III. Medical Insurance

In 1998, on the basis of previous trials, the Chinese government promulgated the “Decision on Establishing a Basic Medical Insurance System for Urban Employees,” promoting a national reform of the basic medical insurance system for urban employees. By the end of 2003, some 109.02 million people around China had participated in the basic medical insurance program, including 79.75 million employees and 29.27 million retirees.

Establishing a Basic Medical Insurance System for Urban Employees

China has adopted a basic medical insurance system for urban employees that combines social pool and personal accounts. In principle, the medical insurance is managed locally.

Insurance scope and premium. The basic medical insurance program covers all employers and employees in urban areas, including employees and retirees of all government agencies, public institutions, enterprises, mass organizations and private non-enterprise units. People employed in a flexible manner can also participate in the basic medical insurance program. The funds for basic medical insurance come mainly from premiums paid by both employers and employees: the premium paid by the employer is about six percent of the total wage bill, while that paid by the employee is two percent of his or her wage. Retirees are exempted from paying the premiums. The individuals’ premiums and 30 percent of the premiums paid by the employers go to the personal accounts, and the remaining 70 percent of the premiums paid by the employers goes to the social pool program funds.

Payment standards. Medical expenses are shared by the medical insurance fund and the individual: Outpatient treatment fees (smaller amounts) are mainly paid from the personal account, while hospitalization expenses (larger amounts) are paid mainly from the social pool fund. The minimum and maximum payments from the social pool fund are clearly set out. The minimum payment is, in principle, about 10 percent of the average annual wage of local employees, and the maximum payment is about four times the average annual wage of local employees. The medical expenses between the minimum and maximum standards are mainly paid from the social pool fund, and the individual pays a certain proportion. Expenses paid by retirees for medical treatment and medicine are reasonably lower than those paid by people in employment.

Improving Medical Insurance Management and Services

To standardize medical services and reduce costs, the state simultaneously promotes the reform of the basic medical insurance system, medical and healthcare system, and pharmaceuticals production and circulation system. Catalogues have been made of medications, medical consultations and medical services and facilities covered by the national basic medical insurance scheme. Efforts have been made to ensure that the insured enjoy necessary medical services, to curb unreasonable medical expenses, and to enhance the utilization efficiency of the basic medical insurance fund. A management method of the designation of medical institutions and pharmacies allowed to provide services covered by medical insurance has been put into practice. A competitive mechanism has been established to select and designate medical institutions and pharmacies that operate in a standard manner and provide good services. Meanwhile, account settlement procedures have been formulated and steadily improved for medical insurance handling organizations and designated medical institutions.

Improving the Multi-Level Medical Security System

While establishing the basic medical insurance system, to meet the medical demands of different types of people covered by the insurance, the state has established and improved a multi-level medical security system to reduce personal burdens on the insured individuals. In local areas, a system of subsidies for large medical expenses has been set up in accordance with actual conditions to settle medical expenses exceeding the maximum limit of the basic medical insurance payment, the funds for the subsidies being raised mainly from individuals or enterprises. The state encourages enterprises to establish supplementary medical insurance for their employees, mainly for settling medical expenses not covered by the enterprise employees’ basic medical insurance. The part of the enterprise’s supplementary medical insurance premiums that is within four percent of the total wage bill is booked as the production cost. A civil servants medical subsidy system has been established for civil servants and employees of public institutions who formerly enjoyed free medical services. The state is gradually establishing a social medical aid system mainly funded by the government to provide basic medical security for people with special difficulties.

The reform of China’s medical insurance system faces many heavy tasks. In future, the state will further expand the coverage of medical insurance to steadily include eligible people in all kinds of employment in urban areas in the basic medical insurance scheme; strengthen and improve medical insurance management and services; curb the irrational increase of medical expenses, and provide better services for the insured; establish and improve a multi-level medical security system, gradually lessen personal burden on the insured, and realize the stable operation and sustainable development of the medical insurance system.