TOTAL HEALTH EXPENDITURES IN CHINA
A Time-series System Analysis and Evaluation
1978-1995

Du Lexun Zhao Yuxin
Harbin Medical University
Health Economic Institute, MoPH, China

This is an article of the series research reports of the Total Health Expenditure Group, which belongs to China Network for Training and Research in Health Economics and Financing.

Abstract

A time-series system analysis and evaluation of total health expenditures in China (1978-1995) is presented in this paper .The determinants and related factors of total health expenditure (THE) of China were systematic examined with some econometric analysis models from demander party and provider party. Their behaviors and cost ideas were discussed .

Keywords:

Total health expenditure (THE);The ratio between THE and GDP; Income elasticity ; Behaviors of financiers, providers and consumers.

Introduction

This paper is a time-series system analysis and evaluation of total health expenditures of China in 1978-1995. Some economestic models were screened. The results indicate that,per head GDP contribute to the explanation of the THE variation in time-series data in China. In addition to GDP, there are some factors which exerts some influence on the time-series data of THE of China.

The Data Source and Analysis Methodology

The data were got from the research report on national total health expenditures (NTHE) of China (1990-1995) ,issued by Health Economic Institute of MoPH of China ,and from the another time-series (1978-1995) research report on NTHE of China with fund flow method .The time-series data of GDP,THE and other funding or spending were deflated by GDP deflators which were calculated by authors based to the data got from China, State Statistical Bureau 1997,P.9-11. It is referred to the method used by the authors of “China 2020 Series: Financing Health Care “ ,edited by World Bank. The economestic models were screened with a micro time-series program (TSP) for economestic analysis.

Results and Analysis

1 Consumption Index of THE

The ratio between THE and GDP is called as the Engels index of health service spending . A famous health economist ,Newhouse (1977) found that, GDP per head accounted for around 90 percent of variation in health care spending per head across the OECD countries , He also found that ,the income elasticity of health care spending is generally slightly greater than unity: if GDP per head in one country is 1 percent higher than in another country, then health care spending per head is likely to be slightly more than 1 percent higher. This suggests that ,the richer a society is , the greater is the share of health care spending in total domestic spending .

Now, we reexamined this research results with the time-series data of THE in my country , and compared our study results with the OECD countries . We found that , the conclusion drawn by Newhouse in 1977 , is suited to my domestic condition . So , we consider that , the ratio between THE and GDP is the most comprehensive indicator to evaluate and measure the coordination development of health sector in the whole economy. But , it is seldom to develop with same speed between the health sector and whole economy . It is usually to develop with different speed between the health sector and whole economy. So , it is necessary to not only evaluate and measure the suitability and rationality of the ratio between the THE and GDP , but also to evaluate and measure the trends of change for evaluate and measure the coordination development of health sector in the whole economy. Thus , it is necessary to design a derivative indicator, the income elasticity of health consumption, which measures the ratio between the increment speed of THE and the increment speed of GDP . For example , when the increment rate of GDP were 1%, and the increment rate of THE were 1% too, then we would say , the ratio between the two increment speeds above mentioned indicators is equal to unity . That is to say, the health sector and the whole economy would be developed with same speed. (It isn’t surely that the health sector and the whole economy developed with same speed is the most suitable ratio of speeds.)

According to the real situation of health development in countries all over the world , it is suitable and rational that the ratio between two increment speeds above mentioned indicators is slightly more than one . That is to say, the health development is usually rapid slightly than the whole economy. What degree the increment speed of health sector faster than the whole economy ? It is necessary to study the behaviors of two party of health market , demander party and provider party. In demander party, there are behaviors of governments, enterprises , and consumers; in provider party, there are behaviors of owners , health providers , and health manpower. Above mentioned ideas are the analysis framework of this paper. Let us see the time-series of the above mentioned indicators (Table 1)

The regression equation is :

THE = -17.01+0.0426GDP

1. 67) (0.002)

R²= 0.98; DW=0.6; F=632.5891

The log-linear regression equation is :

log(THE)=-4.77+1.18 log(GDP)

1. (0.043)

R²=0.98; DW=0.62; f=755.1632

Table 1 CHINA:A Time-Series Data of THE and GDP

(1995 constant prices) Unit: Yuan per Head; %

It is found from above mentioned analysis that , there are some unexplained factor besides the corelation between GDP and THE . So, we must go a step further to analysis the behaviors of related economic man . Even so , it is still shown that , in 1978-1995 , the coefficient of income elasticity of THE on GDP in China is 1.18 . That is to say, in recent eighteen years, when the GDP were increased by 1% , then the THE would be increased by 1.18 % . Comparing China with OECD countries , it is found that , the coefficient of income elasticity of THE on GDP in China is the smallest .Even though the average increment speed of THE in China is 9.37% , but the average increment speed of GDP in China is 7.9% . Even though the average increment speed of THE in USA is only 4.4% , but the average increment speed of GDP in USA is only 2.2% . Thus we would like to say , it is necessary to improve the status of health sector in China . ( Table 2) .

Table 2 THE of China, Percentage of GDP, GDP Elasticity, Time trend

of THE in China ; Compared with OECD Countries

Source : OECD (1993)

2. The Behaviors Analysis of Demander Party

As mentioned above, there are three economic men in charge of : The government; enterprises (including the agencies or institution to be run by the government ) ; consumers .

There are two indicators to be selected to reflect the behaviors of government: The percentage of government allocations of public health facilities (GAPHF) in total health expenditure (THE) ; The percentage of government revenue (GR) in GDP.

The percentage of GAPHF in THE is an indicator which could evaluate the duties undertaken by government for the health development. How much duties undertaken by current government? 220 billions yuan were spending in one year for the health of the people all over the country. How much money are there to be spent by the government? There are two social functions of GAPHF: 1 To pay the public health services which the privates aren’t willing to pay; 2 To contain the overflow of THE. One is that the government sets prices for the health services; Another is that the government allocates public hospitals with some subsidy to wipe out their deficits . If the subsidy of public hospital were decreased , the charging level of the public hospital would be even difficult to contain.

The percentage of GAPHF in THE were decreasing sharply in 1978-1995, from 19.75% in 1978,18.51% in 1985,and 10.70% in 1990, to only 7.23% in 1995. What is the influence of the percentage of GAPHF in THE which exerts on the increase speed of THE? The model of econometrics screened by our research indicates that, in 1978-1995, when the percentage of GAPHF in THE were decreased 1% , the would be increased 0.58% . according to the data of 1995, 1% of GAPHF were 0.16 billions yuan; 0.58% of THE were 1.3 billions yuan. That is to say , if you would like to save GAPHF about 0.16 billions yuan, then you would spend more than 1.3 billions yuan of THE further.

The percentage of government revenue ( GR) in the GDP is an indicator which could reflect the concentration degree of the government finance. The percentage of government revenue (GR) in the GDP were 30.93% in 1978, 20.82% in 1985, 17.86% in 1990, and to be reduced to 10.72% in 1995. The figures of same indicator in 1989 were 34.6% in USA, 46.1% in France, 16.7% in Indonesian, 18.3% in Thailand, 31.1% in Malaysia, 9.1 % in Burma. The percentage of this indicator in China were only higher than that of Burma. No wonder the government hasn’t money to increase the health input. What influence of the percentage of GR in GDP exerts to the increase speed of THE? The model of econometrics screened by our research indicates that ,in 1978-1995, when the percentage of GR in GDP were decreased 1%, the THE would be increased 0.254 % . According to the data of 1978-1995, the former was decreased 288.53% . The influence on the increment rate of THE, exerted by the ratio of GR in GDP would be 73.29% . That is to say, about 14.63% of the increment rate of THE in 1978-1995 are attributed to the decrease of the ratio of GR to GDP .

Now, the behaviors of enterprises are discussed with an indicator that is the percentage of numbers of staff & workers in total employees. The staff and workers refers to those who work in enterprises and institutions by state ownership, urban collective ownership, joint management, stock ownership, foreign funded, and Hong Kong, Macao, and Taiwan Chinese funded and other ownership and their affiliated units . Other employees refers those who are not reported as staff and workers by statistical classification but who are actually involved in social economic activities from which generating income . There are an inverse correlation between THE and the percentage of numbers of staff & workers in total employees. The decrease of the percentage of numbers of staff & workers in total employees reflects the increase of the other employees which exert a positive influence to THE. In the model of econometrics, the elasticity coefficient is -0.79 in 1978-1995. So, it is an underestimated factor.

The percentage of individual consumption in GDP significantly influences THE. In 1978-1995, the elasticity coefficient is 1.92. The percentage of individual consumption in GDP is lower in China than that of OECD countries. The ratio of saving-income or the rate of accumulation is higher than that in OECD countries. It is an importance reason the ratio between THE and GDP in China lower than the countries with same economic level . There is a higher saving-income ratio in China . So there is a higher increment rate of economy, with a opportunity cost to slow down the improvement of life quality.

The econometrics model of demand analysis and it’s related parameters : Y=THE per head; X₁=GDP per head; X₂=percentage of GAPHF in THE; X₃=The percentage of numbers of staff & workers in total employees; X₄=The percentage of individual consumption in GDP; X₅=The percentage of GR in GDP.

The log-linear model :

3 The Behaviors Analysis on Provider Party

It is necessary to study the behaviors of the owners ,the health institutions ,the health manpower from provider party. It is different from the analysis on the demander party in that these factors are controllable by the health sector. The indicators are : Y:THE per capita; X₁:The percentage of business income in hospital total income; X₂: Charge level of hospital (that is the charge rate of 5 outpatient contacts and 0.5 bed days); X₃:The health technical personnel per thousand head. The X₁ is the intent of the owners of hospital: the X₂ is hospital return level under leadership of hospital’s president. X₃ determines the gross wages which isn’t determined by hospital leaders, but determined by government which were according to current government policies. The government only determine that the hospital must pay wages to the health personnel which were allocated by government personnel department , the hospital must decide how to get the money to pay the wages of its health personnel.

The econometrics model of provider as follow:

From the log-linear model , we could find the elasticity coefficient of the above-mentioned indicators . The highest elasticity coefficient of THE to the provider factors is charge level. If the charge level was increased 1%,the THE would be increased 0.42%. The third provider factors is the percentage of business income in hospital total income. It is very difficult to increase or decrease THE by the influence of this factor

Conclusion

We could get following conclusions from above-mentioned analysis of the behaviors of provider party and demander party :

1 The ratio between THE and GDP is the most comprehensive indicator to evaluate and measure the coordination development of health sector in the whole economy. The ratio between THE and GDP was 3-4% in 1978-1995. Comparing China with OECD countries, it is found that ,the ratio between THE and GDP in China is the Smallest . the income elasticity of health consumption , which measures the ratio between the increment speed of THE and the increment speed of GDP was 1.18 in 1978-1995. Comparing China with OECD countries ,it is found that, the coefficient of income elasticity of THE on GDP in China is also the smallest. Even though the average increment speed of THE in China is 9.37%,but the average increment speed of GDP in China is 7.9%. Even though the average increment speed of THE in USA is only 4.4%, the average increment speed of GDP in USA is only 2.2% . Thus, we would like to say , to improve the coordination development of health sector in the whole economy , it is necessary to improve the status of health sector in China . The ratio between THE and GDP in China should be increased, the income elasticity of THE to GDP in China should be enhanced too .

However, when we go a step further to analysis the behaviors of related economic man from demanders party, it is found that, the ratio of individual consumption to GDP is lower in China , the ratio of saving-income or the rate of accumulation are higher in China compared with OECD countries . It is an importance reason why the ratio between THE and GDP in China couldn’t increase rapidly.

2 It is important to point out that , even though the percentage of THE in GDP was small in China, the income elasticity of THE on GDP in China was small too, but the increment rate of THE (with 1995 constant prices) was faster than that in the most OECD countries ( except Spain . see table 2) . So , the health sector in China was progressing steadily in 1978-1995 .

3 According to the standard of efficiency and equity, the behaviors of related economic men on demander and provider parties were examined in this paper . Some suggestion could be got from this study : 1) The government finance function of China should be transformed from the planning economy to the market economy ; the percentage of social and public welfare spending in the total government finance spending should be increased steadily, the percentage of economic construction spending in the total government finance spending should be decreased steadily. 2) We have pointed out that there are two social functions of GAPHF:(1) To pay the public health services which the privates aren’t willing to pay . (2) To contain the overflow of THE . One is that the government prices the health services ; Another is that the government allocates public hospital with some subsidy to wipe out their deficits . If the subsidy of public hospital were decreased , the charging level of the public hospital would be even difficult to contain . We consider the social function of GAPHF should be enhanced and improved . The standard for allocation GAPHF shouldn’t be based on the number of the staff and worker, but based on the population serviced by the health providers . (3) It is necessary to balance the total supply and total demand of health services from the viewpoint of coordination development of the health sector in the whole economy . That is to say, the influence factors of THE from supply party should be adapted to the influence factors of THE from demand party . For example , the charge level of health service shouldn’t be based only on the factor’s cost, but based on the affordability of the people serviced . (4) In the current situation of China , it is necessary to contain the excessive increment of THE , the ratio of GAPHF to THE shouldn’t be decreased further, but should be increased steadily .

List of Reference

World Bank (1997) : CHINA 2020 <Financing Health Care>

World Bank (1990) : CHINA:Long-term Issues and Options

in the Health Transition

World Bank (1993) : World Development Report 1993: Investing to Health

Berman Peter, et al(1995):China’s National Health Accounts

World Bank, Human Development Department

Christopher JL Murray,et al :Global Domestic Expenditures on Health

( A Background Paper for the World Development Report 1993)

Newhouse JP et al (1987): Cross National Differences in Health Spending: What do They Mean?