Reform of Healthcare in China

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Despite China’s rapid macroeconomic growth, the healthcare sector still faces the challenge of medical resources shortages and poor quality of services. As a result, it is difficult for citizens to approach the corresponding healthcare. Even among those who can get access, the probability of dissatisfaction is relatively high due to the excessive costs, poor infrastructure and ineffective services delivered . Thus, new reform with regard to the issues is urgently in need since the satisfaction of healthcare is considerably low.

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Real-world issue

In response to increasing social pressures on public healthcare, China’s government has announced a new five-year blueprint for reform of healthcare sector to improve healthcare before 2020 . The guideline (2015-2020) is the first comprehensive five-year plan aiming to improv healthcare sector and establish a universal health system that can provide safe, effective, and low-cost healthcare for China’s more than 1.4 billion citizens, let alone the considerable amount of aging population.

One of the main concerns about this policy is the effectiveness regarding the public healthcare and how it is going to change individual’s life and benefit the whole country. I am going to elaborate this concern from two different economic perspectives: Happiness Economics and Institutional Economics.

Happiness Economics

The research into happiness economics differs in its methodology that happiness researchers ask people to rank their life satisfaction on a scale was first systematically applied to economic matters by Richard Easterlin . Economists use this measure of self-reported satisfaction as a proxy for utility to evaluate ideas from a new perspective, understand human behavior, formulate guidelines and policies, and develop a preference-based valuation method .

By evaluating the impact of healthcare reform on subjective well-being (SWB) , it is conceivable to anticipate whether the policy will expand the entire social well-being or not. The reform, which targets at infrastructure development, costs reduction and new areas of investment2, will have a substantial impact on individuals, state-owned organizations and private sectors. The government’s emphasis on the infrastructure development by combining public resources with private investors has alleviated burden on China’s finance, improved allocation of resources by introducing more efficient contenders and provided additional accessible facilities; Furthermore, medical costs reduction and comprehensive healthcare coverage offer a better protection for patients. Last but not least, new technological advances have made provision of healthcare supplementary accessible to broader citizens. With these developments, individuals could access and enjoy various professional medical resources effortlessly, economically and conveniently, hence, enhance their SWB in general; Thus, subjective well-being plays a nonnegligible and heuristic role in evaluating healthcare reform policy and can be used as a basis for testing the effects of reform to a certain extent.

Although happiness economics reflects a direct measure of utility, the subjective self-reported method has validity issues cannot be quantitatively and mathematically measured without bias when applied to policy making , which subjects to personality traits, one’s aspirations and influences of specific contexts. Thus, it is inadequate to offer us a convincing result regarding the effects on healthcare reform and not robust enough to guide policy-making. Paul Dolan concluded that ‘the existing evidence base for well-being is not quite as some people may have suggested… This, in addition to lack of clear evidence on causality, makes it difficult to make clear policy recommendations at this stage’. Therefore, it remains unclear how effective the reform will be in improving healthcare outcomes while difficult issues as reverse causality and dynamics need to be dealt with before policy-oriented application of SWB in practice. Another problem is that subjective behavior is enslaved to various objective conditions and cannot rely on the market to solve all problems; yet, the subjective behavior itself is flawed, decisions are impossible to be made according to the requirements of common interests by all parties.

Institutional Economics

Institutions play a vital role in molding performance of healthcare system. Though institutional economics originates from neoclassical economics , is a better approximation of reality by assuming that humans are bounded rational. Intricate healthcare issues make institutions better at dealing with irregularities. Research has shown that a universal healthcare coverage, is associated with better healthcare outcomes as well as with better healthcare systems and not only increase economic growth but also improve well-being. Concentrated power of institutions affects all resources allocation ,which enables the healthcare reform to be implemented in accordance with government’s macroscopic prospect. Furthermore, the healthcare reform constrains individuals’ behaviors, minimizes transaction costs due to specialization and division of resources when all hierarchal functions are aligned , coordinates cooperation and creates efficient operational conditions. Therefore, when individual’s behavior is constrained by institutions, it helps limit opportunistic behavior and maximize common interests.

However, while great on realism, institutional economics is short on treatment. Furubotn and Richter have argued that it is impossible to anticipate the emergence of an axiomatic institutional economics in an economic model. Though a set of practical tools are provided, few instructions about what is to be construct or how the tools are to be handled . Therefore, the effectiveness of the healthcare reform is yet unknown. We cannot be sure the extent to which the healthcare reform is more efficient than other alternative measures. Similarly, the causes and effects are conflated and too vague to predict the effectiveness of the reform.


To conclude, both of the economics are relatively complex disciplines but offer a new dimension of thinking when they are applied to analyze healthcare reform policy. Regarding the healthcare reform, institutional economics are much more useful to see how it is going to affect the individuals and the social welfare, taking into account all benefits and possible harms. Nevertheless, in my view, to improve the whole social welfare, the combination of different perspectives and theories will broaden our horizons and evaluating effectiveness through both of them would be better than only use one.

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Reform of healthcare in China. (2019, Aug 14). Retrieved January 30, 2023 , from

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