A projection of China s health expenditures from today to 2050

Transcription

1 A projection of Chin s helth expenditures from tody to 2050 Yinhe Li Mster thesis Institute of Helth Mngement nd Helth Economics UNIVERSITY OF OSLO My 15 th 2008

2 2 Tble of Contents 1. INTRODUCTION BACKGROUND CHINA S POPULATION AGEING THE CHALLENGE OF GRADUAL POPULATION AGEING FINANCE SYSTEM IN CHINA S HEALTHCARE SECTOR PROJECTION OF HEALTH EXPENDITURES ALTERNATIVE APPROACHES: PROJECTION OF CHINA S HEALTH EXPENDITURES TO MAIN PROJECTION METHODOLOGY E BASED ON EMPIRICAL EVIDENCES FROM DEVELOPED COUNTRIES E BASED ON EMPIRICAL EVIDENCES FROM INSIDE CHINA MODELS OF E TESTED BY HISTORICAL TOTAL HEALTH EXPENDITURES MODELS OF E TESTED BY HISTORICAL OUT-OF-POCKET HEALTH EXPENDITURES PROJECTED CHINA S HEALTH EXPENDITURES TO SENSITIVITY ANALYSIS WILL AGE-SPECIFIC PER CAPITA HEALTH SPENDING REMAIN CONSTANT? CHOICES OF BASE YEAR RELIABILITY OF PROJECTED POPULATION DEVELOPMENTS CONCLUSIONS REMARKABLY SIMILAR TENDENCIES OF E IN DEVELOPED COUNTRIES HIGH PROXIMITY OF THE MODEL OF BASED ON CHRONIC DISEASES... 34

3 3 6.3 PROJECTED HEALTH EXPENDITURES REFERENCES APPENDIX A: THE ORIGINAL DATA OF THE FIGURES IN THIS STUDY APPENDIX B: THE RELATED DATA IN THE ACCURACY TESTS OF E APPENDIX C: PROCESSES OF PROJECTIONS OF HEALTH EXPENDITURES... 42

4 4 Acknowledgements First of ll, I would like to express my deep grtitude to my supervisor, Associte professor, Knut Reidr Wngen, for his constructive comments, ptient supervisions nd constnt encourgements. His tirelessly guidnce nd kindly motivtions enbled me to overcome ll the chllenges I encountered in the process of this study. My sincere thnks lso go to Miss Xue for her kindly comments nd ble technicl supports on my mster thesis. Finlly, I lso would like thnk the Institute of Helth Mngement nd Helth Economics nd The University of Oslo for offering me n excellent opportunity to study in worldclss University. In these two yers, I lerned lot of vluble knowledge systemticlly in my interested res, which my significntly chnge my entire life.

5 5 1. Introduction Currently Chin is experiencing the historic demogrphic trnsition s other developed nd developing countries in our world. The verge ge of Popultion rpidly incresed from 26.1 yers old in 1980 to 32.9 yers old in 2005 (United Ntions, 2006). Furthermore, due to the inception of One Child Policy in 1979, Chinese society lredy lost 250 millions young individuls during the lst decdes (Mcloughlin, 2005, p. 310). Consequently, the popultion would become elderly more quickly thn the nturl trnsition. Age hs been widely considered s one of principl fctors determining the nture nd extent of n individul s demnd for helth services. Some cross-sectionl dt lredy indicted tht, with the increses of ge the demnd for helthcre services rises steeply; nd the helthcre expenditures of older ge groups re considerbly higher thn the reminder of the popultion (OECD, 1988, pp ). Therefore, we cn expect tht with the drmtic increses of ge popultion nd reltive shrinkges of working popultions, the geing issue would significntly chllenge Chinese society s cpbility to del with the ge wve in helth cre sector. Unfortuntely, Chin is poorly prepred to cre for rpidly incresing elderly popultion, nd the time to ddress the chllenge is running dngerously short (Jckson & Howe, 2004, p. 13). And few nlysis nd projections were conducted on the future helthcreexpenditures. Due to the lcun of this field, the helth uthority my lck the scientific fundment to dopt suitble long-term helth policies for popultion geing. Therefore, the proper projections of future helth expenditures from the perspective of popultion geing re quite urgent nd necessry. In n ttempt to fill the lcun in this re, we quntittively nlyzed the mechnism of popultion geing on Chin s helth expenditures, nd projected the future trends of helth spending cused by pure geing effects in this study. In order to ddress the potentil impcts of the popultion geing on helth expenditures, the projection methodology dopted by the Cndin Institute for Helth Informtion (CIHI 2005) nd OECD (1988) ws pplied in this study. Nmely, we regrded the totl helth expenditures in ech prticulr yer s the ggregte of the helth expenditures consumed by

6 6 ech ge group. The helth expenditures in ech ge group for prticulr yer were estimted by multiplying per cpit helth spending in the ge group nd the number of persons in the ge group. Furthermore, for the projection of totl helth expenditures, the vlues of per cpit helth expenditures in ech ge-group nd the popultions in ech ge-group in ech yer re required. Fortuntely, two interntionlly reputble institutions Popultion Division of United Ntions nd Americn Census Bureu hve presented quite comprehensive projections of Chin s popultion to Thus, we bsiclly concentrted on the ddressing of per cpit helth expenditures in ech ge group. Since Chin currently lcks the dt of per cpit helth expenditure by ge groups, we developed severl simultion models of per cpit helth expenditures in ech ge group bsed on empiricl evidences from Chin nd other countries. And then the most preferred simultion-models were selected into the projecting of future helth expenditures. Through our studies on the popultion geing nd helth expenditure, we discovered severl meningful findings which my enble us to better understnd the mechnism of the geing effects on helth expenditures nd the future trends of Chin s helth expenditures. Firstly, we discovered tht the trends of per cpit helth expenditures by ge groups in studied developed countries were remrkbly similr, lthough the dt of per cpit helth expenditures ws collected t vrious points of times from four different countries. Secondly, ccording to severl results of simultion models, we concluded tht Chin s incidences of chronic diseses cn lrgely explin the historicl out-of-pocket helth expenditure during Or in other words, we found new evidences which re ble to justify the sttement of World Bnk tht Chin s chronic diseses lredy ccount for the mjority of hospitl services nd helth cre costs (World Bnk, 1992, p. 12) in the context of out-of-pocket helth expenditures. Finlly, ccording to our estimtes, the geing effects will continully enhnce its impcts on totl helth expenditures nd come in full force during 2035s-2040s. Therefter, such effects will be grdully moderted. As whole, by 2050s the popultion geing will solely drive the Totl helth expenditure rise lmost twice s the totl helth expenditures in yer 2005.

7 7 Menwhile, since the popultion geing will enforce its impcts on the Out-of-pocket helth expenditures by different mechnism compred with Totl helth expenditures, the geing effects on the out-of-pocket helth expenditures will pper erlier nd more significntly.

8 8 2. Bckground 2.1 Chin s popultion geing Currently Chin is experiencing the historic demogrphic trnsition s other developed nd developing countries in our world. According to the dt from United Ntions, Chin s verge ge will increse rpidly from 26.1 yers old in 1980 to yers old in 2030, nd yers old in The popultions of ge group nd the ge group older thn 80 yers lso will lep from 69.5 millions nd 4.33 millions in 1980 to millions nd 103 millions in 2050 respectively. (United Ntions, 2006) The serious chllenge of Chin s popultion geing is prtilly cused by Chin s One Child Policy. Since its inception in 1979, Chinese society lredy lost 250 millions young individuls during the lst decdes (Mcloughlin, 2005, p.310). Consequently, the Chin s popultion will become elderly more quickly thn the nturl trnsition.

9 9 This rtificilly ccelerted geing development is quite obvious in the below comprison between Chinese nd Americn popultion from 1980 to The proportion of Chin s elderly (Aged 60 nd over) will shrply rise from 7.4% in 1980 to 31.1% in 2050 due to the rtificil intervention on Chinese fertilities. Menwhile, United Sttes will follow the nturl trnsition. The proportion of Americn elderly (Aged 60 nd over) will grdully rise from 15.6% in 1980 to 26.8% in In these 70 yers, the proportion of Chin s elderly ge 60 nd over will drmticlly increse by 24%, but this growth will be only 9% in United Sttes (United Ntions, 2006). The geing developments re lrgely determined by pst fertility nd mortlity rtes. Even if Chinese uthority decides to loosen its One child policy by the incresing pressures of its popultion geing in the following yers, of course the relesed fertility my progressively chnge the overll ge structure of Chin s popultion. But, the pssge into old ge of the lrge number of people born between the 1950s nd mid-1980s (United Ntions, 2006) will still led to tight pressure on Chin s helth expenditure budgets in spite of the potentil bndonment of One Child policy (OECD, 1998, p. 26).

10 The chllenge of grdul popultion geing The popultion geing is grdul process, nd the negtive influences of geing will lso pper grdully. But this slow speed is exctly the key dnger of popultion geing: when government nd public totlly understnd the hrms of the problem, we hve lredy pssed the best point of time to ddress nd reduce it. Therefore, we think tht it is urgent nd necessry to nlyze the mechnism of ging effects on Chin s helth expenditures, nd properly project Chin s helth expenditures cused by geing developments immeditely. Quicker responses on this geing issue will ern more precious time for Chin s helth uthority to dopt proper helth policy to relese the negtive impcts of popultion geing. 2.3 Finnce system in Chin s helthcre sector Chin s public helth insurnce system consists of three mjor schemes, nd the citizens py helth service fees ccording to the helth insurnce scheme they re belonging to. The first scheme is the Government Insurnce Scheme (GIS), which is unique nd stble public medicl system for employees of the Government nd Stte institutions, under which medicl costs were covered by government budgetry lloction (Liu, 2002, p. 134). According to the relted dt, only millions privileged Chinese (1.62% of the popultion) were covered by this helth insurnce scheme in 2003 (Ntionl Reserch on Helth Services, 2004 & Chin Sttisticl Yerbook, 2004). The second mjor scheme is the Lbour Insurnce Scheme (LIS), which is work unitbsed self-insurnce system tht bore ll costs of medicl tretment, medicine nd hospitliztion (Liu, 2002, p.143). The employees of stte owned nd collective enterprises re the beneficiries of this scheme. The Chin s government requires tht stte owned enterprises with more thn 100 employees must provide Lbour Insurnce Scheme for their employees (Wong & Gbriel, 1998). Historiclly, 201 million persons, nerly 44.3% of the urbn popultion, were insured by this type of insurnce in However, since mny enterprises erned no profit nd pproximtely one-third of the stte enterprises rn t deficit (Hsio, 1995, pp ), mny sttes owned enterprises were llowed to relese their obligtions of lbour insurnces for their workers. Consequently, the percentges of urbn residents with LIS

11 11 shrply declined from 44.3% in 1989 to 30.2% in 2003 (Ntionl Reserch on Helth Services, 2004). The third insurnce scheme is the Rurl Coopertive Medicl System (RCMS), which once universlly provided low-cost bsic helth cre for most rurl residents. At its pek effectiveness, 90% of the Chinese rurl popultion ws covered by the system. Nevertheless, due to the economic reform of the griculturl sector in 1981 nd the Medicl Reforms initited round 1986, the RCMS hs nerly collpsed (Hsio, 1995, p. 1050). By 2003, only 9.5% of rurl residents were still mintining in the Rurl Coopertive Medicl System (Ntionl Reserch on Helth Services, 2004). Even including commercil helth insurnces, only 55.2% of urbn residents nd 20.9% of rurl residents, or 35% of the totl popultion, hd some kind of helth insurnce in 2003 (Ntionl Reserch on Helth Services, 2004). Under such poor coverge of helth insurnces, the mjority of Chinese people re still short of bsic helthcre services nd ctully lck the cpbility to del with serious diseses. According to dt from the Third Ntionl Helth Survey, 35.7% of Chinese ptients chose self-tretments for their diseses; nd 13.1% of ptients even did not dopt ny medicl tretments when they were suffering diseses. More seriously, due to the poor finncil supports for Chinese ptients, the serious diseses hve been mjor custions for Chinese poverty. As shown in some studies, 30% of the people who live below the poverty line becme poor becuse of the finncil losses incurred during serious illness (Hsio, 1995, p.1053). Furthermore, we cn expect tht, with the rpid developments of Chin s popultion geing, more nd more Chinese people will enter the vulnerble popultions for illness in the coming decdes. Consequently, more Chinese ptients will be kept out of bsic helthcre services due to the poor effectiveness of helth insurnce.

12 12 3. Projection of helth expenditures Although numerous pproches re vilble to project Chin s helth expenditures in theory, few pproches ctully re suitble when these pproches re pplied in Chin s circumstnces. Therefore, we crefully nlyzed the strengths nd wekness of the potentil pproches, nd finlly selected the pproch used by CIHI nd OECD s our min methodology. In the CIHI study Provincil nd Territoril Government Helth Expenditure by Age Group, Sex nd Mjor Ctegory: Recent nd Future Growth Rtes, 2005 nd the OECD study Ageing Popultions, The Socil Policy Implictions, 1988, the projections of future helth expenditures were developed by combining the present per cpit expenditures for ech ge groups with the projected popultion in tht ge group ech yer (OECD, 1988, p. 35 & CIHI, 2005, p.4). This pproch lso cn be expressed by the following mthemticl eqution: (1) Ht ( ) = EN ( t) Where H () t is totl helth spending in yer t, is the verge per-cpit helth spending in ge-group, nd yer t. N ( ) t is the totl number of individuls in ge-group in Notbly, in this pproch the per cpit within given ge group will remin constnt over the projection period (CIHI, 2005, p.1). Nmely, the per cpit helth spending within given ge group is not subject to time. As shown in the bove eqution, this pproch tries to project the future helth expenditures by concentrting on the chnges of nd N ( t). If we further introduce our ssumption tht will keep constnt in the whole studied period, then the projections bsed on this pproch will exclusively concentrte on the chnges of popultions in ech ge group. In cse of Chin s popultion geing, the doption of this pproch would enble us to better cpture the impcts of popultion geing on helth expenditures.

13 13 Furthermore, thnks to the comprehensive dt of Chin s N ( t ) offered by Americn Census Bureu nd the solid empiricl dt of Chin s, we were ble to enjoy firly good fesibility to project Chin s helth expenditures by using this pproch. Alterntive pproches: Insted of the methodology dopted by our studies, severl lterntive pproches could hve been vilble in theory. One exmple is the Culter-Sheiner pproch: MediclSpending() t = m()* t h()* t N() t Where N ( t ) is the number of people in ge group in yer t, h ( t) is the verge helth sttus of people in ge group in yer t, nd is verge medicl spending conditionl on helth sttus. The helth expenditures ws forecsted by cpturing the trends of severl key fctors relted with helth expenditures, such s disbility rte, proximity to deth, unit medicl spending conditionl on helth sttus, nd projected popultions in ech ge group (Cutler & Sheiner, 1998, p. 5). m ( ) t Obviously, the Culter-Sheiner pproch my cpture the future helth-expenditures more precisely thn our method. Nevertheless, s developing country, the expensive mesurements of dt such s disbility rte, proximity to deth, nd the unit medicl spending conditionl on helth sttus re lrgely bsent in Chin. Thus, the Cutler & Sheiner pproch is unfesible for our purpose. The regression pproches lso re the common methods, which were widely pplied in the projections of vrious issues. This kind of pproches cn cpture the tendency of studied subjects by exponentil smoothing nd regressions on historicl dt (Mhl & Bermn, 2001, p.25) nd further conduct projections bsed on the cptured trend. However, due to the poor registrtions of helth-relted dt, Chin hs not ccumulted enough relted helth dt for mny yers, nd providing solid dt-fundment for the regression nd projection on Chin s helth-expenditures.

14 14 Furthermore, bsiclly the regression pproch tends to conduct projections bsed on the trend simulted by historicl dt. But in the cse of Chin s popultion geing, which will typiclly follow long-term cyclicl trend insted of historicl trend becuse of One child Policy. Nmely, when the Chinese people born in bby boom pss wy nturlly during 2030s--2050s, Chin s ge structure will return to typiclly nturl ge structure fter 2050s. And consequently, the geing effects on helth expenditures lso will be significntly slowed down fter the pek of geing, insted of stright growth. In this sense, the regression pproches re likely to be more effective for short-term forecsts thn being ble to tke ccount of the dynmics tht the process of (Chin s) geing is typiclly ssocited with (Mhl & Bermn, 2001, p. 25).

15 15 4. Projection of Chin s Helth Expenditures to Min projection methodology The min methodology dopted by CIHI (2005) nd OECD (1988) ws pplied in this study, nmely, the previously mentioned eqution (1). In order to project Chin s helth expenditures, H () t, for ech yer to 2050, two vribles must be obtined: totl number of individuls in ge-groups for ech yer N ( t ), nd per cpit helth-spending by ge groups E. Since N ( t) hve been comprehensively presented by some interntionl reputed institutions, we bsiclly concentrted on the ddressing nd simulting of. Consequently, we developed severl simultion models of Chin s some empiricl evidences nd sttements from severl reputble orgniztions., which re bsed on 4.2 E bsed on empiricl evidences from developed countries As OECD stted in yer 1988, ge hs been widely considered s one of principl fctors determining the nture nd extent of n individul s demnd; nd helthcre expenditures of older persons re considerbly higher thn tht of the reminder of the popultion. (OECD, 1988, pp ) Actully, this sttement ws strongly supported by mny solid empiricl evidences throughout our world. As shown in Figures 4-1 nd Figure 4-2, the min tendency of per cpit helth expenditures in ech ge group were remrkbly similr, lthough these dt of per cpit helth expenditures were collected t vrious points of time during from different developed countries, where the economic conditions, helth systems nd socil cultures were substntilly diverse. Or in other words, the per cpit helth expenditures tended to rise shrply with the growth of ge in ll these countries.

16 16

17 17 Furthermore, since Chin's pttern of diseses nd deth hd become very much like tht of the industrilized world (World Bnk, 1992, p.1), we probbly cn expect tht Chin s my follow the similr tendency of widely ppered in developed countries. Therefore, we decided to dopt observed vlues of for Chin s. from selected developed countries s proxies Cndin studies provided the most comprehensive dt of per cpit helth spending by ge groups, especilly for the E dt mong infnt ge groups. Thus, the Cndin E ws finlly chosen s the proxy for Chin s. Moreover, we re trying to obtin the tendency of Chin s E by simulting Cndin E insted of nlyzing the rel helth spending consumed by ech Cndin ge group. We considered the Cndin dollrs consumed by ge groups s the mesurement units insted of rel currency. Then, the only difference between Cndin nd Chin s E is the units consumed by ech ge group. And the reltionship of Cndin nd Chin s cn be presented s the following mthemtic expression: (2) E, = E, * R Chin Cnd Cnd, Cnd Chin, Where is the Cndin per cpit helth spending by ge groups, is the Chin s per cpit helth spending by ge groups nd R Cnd is the constnt rtio between Chin s nd Cndin E in ech ge group. This R Cnd cn be interpreted s combintion of exchnge rte between Cndin currency nd Chinese currency, the different utiliztion rtes of helthcre services between Cndin nd Chinese citizens, Infltion rte nd so on. Furthermore, ccording to the min methodology of this study eqution (1), Chin s helth expenditures cn be expressed s the follows: (3) Ht () = E, N() t Chin Chin Chin

18 18 By inserting the eqution (2) into bove eqution (3), we obtined: (4) =, =, H() t E * R * N () t R E * N () t Chin Cnd Cnd Chin Cnd Cnd Chin In the ltter eqution, only R is unknown. Therefore, the R cn be obtined when Cnd the vlues of known vribles were inserted into this model. Cnd Notbly, in order to obtin specific vlues of Ht ( ) Chin nd N ( t) Chin, we further ssumed tht the chnges of Chin s historicl helth expenditures during cn be totlly explined by popultion developments nd keeping the impcts of other relted fctors constnt. Or in other words, no mtter which yer ws selected to provide dt of Ht () Chin nd N ( t), the results of re sme. Then we simply chose the middle yer of the historicl yers, nmely yer 2000 s the bse yer. We further dopted the historicl vlues of Ht ( ) Chin nd N ( t in yers 2000 s bse vlues to clculte the Chin s E. Chin R Cnd ) Chin Then the estimted vlue of Rˆcnd is for the yer The vlue of Chin s E ˆ R ˆcnd ws obtined by multiplying with Cndin E, confer Tble 4-1. Age group Cndin E in yer 2000(1997 Price) Tble 4-1. Estimted E bsed on Cndin E Chin's N(t), popultion by ge groups,millions (Yer 2000) Estimted Totl Helth- Spending by ech ge group (Billions) Estimted Chin's E bsed on Cndin E (Yun) < *R *R *R *R *R *R *R *R Totl Millions *R Chin's Rel Totl helth expenditures is billions Yun in 2000 (1 US Dollr=8.28 Yun) R= Sources: 1.CIHI, Chow, Helth Ministry of Chin, Chin Sttisticl YerBook U.S. Census Bureu, 2008

19 bsed on empiricl evidences from inside Chin Simultion model of bsed on the Incidences of Chronic Diseses According to the World Bnk, (Chin s) hert diseses, chronic obstructive lung disese, stroke, cncer, injuries nd suicide re the leding cuses of mortlity, ccounting for 72% of ll deths; these sme chronic diseses lredy ccount for the mjority of hospitl services nd helth cre costs (World Bnk, 1992, p. 12). In other words, the helth expenditures for chronic disese cn lrgely represent Chin s totl helth expenditures. If we further ssume tht the cost of ech chronic disese is equl cross ll ge groups, then the incidences of chronic disese in given ge group my be ble to represent the helth expenditures, nd lso explin the tendency of per cpit helth expenditures for this ge group. By following this ide, we developed new simultion model for, where the tendency of the incidences of chronic diseses presented by Ntionl Reserches on Helth Services, 2003 ws dopted s the new proxy for Chin s ctul. Since we re trying to ddress the tendency of by simulting the tendency of chronic diseses, insted of scertining rel chronic diseses suffered by ech ge group, we considered the incidences of chronic diseses suffered by ech ge group s mesurement unit insted of chronic diseses. Then we obtined following mthemtic eqution: (5) E, = I, * R Chin Chronic Chin Chronic, Chin I Chronic, Chin Where is the Chin s per cpit helth spending by ge groups, is the incidences of chronic diseses by ge groups, nd R Chronic is the constnt rtio between ctul nd the chronic diseses incidence in ll ge groups. Furthermore, ccording to the eqution (3) nd the new eqution (5), the helth expenditures cn be expressed s the following wy: (6) Ht () = I, * R * N() t Chin Chronic Chin Chronic Chin

20 20 In bove eqution (6), Ht ( ) Chin I Chronic, Chin nd N ( t) Chin re known vribles, nd only R Chronic is unknown. Therefore, the R Chronic cn be obtined, when the vlues of known vribles were introduced into the model. The estimted vlue of the yer Confer Tble 4-2 for clculted vlues of E. ˆ RˆChronic ws for Tble 4-2. Estimted E Bsed on Incidences of Chronic Diseses Chin s Chronic Chin's N (t), Estimted Totl Estimted Chin's E bsed Diseses Incidence in popultion by ge Helth-Spending by Age group on Incidences of Chronic two week ( )(Yer groups,millions (Yer ech ge group Diseses 2003) 2000) (Billions) *R *R *R *R *R *R *R *R Totl Millions *R Chin's Rel Totl helth expenditures is billions Yun in Yer 2000 R= Sources: 1.Helth Ministry of Chin, U.S. Census Bureu, Chin Sttisticl YerBook Simultion model of bsed on the Incidences of Diseses As mentioned bove, the World Bnk stted tht, chronic diseses lredy ccount for the mjority of hospitl services nd helth cre costs (World Bnk, 1992, p.12). Such sttement my underestimte the helth expenditures consumed by infnts, nd my ignore the helth expenditures on cute diseses. Therefore, in ttempt to represent the more comprehensive picture of Chin s helth expenditure, we dopted the dt of diseses incidence in Ntionl Reserch on Helth Services, 2003 s the new proxy of the further ssumed tht the cost of ech disese is equl cross ge groups. Then the new eqution of nd diseses incidence ws developed s the follows:. We (7) E, = I, * R Chin Diseses Chin Diseses

21 21 Where E, Chin is the Chin s per cpit helth spending by ge groups, IDiseses is the incidences of diseses in two week ( ) by ge groups, nd RDiseses is the constnt rtio between Chin s ctul nd diseses incidences in ll ge groups. Furthermore, ccording to the expression of Chin s helth expenditures eqution (3) nd the bove eqution (7), new reltionship between helth expenditures nd incidences of diseses by ge groups cn be expressed s the following eqution: (8) Ht () = I, * R * N() t Chin Diseses Chin Diseses Chin Similrly, in this eqution only R Diseses is unknown. Therefore, the R Diseses cn be obtined, when the vlues of known vribles were inserted into the model. The estimted vlue of of E. ˆ RˆDiseses ws for the yer Confer Tble 4-3 for the estimted vlues Age group Chin s Diseses Incidence in two week ( )(Yer 2003) Tble 4-3. Estimted E bsed on Incidences of Diseses Chin's N(t), popultion by ge groups,millions (Yer 2000) Estimted Totl Helth- Spending by ech ge group (Billions) Estimted Chin's E bsed on Incidences of Diseses (Yun) *R *R *R *R *R *R *R *R Totl Millions *R Chin's Rel Totl helth expenditures is billions Yun in Yer 2000 R= Sources: 1. Helth Ministry of Chin, U.S. Census Bureu, Chow, Models of E tested by historicl Totl Helth Expenditures By following the widely ppered tendency nd the uthorittive sttements from reputble interntionl orgniztions, we developed severl simultion models of. However, since

22 22 these tendency nd sttements ctully hve not been crefully tested by empiricl dt; nd the relibility of the simultion models of would significntly influence the relibility of whole projections of future helth expenditures, we decided to crefully check the ccurcies of these models by pplying the historicl dt of helth-expenditures from yer 1995 to Furthermore, s we ssumed tht the chnges of Chin s historicl helth expenditures during were exclusively determined by popultion developments nd keeping the impcts of other relted fctors constnt. Then in theory when the simulted pplied into ech historicl yer with the historicl N ( t ), the errors between estimted helth expenditures nd historicl helth expenditures should be firly smll, if the simulted is reltively ccurte. In other words, the errors between estimted nd historicl helth expenditures would be ble to reflect the ccurcies of these simultion models. ws By following this thought, the obtined simultion models of were tested by the historicl dt of helth expenditures from yer 1995 to 2005, only where the dt of Infltion index in helth sectors re vilble, which is the key dt for clculting Rel Totl helth expenditures nd Rel Out-of-pocket helth expenditures. Moreover, the errors between estimted helth expenditures nd historicl helth expenditures were mesured by two stndrdized instruments Averge Errors (Absolute Vlue) nd Averge Differences by percentge (Absolute Vlue). Then the detiled ccurcies of these simultion models were cptured s the follows:

23 The model bsed on Cndin tested by historicl totl helth spending The model bsed on incidences of Chronic Diseses tested by historicl totl helth spending

24 The model bsed on incidences of Diseses tested by historicl totl helth spending The outcomes of bove tests re suggesting tht, the simultion model of bsed on Cndin ppered better preferences in the context of Totl helth expenditures, since its vlues of Averge Errors (Absolute Vlue) nd Averge Differences by percentge (Absolute Vlue) re the smllest, only billions nd 6.78% correspondingly. Bsed on this empiricl finding, we my be ble to conclude tht Chin s per cpit totl helth expenditures in ech ge group probbly tended to follow the similr tendency of Cndin rther thn the tendencies of chronic diseses or diseses. In other words, Chin s not only significntly skewed into ge groups, but lso substntilly skewed to infnt ge groups s Cndin sitution. 4.5 Models of tested by historicl Out-of-pocket Helth Expenditures As developing country, Chin s government expenditures on helth sectors sometime were lrgely decided by the fiscl pressures nd politicl resons insted of the ctul medicl

25 25 needs. For instnce, in theory under the effects of the incresing GDP per cpit, rising popultion nd ongoing popultion geing, the higher totl helth expenditures should be demnded by Chinese people. But the historicl dt of helth spending ctully reveled n inverse fct tht, the rel totl helth-expenditures declined by some extents during despite incresing needs of helth services from Chinese citizens. In contrst, the out-of-pocket helth expenditures my be more sensitive with the rel needs of Chinese individuls, since the out-of-pocket helth expenditures were fully controlled by them bsed on their rel demnds of helth cres in spite of utiliztion rtes or politicl resons. Therefore, we lso employed the historicl dt of out-of-pocket helth expenditures s the new instrument to check the ccurcies of bove simultion models in the sme wy s checking these models by historicl totl helth expenditures. Then the detiled results re the follows: The model bsed on Cndin E tested by historicl out-of-pocket helth spending

26 The model bsed on incidences of Chronic Diseses tested by historicl outof-pocket helth spending The model bsed on incidences of Diseses tested by historicl out-of-pocket helth spending

27 27 According to the results of bove tests, the simultion model bsed on incidences of chronic diseses presented strong preferences in the context of Out-of-pocket helth expenditures. Its vlues of Averge Errors (Absolute Vlue) nd Averge Differences by percentge (Absolute Vlue) re remrkbly smll, only 6.33 billions nd 4.77% respectively. It suggested tht the trend of Chinese ctul ws more close to the trend of chronic diseses rther thn the trends of Cndin or incidences of diseses in the context of out-of-pocket helth expenditures. This finding probbly provided new empiricl evidence which justified the sttement of World Bnk tht, chronic diseses probbly hve ccounted the mjority of Chin s helth expenditures (World Bnk, 1992, p. 12) in the context of out-of-pocket helth expenditures. Moreover, due to this high proximity of chronic model nd the ctul, we my lso be ble to suggest tht Chinese out-of-pocket helth expenditures were lrgely spent on elderly individuls, but quite few on young individuls. 4.6 Projected Chin s helth expenditures to 2050 Since the model bsed on Cndin nd the simultion model of E bsed on the Incidences of Chronic Diseses (2003 Survey) hve demonstrted their preferences in the contexts of totl helth expenditures nd out-of-pocket helth expenditures ccordingly, we decided to project Chin s totl helth expenditures by the model bsed on Cndin, nd project the out-of-pocket helth expenditures by the model bsed on incidences of chronic diseses respectively. Besides the ggregte growths of helth expenditures, we lso estimted the potentil mrginl growths of helth expenditures cused by popultion geing the speed of geing effects on helth spending, since the mrginl growths will provide clerer picture of geing effects on helth expenditures t every step. By pplying the preferred simultions models into the projections ccordingly, the future helth spending ws clculted. Confer Tble 4-10 for the detiled projections.

28 28 Yer Projected Totl Helth expenditures,billi ons(1995 price) Tble Projected Chin's helth expenditures to 2050 Projected out-ofpocket Helth expenditures, Billions(1995 price) Mrginl Growth of Totl helth expenditures per five yers,billions Totl Growth of totl helth expenditures (%) (Bse Yer 2005) Mrginl Growth of Out-of-pocket helth expenditures per five yers,billions Totl Growth of out-of-pocket helth expenditures (%) (Bse Yer 2005) The previous Tble 4-10 nd Figure 4-9 presents full picture of Chin s future totl helth expenditures nd out-of-pocket helth expenditures. Or in other words, the geing effects will continully enhnce its impcts on totl helth expenditures nd come in full force during 2035s-2040s, with 32 billions Yun per five yers. Therefter, such effects will be grdully moderted. As whole, by 2050s the popultion geing will solely drive the Totl helth expenditure rise lmost twice s the totl helth expenditures in yer Menwhile, the Out-of-pocket helth expenditures will grow nerly twice s the helth expenditures in yer 2005 similrly. But notbly, the geing effects on Chin s out-of-pocket

29 29 helth expenditures will pper more erly nd significntly. Nmely, under the impcts of popultion geing, the mrginl growth of out-of-pocket helth spending will quickly increse nd rech to its mximum during 2015s t 23 billions Yun. After tht, the mrginl growth of out-of-pocket helth expenditures will be grdully moderted, nd nerly cesed in 2050s.

30 30 5. Sensitivity Anlysis 5.1 Will ge-specific per cpit helth spending remin constnt? According to some empiricl evidences nd lessons from developed countries, for instnce, the Cndin evidences from 1997 to 2002 Figure 5-1, the Cndin per cpit helth spending in ll ge groups substntilly incresed during In other words, the ssumption of per cpit helth spending within given ge group will remin constnt over the projection period, probbly will underestimte the future Cndin helthexpenditures. However, since the Cndin helth system significntly vries from Chin s helth system, it is uncertin whether Chin s per cpit helth spending in ech ge group will increse correspondingly. Since no relted dt is vilble to reflect such trend in Chin currently, we dopted the reltively conservtive pproch s CIHI, ssumed tht per cpit helth spending within given ge group will remin constnt over the projection period. (CIHI, 2005, p.1)

31 31 Nevertheless, we lso cn not exclude the probbility tht Chin s per cpit helth spending in ech ge groups my increse substntilly with yers s Cndin. Especilly, under the context of continully drmtic growths of Chin s economy, Chinese citizens probble will enjoy higher GDP per cpit, higher helth insurnce coverge, nd higher government investments on helth sectors in future. Consequently Chinese people probbly will consume higher per cpit helth expenditures in ech ge group even under the sme popultion geing trnsition. In this sense, our current projection which only concentrted on pure geing effects, probbly underestimted the future helth-expenditures. 5.2 Choices of bse yer In our current study, besides the ssumption tht the will keep constnt in the whole studied period, we lso ssumed tht the chnges of historicl helth expenditures during were exclusively determined by popultion development nd disregrded the impcts of other relted fctors. Then in theory no mtter which yer ws selected to provide historicl helth expenditures for extrcting Chin s, the different choice will not rise ny differences for nd further projections. Under these ssumptions, we simply chose the middle yer of the historicl yers, nmely yer 2000 s the bse yer. And we further dopted the historicl vlues of N () t Chin in yers 2000 s bse vlues to clculte the E. Ht ( ) Chin nd However, in relity the choice of bse yer my substntilly influence the results of nd further ffect the results of finl projections, since the impcts of other relted fctors on historicl helth expenditures my not keep reltively constnt s we ssumed. For instnce, the chnging government s helth policies, brekouts of epidemics, chnging life styles, nd even some rndom errors in the process of the dt gthering, my substntilly ffected helth expenditures besides popultion development. Therefore, no mtter which yer ws chosen s bse yer, we cn not exclude the probbility tht the chnges of historicl helth expenditures were not influenced by the effects of other fctors besides popultion development. We lso should dmit tht the different choices of bse yer my substntilly shpe different results of nd finl projections.

32 Relibility of projected popultion developments Under our current methodology, two key dt re required for the projections of Chin s helth expenditures, nmely, projected popultions in ech ge group for ech yer to 2050, nd the per cpit helth expenditures by ech ge group. Fortuntely, severl interntionl orgniztions lredy presented the projections of Chin s popultions in ech ge group to 2050 with very high uthorities. The projected popultions offered by Americn Census Bureu is the most comprehensive mong these projections, providing the most detiled projection of Chin s popultion in ech yer. Therefore, we pplied the popultion projections provided by Americn Census Bureu for the projections of helth expenditures in this study. However, since the relibility of projected popultions will lrgely influence the relibility of whole projections of helth expenditures, we decided to pply the projected dt from the Popultion Division of United Ntions to check the relibility of U.S. projections. Confer figure 5-2 for the detiled results of this comprison. According to the results of our estimtes, the differences between UN projections nd US projections seemed unsystemtic nd insignificnt. These slight differences my be cused

33 33 by the different methodologies nd dt sources used to project Chin s popultion. Therefore, the decision of pplying US dt for the projections of Chin s helth expenditures probbly will not rise significnt errors for our projections.

34 34 6. Conclusions 6.1 Remrkbly similr tendencies of E in developed countries Bsed on our nlysis on the dt of per cpit helth expenditures in United Sttes, Cnd, The Netherlnds, nd Austrli, we discovered tht the min trends of per cpit helth expenditures in these mjor developed countries were remrkbly similr, lthough these dt were collected t vrious points of time during from different developed countries, where the economic conditions, helth systems nd cultures were substntilly diverse. Therefore, we my be ble to suggest tht the min tendency of per cpit helth expenditures tended to be only sensitive with ge, nd reltively insensitive with time, socil chrcteristics or economic conditions in developed countries. 6.2 High proximity of the model of E bsed on chronic diseses When our predicted out-of-pocket helth expenditures were compred with the historicl dt, the helth expenditures predicted by the model bsed on chronic diseses ppered strong proximity with historicl helth dt. Its error is only 6.33 billions in term of bsolute vlue; nd % of historicl out-of-pocket helth expenditures were explined by this model on verge. Therefore, there is one certin fct we cn conclude tht, the simultion model bsed on incidences of chronic diseses indeed outstndingly explined Chin s historicl out-ofpocket helth expenditures during , lthough we cn not completely exclude the probbility tht this high degree of proximity my lso be cused by other relted fctors simultneously. Furthermore, bsed on such high degree of proximity, we probbly cn suggest tht the Chin s out-of-pocket helth expenditure were lrgely spent on the tretments of chronic

35 35 diseses; nd the elderly ge groups consumed much more out-of-pocket helth expenditures thn the younger ge groups. 6.3 Projected helth expenditures As we demonstrted in chpter 4, the popultion geing will influence Chin s totl nd outof-pocket helth expenditures diversely, since their tended to follow two different models, nmely, Cndin model nd chronic-diseses model respectively. Consequently, the totl nd out-of-pocket helth expenditures ctully will present two substntilly different pictures of future tends even under sme demogrphic trnsition. For the totl helth expenditures, its mrginl growth will continully increses nd rech its pek during 2035s-2040s, with 32 billion Yun per five yers. Therefter, such growth will be grdully moderted. As whole, by 2050s Chin s totl helth expenditures will rise nerly twice s their figures in yer 2005 under the geing effects. Menwhile, under sme impcts of popultion geing, the Out-of-pocket helth expenditures will grow nerly twice s the helth expenditures in yer 2005 similrly. But notbly, the geing effects on out-of-pocket helth expenditures will pper erlier nd more significntly. The mrginl growths of out-of-pocket helth spending will shrply increse in coming yers nd rech its pek during 2015s with 23 billions Yun per five yers. After tht, geing effects on out-of-pocket helth expenditures will be grdully moderted, nd nerly cesed in 2050s.

36 36 References CIHI (2005): Provincil nd Territoril Government Helth Expenditure by Age Group, Sex nd Mjor Ctegory: Recent nd Future Growth Rtes. CIHI Report, Cndin Institute for Helth Informtion, My 2005, Ottw. Chow, Gregory C. (2006): An Economic Anlysis of Helth Cre in Chin, Working Pper No. 132, August 2006, Centre for Economic Policy Studies, Princeton University, Princeton. Cutler, Dvid & Sheiner, Louise (1998): Demogrphics nd medicl cre spending, stndrd nd non-stndrd effects, Working Pper # NO.6866, December 1998, Ntionl Bureu of Economic Reserch, Cmbridge. Helth Ministry of Chin (2007): Chin Helth Sttistics Yer Book 2007, Helth Ministry of Chin, Beijing. Hsio, Willim, C, L (1995): The Chinese helth cre system, Lessons for other ntions, Socil Science & Medicine, 41, Jckson, Richrd & Howe, Neil (2004): The greying of the middle kingdom, The Demogrphics nd Economics of Retirement Policy in Chin, CSIS Report, April 2004, Centre for Strtegic & Interntionl Studies, Wshington. Keehn, Sen P, Lzenby, Helen C, Zezz, Mrk A & Ctlin, Aron C. (2004): Age Estimtes in the Ntionl Helth Accounts, Helth Cre Finncing Review Volume 1, Number 1. Liu, Yunli (2002): Reforming Chin s urbn helth insurnce system, Helth Policy, 60, Mhl, Ajy & Bermn, Peter (2001): Helth Expenditures nd the Elderly: A Survey of Issues in Forecsting, Methods Used, nd Relevnce for Developing Countries, Reserch pper, December 2001, Hrvrd Burden of Disese Unit, Cmbridge. Mcloughlin, Cven (2005): The Coming-Of-Age of Chin s single-child policy, Psychology in the Schools, 42, Ntionl Bureu of Sttistics of Chin (2007): Chin Sttisticl Yer Book , 2007, Ntionl Bureu of Sttistics of Chin, Beijing. Ntionl Reserch on Helth Services (2004): Min Results of the third Ntionl Reserch on Helth Services, Government Report, December 2004, Helth Ministry of Chin, Beijing. ( OECD (1988): Ageing Popultions, The socil policy implictions, OECD Report, 1988, Orgniztion for Economic Co-opertion nd Development, Pris.

37 37 Socil Welfre Policy Secretrit (1984): The Impct of Popultion Chnges on Socil Expenditure: Projection From to 2021, Government Report, 1984, Socil Welfre Policy Secretrit, Cnberr. Socil nd Culturl Plnning Office (1984): Collectieve uitgven en demogrfische ontwikkeling, , Socil nd Culturl Report, 1984, Socil Culturl Plnning Office, Den Hg United Ntions (2006): World Popultion Prospects: The 2006 Revision, Popultion Division of the Deprtment of Economic nd Socil Affirs of the United Ntions Secretrit, New York, (Accessed, Februry 01, 2008). U.S. Census Bureu (2008): Interntionl Dt Bse, U.S. Census Bureu, Wshington, (Accessed, Februry 16, 2008). World Bnk (1992): Chin, Long-term issues nd Options in the Helth Trnsition, World Bnk Report, October 1992, World Bnk, Wshington. Wong, Brin A. & Gbriel, Stynnd J. (1998): The Influence of Economic Liberliztion on Urbn Helth Cre Access in the People's Republic of Chin, Reserch Pper, Mount Holyoke College, South Hdley.

38 38 Appendix A: The originl dt of the figures in this study Tble A-1. The originl dt of Figure 4-1 Tble A-1.1. Per cpit Helth expenditure by ge group: United Sttes,1999(U.S. Dollrs) Age group Helth Cre 1,646 2,706 3,713 5,590 8,167 12,244 20,001 Source: Keehn et l, 2004 Tble A-1.2. Per cpit Helth expenditure by ge group: Netherlnds,1981(Guilders) Age group Helth Cre Source: Socil nd Culturl Plnning Office, 1984 Tble A-2. The originl dt of Figure 4-2 Tble A-2.1. Totl Helth Expenditure nd Popultion by Age Group, Both Sexes, Cnd, Constnt Dollrs, (in 1997$ per cpit) Age group < Helth cre Source: CIHI, 2005 Tble A-2.2. Per cpit socil expenditure by ge group: Austrli, (Dollrs) Age group Helth Cre Source: Socil Welfre Policy Secretrit,1984

39 39 Appendix B: The relted dt in the ccurcy tests of E Tble B-1. The dt relted with tested by historicl totl helth expenditures Tble B-1.1. E bsed on Cndin E tested by historicl totl helth expenditures, Billions Yer Predicted Totl helth spending Historicl Totl helth spending Errors(Billions) Differences between Predicted nd Historicl helth spending(%) Averge Errors Averge Errors (Absolute Vlue) Averge Differences by percentge (Absolute Vlue) 6.78 Tble B-1.2. E bsed on chronic diseses tested by historicl totl helth expenditures, Billions Yer Predicted Totl helth spending Historicl Totl helth spending Errors(Billions) Differences between Predicted nd Historicl helth spending(%) Averge Errors Averge Errors (Absolute Vlue) Averge Differences by percentge (Absolute Vlue) 7.21

40 40 Tble B-1.3. E bsed on incidences of diseses tested by historicl totl helth expenditures, Billions Yer Predicted Totl helth spending Historicl Totl helth spending Errors(Billions) Differences between Predicted nd Historicl helth spending(%) Averge Errors Averge Errors (Absolute Vlue) Averge Differences by percentge (Absolute Vlue) 7.11 Tble B-2. The dt relted with tested by historicl Out-of-pocket helth expenditures Tble B-2.1. E bsed on Cndin E tested by historicl Out-of-pocket helth expenditures, Billions Yer Predicted Outof-pocket helth spending Historicl Out-of-pocket helth spending Errors(Billions) Differences between Predicted nd Historicl helth spending(%) Averge Errors 0.68 Averge Errors (Absolute Vlue) 8.76 Averge Differences by percentge (Absolute Vlue) 6.68