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# I. **INTRODUCTION**

Several developing countries have recently used tax revenues to subsidize health insurance for informal sector (usually rural) workers and their families, or at least the poorer ones among them. In Colombia, the Philippines and Vietnam, for example, the poor are enrolled in the national social health insurance scheme at the taxpayer’s expense. The rest of the informal sector either have the option of enrolling (in the cases of the Philippines and Vietnam) or are required to enroll (in the case of Colombia). In all three countries, the household enrolls at its own expense though the contribution paid by nonpoor voluntary enrollees is sometimes subsidized (it is, for example, in the case of Vietnam). In China and Mexico, by contrast, households not covered by formal sector programs (albeit only rural households in China) have the option of enrolling in a separate subsidized public health insurance program. In both countries, the contribution is to some degree linked to household income, with poor households having their contribution paid entirely by the taxpayer, and nonpoor households either paying a subsidized flat-rate contribution (the case in China) or an income-related contribution (the case in Mexico).<sup>1</sup> Thailand recently opted for a third route, which was to enroll at the taxpayer’s expense all those not covered by the various programs for formal-sector workers.<sup>2</sup> This paper reports the results of an impact evaluation of China’s scheme. The program, which began in 2003 and is being rolled out on a staggered basis with all rural county-level jurisdictions (hereafter counties<sup>3</sup> ) to be covered by 2008, replaces China’s old village-based rural health insurance program, known as the cooperative medical system or CMS.<sup>4</sup> That scheme all but disappeared following the collapse of the commune system in the early 1980s when China embarked on its market-oriented economic reforms.<sup>5</sup> As of September 2006, an estimated 406

> 1  To date, Mexico’s scheme has targeted the poorest decile which is not liable for contributions.

> 2 On Colombia see Escobar and Panoplou (2003), on Mexico see Knaul and Frenk (2005) and Scott (2006), on the Philippines see Obermann et al. (2006), on Thailand see Pannarunothai et al. (2004), and on Vietnam see  Knowles et al. (2005).

> 3  County-level governments in China include urban districts, county-level cities, and counties. The new program is targeted at rural residents. Most (but not all) reside in counties; urban districts and county-level cities containing rural residents will also receive the program.

> 4 The primary stated aim of the scheme is to reduce impoverishment resulting from illness (Central Committee of CPC 2002). In 2003, piloting of the scheme began in around 300 of China’s more than 2000 rural counties in 2003 (Liu 2004; World Bank 2005). By 2005, the scheme had been expanded to over 600 counties.

> 5 The CMS is often argued to be at least partly responsible for China’s remarkable achievements in reducing mortality during the early years of the People’s Republic (Sidel 1993). This program was premised on mandatory contributions to the village production brigade or collective welfare fund, and ensured access to basic medical services for China’s rural population. In most part of China, CMS did not survive the de-collectivization of agriculture in the early 1980s, whereby village collective welfare funds were dismantled (Zhu et al. 1989; Liu 2004). Indeed, by 1993, less than 7 percent of the rural population was covered by the NCMS. There have been various attempts to resuscitate the CMS, including included the RAND Sichuan CMS experiment in mid-1990s (Cretin et al. 1990), the WHO 14 county study in the early 1990s (Carrin et al. 1999), the UNICEF 10- county study