*Article* **Income-Related Inequality in Health Care Utilization and Out-of-Pocket Payments in China: Evidence from a Longitudinal Household Survey from 2000 to 2015**

**Miaoqing Yang 1,\* and Guido Erreygers 2,3**


**Abstract:** In recent decades, China has experienced rapid economic growth and rising health inequality. The government has introduced a nationwide health care reform aimed at achieving affordable and equitable basic health care for all. This paper investigates income-related inequality in health care utilization and out-of-pocket (OOP) payments and explores the underlying factors that drive the inequalities. Using data running from 2000 to 2015 and covering nine of thirty-one provinces in China, we calculate indices to measure income-related inequality and adopt a regression-based decomposition approach to explore the sources of inequality. We find pro-rich inequality in the use of preventive care and pro-poor inequality in the use of folk doctors. In addition, the better-off have preferential access to higher level hospitals, while the use of primary care facilities is more concentrated among the poor. The poor are also found to face a heavier financial burden since they tend to spend a larger share of their income on OOP payments. Education, employment and geographic regions all appear to contribute to the total inequality. Our results indicate that affordability remains a common barrier for the poor to access health care, and that the inequality is largely driven by socio-economic factors.

**Keywords:** income-related inequality of health; health care utilization; out-of-pocket payments; decomposition analysis; China

#### **1. Introduction**

Many low- and middle-income countries are seeking ways to pursue the goal of equity in health care utilization. The Chinese experience is important to understand how health care inequality changed during the course of a transition from a command to a market economy. China's market-oriented reforms in the late 1970s brought higher efficiency in the economy and dramatically increased household income; however, they also led to health inequalities due to market failures in health sectors and the removal of social health insurance as a safety net. Health care financing relied heavily on out-of-pocket (OOP) payments, and the poor usually had limited access to necessary health services (Gong and Brixi 2005). Both demand-side subsidies and supply-side infrastructure investments disproportionately served the better-off (Wagstaff et al. 2009), leading to a widening gap in health status and utilization across income groups (Liu et al. 1999; Gao et al. 2002; Zhang and Kanbur 2005; Tang et al. 2008; Wagstaff 2009a). Along with aging and disease transitions from infectious to chronic conditions, the poor were far more vulnerable to the financial and physical consequences of illness.

In response to increasing pressure for equitable access to quality care, from the end of the 1990s onwards the Chinese government introduced a series of health care reforms that

**Citation:** Yang, Miaoqing, and Guido Erreygers. 2022. Income-Related Inequality in Health Care Utilization and Out-of-Pocket Payments in China: Evidence from a Longitudinal Household Survey from 2000 to 2015. *Economies* 10: 321. https://doi.org/ 10.3390/economies10120321

Academic Editors: Ralf Fendel, Robert Czudaj and Sajid Anwar

Received: 25 October 2022 Accepted: 6 December 2022 Published: 13 December 2022

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incorporated a number of pro-poor measures. Since the effects of these health care reforms differ across income groups, it is important to examine the pre- and post-reform changes in the distribution of health care utilization and medical expenditure and to estimate the contributions of various factors to the observed inequality. An increasing body of studies in recent years attempted to compare the income-related inequality in terms of the use of outpatient and inpatient care (Wang et al. 2012; Xie 2011; Zhang et al. 2015; Zhou et al. 2011; Chen et al. 2015), preventive care (Yang 2013), maternal health services (Li et al. 2015; Shen et al. 2014) and treatment of major chronic conditions (Elwell-Sutton et al. 2013; Xie et al. 2014). Previous evidence showed that the health care reforms were characterised by an overall improvement in insurance coverage, but the rich still seemed to have better access to health care compared to the poor. The impact of health insurance on financial protection appeared to be limited, and in some cases there was even a widening of social disparities in health care access among the insured.

While previous studies have provided important insights into the socio-economic differentials in health care access, most of them focus on either earlier periods of the health care reforms or a limited number of geographic regions, so that we still know little about the longer term trends for the total population following the reforms. In this paper, we use a recent dataset over a 15-year period from 2000 to 2015 to capture the long-term impact of policy changes. The data also cover nine provinces that spread across the eastern, middle and western areas of China, and therefore provide a much broader picture of health care inequality. We assess the evolution of health care inequality and its determinants during the period of rapid economic development and the implementation of the nationwide health care reforms. By examining how types of health services and choice of facilities differ among people with different income levels, we explore both financial and non-financial access barriers related to insurance coverage and quality of care. We calculate both rankand level-dependent indices to measure income-related inequality and to obtain robust results (Erreygers and Kessels 2017). We also adopt a direct regression-based decomposition of inequality indices to explore the sources of inequality, taking into account the correlation of health and income (Kessels and Erreygers 2019). Our empirical findings could feed back into the policy making process in China and other developing countries to move towards an efficient and equitable health care system.

#### **2. Background**

The Chinese government launched three main social health schemes to achieve universal coverage: the Urban Employee Basic Medical Insurance (UEBMI) for the urban employees and retirees, the New Cooperative Medical Scheme (NCMS) for the rural residents and the Urban Resident Basic Medical Insurance (URBMI) for the unemployed urban population (including students and children). Initiated in 1998, UEBMI is a compulsory scheme based on employment, but it only provides coverage to formal-sector workers in urban areas and leaves the majority of the population uninsured. During the 2000s, two new voluntary insurance schemes were introduced, both of which were heavily subsidised by the central and local governments. The NCMS was launched in 2003 and expanded rapidly from 13 to 97.5% of the rural population of about 800 million between 2003 and 2008 (Yang and Wu 2017). The URBMI targeted 420 million urban residents who were not covered by the UEBMI (e.g., the elderly, students, children and the unemployed) and was first implemented in 79 pilot cities in 2007 (Dong 2009). It was then extended to other cities and covered about 49% of urban residents in 2015 (Si 2021). Universal coverage was nearly achieved under these three schemes by the end of 2015, but the reimbursement and types of services covered remained limited. The benefit packages varied geographically, but a typical package covered inpatient services and catastrophic outpatient services. Beneficiaries needed to bear most of their outpatient expenses and about half of their inpatient costs. The average reimbursement rates for inpatient care ranged from 65–68% for the UEBMI, 44–48% for the URBMI and 38–44% for the NCMS, considering the deductibles, co-payments and reimbursement cap (Yip et al. 2012). Over time, the government aimed

to gradually extend insurance coverage to more types of care and to reduce co-payments. The central government also assisted local governments in relatively poor regions of western and middle provinces, while the funding of insurance premiums fell solely on local governments in eastern provinces.

With effective risk-sharing at the community/city level, the insurance schemes have the potential to offer better protection for individuals from low- and middle-income backgrounds. In addition, the insurance reimbursement varies with the level and type of health facilities, with much more generous reimbursement rates for low-level facilities. The various reimbursement rate schedules provide incentives for people to seek care from primary care facilities and purchase generic drugs in order to contain overall medical costs. However, due to inadequate resources and insufficient medical training, primary care facilities tend to provide low quality care and are more likely to misdiagnose or inappropriately treat their patients (Sylvia et al. 2014; Li et al. 2017a; Sylvia et al. 2017; Wong et al. 2017). During the past decades, they mainly catered for economically disadvantaged patients, who are highly price-elastic and tend to compromise on quality. In absence of a strict referral or gatekeeping health care system, wealthy patients would rather bypass primary care and seek care at high-level hospitals even for minor conditions (Babiarz et al. 2010; Sylvia et al. 2017). To strengthen the primary care system, recent reforms increased government funding for community health centres in cities and township health centres and village clinics in rural areas. A number of measures, such as imposing strict licensing requirements and promoting regular in-service medical trainings, were implemented to update the clinicians' professional knowledge and skills that are essential to the provision of appropriate patient care (Yi et al. 2020). These measures encourage people to switch from hospitals to primary care facilities and aim to benefit more low-income households. Therefore, both the demandand supply-side measures have the potential to improve the general population's access to health care and to reduce socio-economic disparities in health and health care.
