Spring 2014

Correcting Past Health Policy Mistakes

William C. Hsiao

China's health policy in the 1980s followed its economic policy of marketization. China shifted health financing from public to private and commercialized the country's public health services. Unwittingly, the Chinese government did not grasp the serious market failures in health care, which resulted in a profit-driven public health service in which patients pay directly for services. China's health policy created three major unintended consequences: disparity between rural and urban residents, poor quality of health care, and rapid inflation in health expenditures. Since 2003, China has tried to correct its policy mistakes through public financing and by establishing social health insurance. However, strong profit motives have become embedded within the culture of medical professionals and have eroded the professional ethics that prioritize medical practices for patients' benefits. Restoring medical ethics is a formidable challenge. This paper analyzes the transformation of the Chinese health system and its ongoing challenges.

WILLIAM C. HSIAO is the K. T. Li Professor of Economics at the Harvard School of Public Health. He currently serves as an advisor to the Chinese State Council on health sector reform. Hsiao has published more than 180 papers on health systems and health care financing. His books include Getting Health Reform Right (with Marc Roberts, Peter Berman, and Michael Reich, 2003), Social Insurance for Developing Nations (with R. Paul Shaw, 2007), and What Macroeconomists Should Know about Health Care Policy (with Peter S. Heller, 2007).

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