing numbers of upwardly mobile professionals, they decided to supplement it for extra peace of mind. Believing that his government insurance would cover any "big sickness," Mr. Hu turned to American International Assurance Co., a unit of AIG, for personal accident insurance.
Like other Western insurers, AIG is betting demand will grow for private health insurance to cover gaps in government coverage. Mr. Hu's insurance agent at AIG, Wu Caihong, does a brisk business selling "big sickness" policies that offer lump-sum cash payments to policyholders who fall ill. She says she tells her customers that extra medical insurance "isn't a nice-to-have, it's a must-have."
Ms. Wu says that after selling Mr. Hu the accident policy, she tried repeatedly to persuade him to buy "big sickness" coverage. But by then, Mr. Hu's wife had contracted breast cancer, and Mr. Hu had no spare money for premiums on a new policy.
Ms. Cao, who had retired from her teaching job, still had government insurance coverage, but it did not cover the expensive form of chemotherapy she needed. Mr. Hu went into overdrive to make ends meet. He set out to earn extra cash at night by editing books he hoped would sell to China's hobbyists. He dashed off 11 books in four years, including a history of Chinese teapots and a collector's guide to subway tickets. But sales were disappointing, and the extra work has earned him to date only $1,500.
Last year, doctors informed Mr. Hu that he had stomach cancer. He also learned that his government insurance would not cover the kind of chemotherapy he needed. To save money during his first year of treatment, he relied on a mixture of medicines covered by his insurance. This year, after the cancer spread to his liver, he switched to a more powerful drug regimen recommended by his doctor. The new drugs were much more expensive -- and he had to buy them himself.
The more aggressively they battled their cancers, the deeper he and his wife pushed themselves into debt. They borrowed money from friends and relatives. Mr. Hu tried to sell their apartment, but he found that superstitious Shanghai buyers shun houses where "big sickness" has struck. He says even old friends, worried that being around him would bring bad luck, stopped dropping by.
So far, they have spent about $25,000 for her treatment and $12,000 for his. "When you get this disease, there's no bottom line," says Mr. Hu, a scholarly man who now has dark rims beneath his eyes. A Communist Party member, he is furious that so few drugs are covered by his government insurance.
In desperation over their illnesses, Mr. Hu and his wife have turned to religion. He became a devout Christian after a group of elderly women from a local church stopped by his hospital bed to pray. A black Bible sits by his pillow in the hospital ward. These days, he relies on donations from members of his congregation to help foot his hospital bills.
Ms. Cao's breast cancer has spread to her lungs, leaving her close to death. "We're both intellectuals. We're supposed to know about insurance," she says. "But we realize now that insurance just doesn't work. If you want to stay alive, you have to pay yourself."
--Ellen Zhu Shanghai and Kersten Zhang in Beijing contributed to this article.