However, China also needs to get better value for money, and put health spending on a
sustainable trajectory. Compared to pensions, health systems are more profoundly
impacted by interaction of longevity with technological change. Costly new medical
treatments can often bring great value, but patients do not bear their cost, so constraining
spending growth without forfeiting life-saving innovation presents a significant policy
conundrum.
Other social policies also require reforms. For example, the rural elderly will need greater
old-age support. The pension system for rural residents, introduced in 2009, is another
landmark achievement; but it only pays 3 percent of the benefits paid to urban pensioners
(Lu, He, and Piggott 2014). For rural Chinese age 60 and older in 2011, the poverty rate
based only on the income of respondents and spouses (including pensions) was 65
percent, according to CHARLS data (CHARLS Team 2013). The poverty rate falls to 40
percent with intra-household support from co-residence and private transfers. Savings
reduce poverty by a further 8 percentage points, and public transfers by a further, meager
3.3 percentage points (CHARLS Team 2013).
With smaller families and many adult children migrating to cities, co-residence as a
source of old-age support is declining. One solution would be a non-contributory social
pension – which Lu, He, and Piggott (2014) calculate could eliminate elderly poverty
with only about 1 percent of GDP for the next few decades. The proposal assumes the
retirement age would increase in the future, to avoid undermining work incentives.
Improvement in pensions—such as the New Rural Pension System rolled out since 2009,
and the recent announcement of consolidation of rural and urban basic pension systems—
can also trickle down to enhance the welfare of the middle-aged and younger generations.
For example, in a recent study on the intergenerational impact of China’s new rural
pension program using a fuzzy regression discontinuity design, Eggleston, Sun and Zhan
(2014) find that China’s new rural pension program enhances confidence in healthcare
access, and promotes migration of labor and off-farm employment of adult children.
Pension-eligible elderly are more confident that they will be able to be hospitalized if
recommended by a doctor, even though self-assessed health and health insurance
coverage do not change at the pension-eligible age threshold. Chen, Eggleston, and Sun (2014), using data from rural Guizhou and Shandong, also find that the new rural
pensions enabled more adult children to migrate for work while providing support of
elderly through purchase of services.