Health Care in Developing Nations Health Insurance International Health Care Systems

Olympic Post IV: Pauly on Health Insurance in India and China

In the July/August 2008 edition of Health Affairs, health economist Mark Pauly discuss his opinions with respect to the evolution of health insurance in India and China. He notes that in both countries, rising incomes has lead to increased demand for medical care, especially in urban areas. Despite the increased demand for medical care, there has not been nearly as much an increase in health insurance coverage. Out-of-pocket payments as a portion of total health care spending are 80% in India and 60% in China.

This has lead to calls by many politicians to increase “access to care” by increasing health insurance coverage rates. Pauly, cautions that mandating generous health insurance coverage may not be ideal:

The problem with insurance that ‘improves access’ to care is that such additional use of care will almost surely raise average spending on care and, therefore, the premium that an unsubsidized insurer would have to charge…using regulation to push access and equity that makes insurance seem like a bad buy to its middle-class customers will be undesirable.”

If legislating a more generous insurance benefit package will reduce demand for health insurance, one solution is to have the government provide health insurance for all its citizens. This will increase equity, but could lead to other undesirable outcomes such as rent-seeking behavior, and politically determined medical care decisions. Further, using taxes to fund the public health insurance system could increase “black market” activity. That is,

Using taxes as a vehicle to make insurance compulsory runs the risk of driving measurable and taxable income underground for people who expect to pay more in taxes from public goods than they will get.”

Dr. Pauly reminds us, that there is no easy way to solve the health care needs facings the citizens of the world’s two largest countries: India and China.