China proposes shakeup of urban workers’ medical insurance scheme

23 September 2020

China’s government has quietly announced the first major reform of the state-backed medical insurance scheme for urban workers in 22 years.

The long-anticipated reform is prompted by concerns that the insurance fund could be depleted in as few as ten years because of the demands of a rapidly aging population, which already in 2019 accounted for about 65 percent of the fund’s 1,197 billion yuan annual expenses.

The new measures focus on transferring a proportion of the fund’s largely under-used personal accounts, which make up about 40 percent of the total fund, to the public account. 

The personal account is supposed to cover relatively inexpensive outpatient costs, but because of the low reimbursement rates for outpatient services, workers have tended to keep their fund intact as a secondary savings plan rather than using it for medical costs. The public account, on the other hand, primarily covers inpatient costs, and has by far the highest demand load. In 2019, about 60 percent of all expenses were for inpatient services.

Under the system that was established in 1998 by the State Council Decision on the Establishment of a Basic Medical Insurance System for Urban Staff and Workers (国务院关于建立城镇职工基本医疗保险制度的决定), workers typically contribute two percent of their wages to their personal account. Employers contribute at a higher rate, with about 70 percent going to the public account and 30 percent to the workers’ personal accounts.

The reform measure aims to redistribute the employer contributions to workers’ personal accounts to the public account, thereby relieving some of the financial pressure on the fund. However, the proposal has already run into criticism on the grounds that it appropriates workers’ private property.

Additional reforms aim to increase the reimbursement rate for outpatient treatment costs so as to encourage the use of outpatient services, but the exact rates are to be determined by provincial and municipal governments.

A more fundamental issue, however, is that the measures largely overlook the relatively limited coverage that the urban workers’ scheme provides. According to the National Bureau of Statistics, China had an urban workforce of 434 million at the end of 2018.  The number of workers covered by the basic urban medical insurance scheme was only 233 million, plus 84 million retirees. 

The lack of coverage for rural migrant workers under the scheme is particularly striking. China no longer publicises the coverage rate for migrant workers, but in 2017, the Ministry of Human Resources and Social Security reported that it was still only about 22 percent. The vast majority of migrant workers and their families have to rely on urban and rural residents' medical insurance schemes that only cover a very limited range of medical services.

Some cities have introduced schemes that expand insurance coverage to include all urban residents. In the southern coastal city of Zhuhai, for example, the municipal government has introduced a scheme under which all residents, including migrant workers and their children, are covered - primarily for outpatient expenses - for a premium of just 100 yuan per year.

However, in major cities like Beijing and Shanghai that want to restrict rural to urban migration, there is little evidence that migrant workers’ access to healthcare is improving. 

For more background information on this complex issue, please see our explainer on China’s Social Security System.

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