21 To contain sosts further, the government should consider redesigning the clinical services package covered by GIS and LIS, as well as implementing a prepayment scheme for health care providers. The redesigned package could consist of several parts, based on the degree of costeffectiveness (Technical Annex A). Part A would include vaccinations, pre and post-natal care that can be reimbursed at full cost, Part B would be reimbursed at 80 percent of cost, and Part C would contain interventions that would be kept at the current level of underfinancing, with premium rates raised with inflation. This more flexible system can be adopted to and the level of copayment can be reconfigured according to the social insurance's fund position. Normally, providers will respond more to parts A and B than to part C, thereby improving the allocative efficiency of financing. Providers can collect fees from patients to cover the gap between GIS and LIS reimbursement and the full costs of the parts B and C interventions. Elsewhere among middle-income countries, such flexibility is being proposed in Brazil and Mexico.<sup>6</sup> _Strengthening the Rural Health Insurance:_ China's rural risk-coverage programs have weakened significantly due to the dismantling of the RCM insurance in the early 1980s. The rural population now relies on government subsidy and their own resources. To remedy this problem one alternative would be to reintroduce the rural community health insurance scheme with financing from household income, village social welfare funds and local government budget. Indeed, the Sichuan Rural Health Insurance Experiment should be replicated with special emphasis on a _local package_ in the proposed essential PHP and minimum clinical interventions (Technical Annex A) but can be reconfigured differently to a diversified disease pattern and diverse population. Many villages have started to reestablish such insurance programs and they currently cover more than 10 percent of total rural population. Greater efficiency can be built into the scheme by allowing households to purchase an annual health card that would entitle the purchaser to a fixed number of treatmnents for curative care and an unlimited number of visits for such preventive services as maternal and child health care and inmmunizations. The card would be priced at less than the armual average household expenditure.

_Developing Private Insurance:_ As the economy continues to grow, people may need supplementary insurance or individuals not covered by social insurance would like to purchase private insurance policies. The government should encourage the development of private insurance thus promoting greater diversity and competition in the supply of health services. In several middle-income Latin American countries the absence of competition in the provision of health care inhibited corruption and inefficiencies in their social security schemes, and even in countries like Korea and Japan, several semi-independent insurance firms compete over a single large insurance corporation. In China, however, specific legislation should be enacted to guard against abuse and forbid exclusion of pre-existing medical conditions. Until the new legislation in 1996, the U.S suffered from such problems, creating gaps in coverage and cost escalations. Since social insurance is already in place implementing safeguards over future private insurance should not be too difficult for China.

> 6See World Bank,"Brazil: Health Sector Reform Project" (1 5522-BR)and for Mexico see, FUNSALUD: "El paquete universal de servicios de salud" Documento 11, para el analisis y la convergencia, 1994