Healthcare expenditure in China : structure, components and future trends

  • Tiemin Zhai

Student thesis: Doctoral Thesis


The substantial increase in health expenditure and heavy health financial burden for residents
are two of the major challenges faced by the health system in China. It is crucial to identify
the main drivers of health expenditure growth, and also the main drivers of catastrophic
health expenditure at function level and disease level, so that cost containment policies can be
focussed in the right areas and targeted measures can be taken to reduce residents’ financial
risks. It is also important to project China’s current health expenditure by age, disease and
health care function, analyse the main drivers of health expenditure growth in the future, and
test the impact of several hypothetical policy interventions on health expenditure to identify
areas where unproductive cost escalation can be reduced, as well as to estimate the potential
budgetary implications of government policies.
Chapter 1 briefly introduces the health system and health system reforms undertaken in the
past and recently, the remaining challenges for the health system and health financing in
China, and the aims of this study.
Chapter 2 reviews the literature, systematically summarises the factors determining health
expenditure growth and catastrophic health expenditure, and compares different factors
affecting the growth of health expenditure and catastrophic health expenditure in different
studies. In considering previous research about determinants of health expenditure growth,
residents’ financial risk and future trends in health expenditure, gaps in the literature have
been identified, so further justifying the purpose of this study. Several studies point to the
importance of disease prevalence, treatment practice and health price inflation as the main
drivers of health expenditure growth in several countries, but no single study in China has
looked at the relative contribution of all of these to the recent and rapid health expenditure
growth. A greater gap in knowledge arises because previous research did not analyse the
drivers of health expenditure growth by age group and disease group. Moreover, previous
studies in this country were also limited in that they did not analyse potential variations in
exposure to catastrophic health expenditure for all types of diseases.
In other countries, excess health price inflation has been identified as a major factor affecting
health expenditure growth, but until this study there has been no health price inflation data for
China. Chapter 3 mainly uses the Laspeyres Price Index method to generate inpatient,
outpatient, pharmacy pharmaceutical, preventive service, and governance and health financing administration related price indices separately. Then an aggregate health price
index was calculated by weighting the components. Aggregate health price inflation exceeded
the gross domestic product (GDP) deflator by 1.1% per annum during the period 2007 to
In Chapter 4, Das Gupta’s decomposition method is used to decompose the changes in health
expenditure by disease into five main components that include population growth, population
ageing, disease prevalence rate, expenditure per case of disease, and excess health price
inflation. During the period from 1993 to 2012, growth in health expenditure in China was
mainly driven by a rapid increase in real expenditure per prevalent case. This factor
contributed 8.4 percentage points of the 11.6% annual average growth. Excess health price
inflation and population growth contributed 1.3% and 1.3% respectively. The effect of
population ageing was relatively small, contributing only 0.8% per year. Reductions in
disease prevalence rates reduced the growth rate by 0.3 percentage points.
In Chapter 5, age and disease specific inpatient, outpatient, and pharmacy pharmaceutical
expenditures are projected using a component-based projection model. Five factors affecting
health expenditure growth are modelled: population, age structure, disease prevalence rates,
services per case of disease, and unit cost. Three policy scenarios are analysed: trends in
health expenditure if health service utilisation reaches and is held at a benchmark level, and
the effects of reduction in smoking rates and hypertension. Health expenditure in China is
projected to increase at 8.4% per annum from 2015 to 2035. This growth will mainly be
driven by rapid increases in services per case of disease and unit cost, which contribute
respectively 4.3 and 2.4 percentage points. By 2035 over 60% of health expenditure is
expected to be on the population aged 60 and above. Inpatient expenditure is expected to
grow at an average of 9.2% per year compared to 7.3% for outpatient expenditure.
Circulatory disease expenditure is projected to increase sharply, from 18.7% to 23.4% of
health expenditure. Three percent of GDP is expected to be saved by slowing the growth of
inpatient health service utilisation once the benchmark level is reached. Health expenditure is
expected to be reduced by 3.5% if the smoking rate is cut in half and by 3.4% if hypertension
is cut by 25% by 2035.
At the micro-level, Chapter 6 analyses the main drivers of incidence of household
catastrophic health expenditure (CHE) in different regions that have different economic
development levels using a common household health survey. The major drivers of the incidence of CHE by function and disease level are identified. The incidences of CHE caused
by inpatient out-of-pocket payment (OOP), outpatient and pharmacy pharmaceutical OOPs
and by different diseases were estimated under different methods. Determinants of CHE were
examined using logistic regression in the different regions. Outpatient and pharmacy
pharmaceutical OOP were identified as the major drivers of household CHE. Circulatory
diseases, endocrine, nutritional and metabolic diseases, neoplasms, respiratory diseases,
digestive diseases, injuries, and musculoskeletal diseases are the main diseases of the
households experiencing CHE. This research also found that the incidence of CHE in an
economically developed province is higher than that of an economically developing province.
In Chapter 7, the main findings from all aspects of this research are brought together and
clearly illustrate the original contribution of the study to knowledge in the area of health
expenditure structure, components and future trends in China. A health price index is
generated, the growth of health expenditure by disease in the past two decades and forecasts
for the next two decades are decomposed using Das Gupta’s decomposition method, health
expenditure by function, age and disease in the next two decades is projected, and drivers of
the incidence of catastrophic health expenditure by disease are analysed for the first time. The
chapter also outlines the policy implications of the research findings, and points out future
research directions.
Date of Award2019
Original languageEnglish
SupervisorYohannes Kinfu (Supervisor), Jim Butler (Supervisor), Jinjing Li (Supervisor) & Rachel Davey (Supervisor)

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