2 million people were enrolled the new scheme, which was up and running in over half (1,433) of China’s rural counties. The establishment of the new CMS or NCMS, as the new program is known, was a response to accumulating evidence that high and rapidly rising user charges were causing widespread poverty and deterring families—especially poor ones—from using health facilities.<sup>6</sup> The program—which unlike its predecessor operates at county rather than village level, and exhibits variations in design and implementation across counties—is financed in part through flat-rate household contributions (the poor and certain other groups have their contributions subsidized) and in part through government subsidies, with central government helping county governments in China’s poorer provinces with the local government contribution.

One concern with the program is that its budget is too small to make a significant dent in households’ out-of-pocket spending. The revenue per enrolled is around only one-fifth of total per capita rural health spending, and copayments in the scheme are high, reflecting large deductibles, low ceilings, and high coinsurance rates. It is, in fact, possible that because the scheme is likely to encourage people to seek care who would not otherwise have done so, and because providers in China are paid fee-for-service through a price schedule that results in higher margins on drugs and high-tech care than on ‘basic’ services (Liu and Mills 1999), insurance may result in increased utilization of expensive care, and hence out-of-pocket spending may actually _increase_ ; this appears to have happened in China’s urban scheme (Wagstaff and Lindelow 2005). Concerns have also been expressed that the scheme may do little to increase utilization of health services among poor households because of the high copayments. Indeed, it has been suggested that these costs may reduce the benefits of the scheme to the poor to such a degree that they may be less likely to enroll. Concerns have also been expressed that the scheme may not attract the relatively good risks, and may therefore suffer from adverse selection.

This paper attempts to shed light on these and other issues, and in the process to contribute to the more general literature on the impacts of subsidized health insurance programs aimed at informal sector workers.<sup>7</sup> Our focus is on the 189 counties that began implementing NCMS in 2003. We look not only at the impacts on a large sample of households in a subset of

> in 1997-2000, the World Bank Health VIII project in the late 1990s, and the Harvard 2-county study in 2003 (Hsiao and et al. 2004). Many of the schemes suffer from poor administration and small risk pools. Moreover, the voluntary nature of these schemes tends to result in adverse selection. Hence, despite these efforts , coverage remained low throughout the 1990s, and by 2003, 80% of China’s rural population—some 640 million people—lacked health insurance (Ministry of Health Center for Health Statistics and Information 2004).

> 6 See, for example, Liu et al. (2003), Liu et al. (2004), and Yuan et al. (1998).

> 7 We discuss below the findings from this literature, in the context of our discussion of the findings from the present study.