China has undergone great economic and social change since 1978 with far reaching implications for
the health care system and ultimately for the health status of the population. The Chinese Medical
Reform of the 1980s made cost recovery a primary objective. The urban population is mostly protected
by generous government health insurance. A high share government budget is allocated to
urban health care. Rural cooperative health insurance reached a peak in the mid-1970s when 90%
of the rural population were covered. In the 1980s rural cooperative health insurance collapsed and
present coverage is less than 8%. The decline has been accompanied by reports of growing equity
problems in the financing of and access to health care. This article is the first in a four-year study
of the impact on equity of the changes in Chinese health care financing. The article examines the relationship
between rural cooperative hearth insurance as the explanatory variable and health care
expenditure, curative vs. preventive expenditure and tertiary curative care expenditure as dependent
variables using a natural experimental design with a 'twin' county as a control.
The findings support the hypothesis that cooperative health insurance will induce higher growth of
hearth care expenditure. The findings also support the hypothesis that cooperative hearth insurance
will lead to a shift from preventive medicine to curative medicine and to a higher level of tertiary curative
care expenditure. The empirical evidence from the Chinese counties is contradicting World Bank health
financing policies.