Drivers of Health Spending Growth and the Sustainability of Three Major Social Health Insurance Programs in the Long Run Junqiang LIU, Professor SYSU

Combined coverage

Growth Trend of THE

If this trend holds THE is predicted to reach:  RMB billion in 2020,  RMB billion in 2030,  RMB billion in 2040.

Sustainability ŒLooking back: health cost growth in the past three decades. Look beyond: what will happen to BHIE, BHIR and NCMS? ŽPolicy options: How effective are they?

1. Dynamics of health cost growth Decomposition method P t+1 * Q t+1 – P t * Q t = (P t+1 * Q t+1 – P t+1 * Q t ) + (P t+1 * Q t – P t * Q t ) = P t+1 * (Q t+1 – Q t ) + (P t+1 – P t ) * Q t = P t+1 * ΔQ + ΔP * Q t

Measurements Scope of research: Chinese hospitals Price: the average cost of inpatient and outpatient services as their prices. Utilization: the number of outpatient services provided by hospitals divided by population. We adjust the inflation using the consumer price index, and all amounts are presented in 2012 RMB.

Proportion of medical spending paid to hospitals in THE

Inpatient services

Outpatient services

Average utilization levels

Explanations 1. health insurance coverage (1) rural areas (2) urban areas 2. health reform: (1) financial incentives (2) government contribution to hospitals (3) compensation method

Proportion of uninsured people, % Year UrbanRuralOverall Source: Center for Health Statistics and Information of Ministry of Health, 2004, 2010.

Structure of hospital revenues

Composition of outpatient service spending

2. Why Actuarial Projection? 1. Simulating & estimating the cash flow of basic health insurance fund in the future and proving warning for the health insurance fund. 2. If the health insurance fund will incur surpluses in the future, the government can adjust the policies in advance and estimate the impact of each policy. 3. Doing actuarial projection can ensure the solvency of health insurance fund and improve the sustainability of health insurance system.

Actuarial Hypothesis 1. The starting age for participating in BHIE, BHIR and NCMS are set at 20, 0 and 0 respectively. The maximum age for all three programs is set at The retirement ages are set at 60 for males and 55 for females. 3. The administration cost of the three programs is covered by governmental budget. 4. We assume that BHIE has a block model design, which means that the medical savings accounts (MSAs) cover outpatient costs and social pooling funds cover inpatient costs. In this study, we only analyze the social pooling funds of BHIE. Similarly, we only consider the social pooling funds of BHIR and NCMS. 5. The reimbursement rates of the three programs are assumed to be constant at current levels. 6. Models cover a period that starts in 2013 and ends in 2060.

Actuarial Models 1. The revenue-expenditure forecasting model (1) That for BHIE (2) That for BHIR (3) That for NCMS It is similar to that of BHIR

Actuarial Models 2. Models for accumulated surpluses/deficits (1) If the accumulated surpluses is positive (2) If there is no accumulated surpluses

Calculation of related parameters 1. Covered people in each insurance program 2. Premium rate 3. The growth rate of wage per captia 4. The growth rate of inpatient medical expenditure in each insurance program

Covered people Method: cohort component method

Covered people-continued

Premium rate 1. BHIE: premium rate is 6.74% (real premium rate). 60% of the total premiums is going into the social pooling fund. 2. BHIR: premium is 322 RMB per captia in It will increase 45 RMB per year. 3. NCMS: premium is 308 RMB per captia in It will increase 50 RMB per year.

The growth rate of wage per captia : 8% : 7% : 6% : 5% : 4%

The growth rate of inpatient medical expenditure Method: “growth factor” method developed by Mayhew (2000)

Financial status of BHIE YearRevenueExpenditure Current-year surplus Accumulated surplus

Financial status of BHIR YearRevenueExpenditure Current-year surplus Accumulated surplus

Financial status of NCMS YearRevenueExpenditure Current-year surplus Accumulated surplus

Policy options 1. Postponing retirement age 2. The integration of MSAs and pooling fund 3. Adjusting contribution policy (including retirees as contributors to BHIE and increasing premium rate) 4. Abolishing the one-child policy 5. Extending coverage of BHIE, BHIR and NCMS 6. Adjusting interest rate policy

Postponing the retirement age

Proposal First year with negative cash flow First year with deficits and amounts (RMB billion) Implications Delay (years) of negative cash flow Delay (years) of deficit occurrence Reduced deficits (RMB billion) and percentage changes in 2060 Scenario (151746) (-8.38%) Scenario (137171) (-17.18%) Scenario (123078) (-25.69%)

The integration of MSAs and pooling fund Proposal First year with negative cash flow First year with deficits and amounts (RMB billion) Implications Delay (years) of negative cash flow Delay (years) of deficit occurrence Reduced deficits (RMB billion) and percentage changes in 2060 Combining MSAs and social pooling fund (163187) (-1.47%)

Including retirees as contributors to BHIE Proposal First year with negative cash flow First year with deficits and amounts (RMB billion) Implications Delay (years) of negative cash flow Reduced deficits (RMB billion) and percentage changes in 2060 Retirees: 1% (155514) (-6.10%) Retirees: 2% (145402) (-12.21%) Retirees: 3% (135284) (-18.32%) Retirees: 4% (125159) (-24.43%) Retirees: 5% (115026) (-30.55%) Retirees: 6% (104882) (-36.67%) Retirees: 6.74% (97368) (-41.21%) Retirees and working enrollees: 9.3% (-229) ( %)

Increasing premium rate-BHIE Proposal First year with negative cash flow First year with deficits and amounts (RMB billion) Implications Delay (years) of negative cash flow Reduced deficits (RMB billion) and percentage changes in 2060 Increase: 1% (138404) (-16.43%) Increase: 2% (111035) (-32.96%) Increase: 3% (83435) (-49.62%) Increase: 4% (55522) (-66.48%) Increase: 5% (27208) (-83.57%) Increase: 5.95% (-195) ( %)

Increasing premium rate-BHIR Proposal First year with negative cash flow First year with deficits and amounts (RMB billion) Implications Delay (years) of negative cash flow Reduced deficits (RMB billion) and percentage changes in 2060 Increase by RMB 10 per year (7278) (-19.29%) Increase by RMB 20 per year (5523) (-38.76%) Increase by RMB 30 per year (3747) (-58.45%) Increase by RMB 40 per year (1942) (-78.47%) Increase by RMB 50 per year (100) (-98.89%) Increase by RMB 51 per year (-87) ( %)

Increasing premium rate-NCMS Proposal First year with negative cash flow First year with deficits and amounts (RMB billion) Implications Delay (years) of negative cash flow Reduced deficits (RMB billion) and percentage changes in 2060 Increase by RMB 10 per year (34570) (-15.87%) Increase by RMB 20 per year (27997) (-31.87%) Increase by RMB 30 per year (21352) (-48.04%) Increase by RMB 40 per year (14613) (-64.44%) Increase by RMB 50 per year (7759) (-81.12%) Increase by RMB 60 per year (761) ） (-98.15%) Increase by RMB 62 per year (-657) ( %)

Abolishing the one-child policy Program First year with negati ve cash flow First year with deficits and amounts (RMB billion) Implications Delay (years) of negative cash flow Reduced deficits (RMB billion) and percentage changes in 2060 BHIE (150800) (-8.95%) BHIR (82066) (-8.99%) NCMS (426275) (3.74%)

Extending coverage of BHIE, BHIR and NCMS Program First year with negative cash flow First year with deficits and amounts (RMB billion) Implications Delay (years) of negative cash flow Reduced deficits (RMB billion) and percentage changes in 2060 BHIE (166298) (0.41%) BHIR (7853) (-12.91%) NCMS (43317) (5.41%)

Adjusting interest rate policy Program First year with negativ e cash flow First year with deficits and amounts (RMB billion) Implications Delay (years) of negative cash flow Reduced deficits (RMB billion) and percentage changes in 2060 BHIE (165278) (-0.21%) BHIR (8922) (-1.06%) NCMS (41011) (-0.20%)