Guan Zhiqiang is a director at the Social Security Research Institute of the Ministry of Labor and Social Security, PRC. He's been following China's health care issues since 2002, and last year he participated in high-level national health care system reform discussions and policy drafting.

EO: On April 4, the State Council decided to include catastrophic health care as part of a pilot for urban basic health care. What was the goal? Why did they want to use catastrophic health care?

Guan Zhiqiang: The funademental goal of the basic health insurance pilots is to decrease illness among citizens and the risks associated with it. Health care costs assumed by individuals have been quite high recently-- up to 60 percent of the total costs are being shouldered by individuals. Among that, 40 percent of urban residents don't have any protection whatsoever, and those with protection bear 30 to 50 percent of the costs. Eighty percent of rural residents are unprotected, which greatly decreases their ability to fight back illness. In analyzing 190 countries, we have seen that through public fund-raising and the implementation of health insurance, the government can effectively reduce the economic risks exposed to families with illness. From a medical, scientific standpoint, minor and serious illnesses are indistinguishable. It is a problem of smaller and greater risk. Illness, and the economic and social damages and loss of life they cause, are all measureable.

EO: The theme of the drafted basic health insurance for urban residents is "protecting the base is the first step." Why isn't it comprehensive? It's said that the new scheme will abolish personal accounts. Why?

Guan Zhiqiang: We must face the fact that our nation is still a developing one, with economic strength limited by average per-capita income stuck at ＄1,700. This situation dictates that we can only protect the base, and are unable to accomplish the kind of comprehensive, government-sponsored protection scheme that some support. Recently, China's government has been giving more people coverage by focusing on establishing public fund-raising mechanisms. We advocate that health insurance investment should be a gradual process. After its establishment, protection levels can increase alongside economic development. Establishing personal accounts is a process, a technical problem that is part of a transformation. At that time serious illness risk can be solved by health care funds. But if you look at the current implementation of personal accounts, it's clear that they are not effectively using resources. From a risk-prevention standpoint, the result is not ideal. The new policy draft should fade out the old personal account mechanism. Instead, more emphasis should be paid on deciding the scope of reimbursement.

EO: Recently, Cina's health care reforms have been entering a key phase. How do you look upon current health care problems?

Guan Zhiqiang: I believe that recently, the development of Cina's health care industry mainly faces four problems: disease prevention is weak, personal and societal medical risks are increasing, resources are not allocated efficiently, and resouce distribution has serious problems. Simply put, problems with disease prevention have left the rural morbidity rate increasing, with recent figures saying that China has about 5 billion instances of illness a year compared to 4.3 billion in 1993. Rural citizens are using health-related services less and less; surveys suggest that 48.9 percent of those who fall ill do not seek medical help afterwards, and 29.6 percent should be hospitalized but aren't. This is the crisis facing China's health care system. As far as resource utilization, in the 90's we saw a rapid expansion of large-scale hospitals in urban areas, while primary level treatment facilities withered. Less than 35 percent of rural hospital beds are being used, lagging far behind the 80 percent requirement set by the Ministry of Health. Personal and societal medical risk increases are reflected by the extremely high frequency in which families go bankrupt due to illness. Illness drives people into poverty, and even those who've worked hard to escape it are forced back. The problem with resource allocation and utilization is that they are focused in illness treatment and mostly in cities. This leaves disease prevention in the rural areas sorely neglected, further exacerbating the gap in urban-rural health services.

EO: Some have pointed out that the problem with health insurance recently has been that, as a result of market liberalization, diagnosing and treating illness has become expensive and difficult. Is this true?

Guan Zhiqiang: The reasons are very complex. You can't simpy blame marketization. I still haven't seen the fundamental principles of market liberalization materialize in the health care sector, for example, doctors' ownership of hospitals goes against that. I believe that what makes diagnosis difficult and expensive come from both macro and micro reasons. At the macro level, resources are not distributed evenly, and the government lacks long-term plans for resource allocation and utilization. At the micro-level, funding mechanisms to back health care industry reform are absent. In order to survive, hospitals are going after profit, causing a rift between their public-oriented work and their management goals.

EO: The public-oriented nature of hospitals has been destroyed, the government lacks long-term resource allocation arrangements... how do you think these problems can be addressed? Where will the breakthrough in future health care reforms be?

Guan Zhiqiang: I believe that system should be built logically and based on theory. Illness risk can lead to economic, social, and even political risks. The solutions to these problems are not just for the ill, but will contribute to economic, social, and political stability. They will make the country's development sustainable. Any reform, in it's consideration, first requires a clear reform goal-- it must be clear who the reform is for. I believe that health is health care reform's final goal, and how to protect fairness, effectiveness, quality, and acessibility, are standards by which to measure reform. Insisting on them will lead to sustainability. The key to reform, the breakthrough, will come with funding mechanisms. In changing the funding model, by increasing public investment, by making the government and social security and other safegard measures be the main bearers of these costs, it can be reduced.

EO: What role should government play in reform?

Guan Zhiqiang: The government is a regulator, supporter, and service provider. We emphasize the government's responsibility, and advocate the government's establishment of public funding mechanisms and institutional arrangements in order to solve citizen access to diagnosing illness. But the establishment of funding apparati is not equivalent to financial support, though in one aspect it includes governmental budgeting, in another aspect it requires joining up with members of society. This is the insurance system that we usually talk about. The government, in establishing funding, should be more inclined to use market measures. Through supporting and developing third-party support, they can correct asymmetrical information about the health care industry, eliminate uncertainty in illness risk, and control the spread of disease. We suggest that the government passes measures to encourage the purchasing of health care services, and on a level playing field, increase resource efficiency by using management concepts in public spending. It should push for fair and efficient resource allocation in health care service.

EO: Should funds be distributed to service providers or patients?

Guan Zhiqiang: Providers and patients are always in dispute. The goal of health care reform that I mentioned before is to make citizens healthy, and thus we need to invest in health, not disease, and even less so to invest in treatments. In other words, if we want to pay attention to whether or not we can improve health in a population, we should invest more in health. Health care service purchasing decisions should be based on assessments, because without assessments, decisions are made blindly. I personally believe that with fair, effective, high-quality, and accessible services, universal health insurance can eliminate conflicts of interest. This way, rural citizens can purchase health insurance through an agent to mitigate illness risk. Domestic and foreign experience illustrates that through public funding and developing third-party support, consumption behavior and the resulting health care service industry will both improve. A few years ago, I went to Jilin to do some research-- at that time the income from insured patients made up less than 10 percent of total hospital income; as a result, the influence of insurance companies on hospitals was negligeable. Now, as health insurance makes up more of hospital income, they have come to understand the effects of public expenditures on their profits, and that they must be responsibly administered.

EO: You mean that public health costs should be assumed entirely by the government, and illness risk should be born by social security, also organized by the government? If so, is this realistic? How much would the government need to invest each year? How much should each person pay?