What does it mean to say that the majority of China’s population has health insurance?

A WSJ article on the reticence of Chinese hospitals to fall in line with the countries 125 billion dollar health reforms made the rounds this week. The essence of the article is that doctors in China’s public hospitals are driving up the cost of healthcare by prescribing drugs not on the essential drug list and by conducting needless testing in order to maximize fees.

In the past three years, reforms have created a list of “essential drugs” for common illnesses whose prices are fixed at a discount and whose use doesn’t lead to a commission, which has helped lower health-care costs at some hospitals.

Such moves, however, have lowered hospital revenue, which has prompted resistance from hospitals and doctors.

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Hospitals appear to be shifting away from drugs on the essential list to more expensive drugs and passing the higher costs on to patients, according to research from Dr. Hsiao and his colleagues recently published in the medical journal the Lancet.

“China’s Hospitals Seen Defying Reform,” Wall Street Journal March 9, 2012.

All of this is true, but it should not be news for those of you closely following the healthcare reforms. Doctors everywhere will do what they can to maximize profits where regulatory incentives are misaligned. A toxic regulatory mix of low doctor’s salaries (3500 RMB per month for the best doctors at the best hospitals), a promotion culture that centers on placement at large public hospitals, and below-cost reimbursement system naturally push Chinese doctors to make money on through drug sale commissions.

The more interesting part fo the article is at the end, where Dr. William Hsiao, economic professor at the Harvard School of Public Health makes the following statements about how China’s health insurance program is not keeping pace with the needs of the healthcare system:

According to [Dr.Hsiao's] analysis, around 92% of the Chinese population has some form of insurance coverage, slightly below Chinese government claims, though the coverage for many is limited. “The strategy is: get everyone covered, then deepen the coverage,” said Dr. Hsiao.

However, he said the inability to successfully curb costs at hospitals could have trickle-down effects for insurance coverage.

“When the public hospitals, which are the mainstay of the provision for health care in China, are for-profit institutions, they will use every possible means to get money out of the patients or the insurance, so the insurance fund is going to have a tough time to sustain itself,” said Dr. Hsiao.