5 provinces.<sup>12</sup> The 50 RMB minimum level of financing per beneficiary represents only around one fifth of average per capita total health spending in rural areas.<sup>13</sup> As can be seen from Table 1, the total NCMS budget tends to be higher than the 50 RMB minimum (62.9 RMB on average in a sample of 189 counties from 17 provinces), and it varies considerably with local income and coverage mode.<sup>14</sup> As a result of limited financing, coverage is typically shallow: many services (particularly outpatient care) are not covered or covered only partially, deductibles are high, ceilings are low, and coinsurance rates are high (see Table 1).<sup>15</sup> There is, however, considerable heterogeneity in the benefit package across counties and coverage modes. All counties cover inpatient care. However, only a quarter of counties cover outpatient expenses on a pooling basis. The rest do not cover them at all (10% of counties), cover only catastrophic expenses (10% of counties), or cover them through a household account.

The bulk of reimbursement by NCMS is for inpatient expenses, even in counties where outpatient expenses are covered. In the 27 counties for which data are available, the share of reimbursements accounted for by inpatient care varies from 100% to 66%, depending on the coverage mode (see Table 2). Most inpatient reimbursement is for care delivered at county or provincial hospitals (75% on average), but township health centers (THCs) also account for a substantial share of inpatient reimbursements, in particular in counties where outpatient care is covered through household accounts or on a pooling basis.<sup>16</sup> Most NCMS schemes have some mechanisms to control reimbursement expenditures. For example, reimbursement rules are typically less generous for care delivered in higher-level facilities, and most counties require

> 12 USD1 ≈ RMB8.

> 13 According to the 2004 rural household survey, average out-of-pocket expenditures for rural residents range from 47 RMB in Guizhou to nearly 587 RMB in rural areas surrounding Beijing, with a national average of 130 RMB. For the most part, this level of spending refers to a situation where households have no insurance. Insofar as health insurance makes health care more affordable at the margin, overall health expenditures are likely to increase as a result of the NCMS, reflecting both moral hazard and the ability of households to meet hitherto unmet need for health care. In addition to out-of-pocket spending, National Health Accounts estimates include spending by government and other third party payers. Estimates from 2003 suggest that total health spending in rural areas was approximately 250 RMB per capita.

> 14 The different approaches to defining the NCMS coverage are sometimes classified into four ‘modes’: (i) inpatient only; (ii) inpatient and catastrophic care; (iii) inpatient and outpatient pooling; and (iv) inpatient and household medical savings account. There is however considerable heterogeneity within these modes.

> 15 The complexity of cost-sharing arrangements causes considerable confusion among farmers about what can and cannot be reimbursed, and how much will be reimbursed.

> 16 Village health posts comprise the first level of contact in the health system operating in rural areas. At the second tier, Township Health Centers (THC) serve as the first referral level. They have an average of 15-20 beds and provide both preventive, outpatient, and basic inpatient care. At the third tier, there are nearly 6,000 country hospitals—usually the last point of referral for the rural population—with an average of 300 beds. In contrast to the rural health system, which is the responsibility of county or township governments, the approximately 11,000 city hospitals are the responsibility of provincial or prefectual government. Complex cases from rural areas may be referred to these higher levels.