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The development of public health insurance schemes in China

Over the past two decades, the Chinese government has launched a series of reforms to improve the accessibility of healthcare services. This blog entry briefly surveys the history of the development of healthcare systems in China and the evaluation of these reforms. 

Healthcare reforms in China

When the People’s Republic of China was founded in 1949, the government introduced a centrally planned economy. During this period, health insurance systems in China were organised and managed according to the workplace. The Labour Insurance System (LIS) was implemented in 1951 to cover the employees of state-owned (SOEs) or collectively-owned (COEs) enterprises as well as their dependents. The system was mainly funded by companies, and employees contributed a small proportion of their salary to the scheme. One year later, the Government Insurance System (GIS) was established to cover government officials, retired government staff, and university students; this was funded by central and local government tax revenues. From 1950, the Cooperative Medical Scheme (CMS) was gradually developed for rural residents, managed by the individual agricultural communes. The CMS was mainly financed by agricultural communes, and residents paid a small premium for enrolment. The benefit levels of LIS and CMS were largely dependent on the revenues of companies and communes, which varied across organisations. In contrast, the GIS was more reliable, and provided more generous benefits for its insured members.

Since the ‘opening up’ and reform in 1978, the centrally planned economy has been gradually replaced by the market economy in China. This led to the collapse of agricultural communes and, therefore, the CMS. Meanwhile, the privatisation of SOEs and COEs progressed with numerous redundancies, and many people lost their jobs as well as their coverage of the LIS. The ratio of out-of-pocket healthcare expenditure to total healthcare expenditure increased from 20.43% in 1978 to 54.85% in 1998 (National Bureau of Statistics, 2016). During the last two decades of healthcare reform, the inequality in access to healthcare services became a serious social issue.

This motivated the implementation of the Urban Employees Basic Medical Insurance (UEBMI) in 1998. The UEBMI, which is mandatory and run by the government, replaced the GIS and the LIS. Up until 2002, 96% of employees in the public and enterprise sectors in urban areas joined the scheme (Huang, 2017). The UEBMI’s revenue comes from both employees and organisations. Its premium is 8% of the individual’s gross salary: employees pay 2% of their salary and organisations contribute the remaining (6%). In 2003, the New Rural Cooperative Medical Scheme (NCMS) was founded for rural residents that were not eligible for UEBMI. This scheme is voluntary, operates at the household level and is mainly funded by central and local governments. Participants contribute a small amount of the premium. For instance, the average annual insurance premium was 410 renminbi (RMB) per person in 2014 (in the same year, the average disposable annual income was 10,489 RMB in rural areas). Residents only paid 90 RMB and the remaining was subsided by central and local governments. More than 91% of the eligible population had joined the scheme by 2008 (National Bureau of Statistics, 2013).

The Urban Resident Basic Medical Insurance (URBMI) was implemented in 2007 for urban residents who were not eligible for the UEBMI. Its funding system is similar to the NCMS, but participants are required to contribute a greater share of the premium in comparison to rural residents. In order to reduce inequality of access to healthcare services across rural and urban areas, the NCMS and the URBMI were gradually merged together, then finally replaced by the Urban and Rural Resident Basic Medical Insurance (URRBMI), in 2016. Currently, there are two dominant types of public health insurance schemes in China: the UEBMI for employees and the NCMS, URBMI, and URRBMI for other residents and/or employees who cannot access the UEBMI.

All of the aforementioned public health insurance schemes cover only eligible and basic medicines (around 2,643 drugs on the eligible list by the end of 2019) and treatments. Insured patients are liable to pay the deductible amount, the coinsurance amount, expenses over the reimbursement cap (which is four to six times the average local annual salary), and healthcare goods and services on the eligible list. Consequently, though the URRBMI and the UEBMI cover 60-85% of the cost of eligible medicines and services, insured patients often pay much more than 15-40% of their total medical expenditure. Local governments set the deductible amount, and the reimbursement rate and cap, within a range provided by the central government. With more contributions made by participants and their employees, the UEBMI provides a higher reimbursement rate compared to the resident medical schemes. More comprehensive details about the rates and premiums for these schemes can be found in Zhang et al (2017), Barber and Yao (2011), and Wagstaff (2009).

Evaluation of the public health insurance schemes

The primary goal of the development of the healthcare system is to improve the accessibility of healthcare services by reducing out-of-pocket expenditure. Public health insurance schemes have been evaluated based on their impacts on the utilisation of healthcare services and out-of-pocket medical expenditure. Most of the literature shows that enrolments in such public health insurance schemes promotes the usage of healthcare services, especially among those with low income and older adults (Zhang et al, 2017; Liu and Zhao, 2012). 

However, the results are mixed in terms of reducing out-of-pocket healthcare spending. For instance, Babiarz (2010) found that the implementation of NCMC reduced out-of-pocket spending by 19% in rural areas. Similarly, Zhang et al. (2017) suggested that older patients with public health insurance schemes had a lower out-of-pocket inpatient expenditure compared to their uninsured counterparts. However, others argue that public health insurance schemes increase out-of-pocket expenditure (Wagstaff and Linelow, 2008; Zhang, 2018): and there is further work which states that there is no association between participation in public health insurance schemes and out-of-pocket healthcare expenditure (Lei and Lin, 2009; Chen et al., 2019; Liu and Zhao, 2012). 

I suggest these inconsistent findings may be explained by examining the different ways public health insurance schemes impact out-of-pocket expenditure. Here, because the schemes cover part of the medical expenditure, participants pay less than their uninsured peers for an equivalent healthcare service and product. Meanwhile, reduced costs encourage insured patients to make more use of the healthcare services, which might increase the demand for medical treatments and consequently raise the out-of-pocket expenditure. 

In turn, the profit motive could then be driving healthcare centres to provide more expensive and unnecessary treatments to insured patients (Wagstaff et al., 2009), which could then be increasing out-of-pocket expenditure. Hospitals previously generated profit by marking-up the price of medicines and medical consumables, with a proportion of the margin going to doctors who prescribed them unnecessarily. To alleviate this waste of healthcare resources driven by profit, a series of reforms were launched from 2009 onwards, aimed at removing the price mark-up of drugs and consumables in hospitals, by setting uniform prices. This was successfully rolled out nationally in 2017. However, doctors may still prescribe unnecessary and excess medicines to patients (especially to insured patients) to receive commission which is indirectly contributed by drug companies.

It is difficult to define and supervise the over-utilisation of healthcare services. Those who have substantial purchasing power are more likely to overuse healthcare services and become the targets of healthcare institutions out to make a profit. Wealthy individuals are able to purchase medical treatment without the use of health insurance schemes. Therefore, focusing on the wealthy group, Zhang (2018) defines the overutilisation of healthcare services as a situation where insured older adults spend more on healthcare services than their uninsured counterparts. The author finds that UEBMI (with a higher reimbursement rate) encourages insured patients to overuse healthcare services, but the resident medical insurance schemes (NCMS, URBMI, and URRBMI) do not. 

Insured patients with limited resources may not be able to afford sufficient and necessary medical treatment due to the high coinsurance rates (Chen et al., 2019). Those with limited resources, although enrolled in insurance programmes, may purchase more medical treatment with support from public schemes. However, public health insurance schemes do not change the out-of-pocket expenditure due to limited budgets. For people whose demand for healthcare was satisfied or almost met before they joined public health insurance schemes, their out-of-pocket expenditure will be reduced if they do not significantly increase the usage of medical services.


The Chinese healthcare reforms introduced over the past two decades have achieved much in terms of increasing the utilisation of healthcare services. However, inconsistent reimbursement rates, caps, and coinsurance rates across different schemes, raise concerns about inequalities in access to healthcare services within many programmes. As insured patients still pay for a significant proportion of their medical fees, we also question whether the schemes enable people in deprived areas to meet their needs regarding medical treatment. While the system cannot presently afford nationally free health services, it critical that limited medical resources are not wasted by the over-utilisation of healthcare services. 

About the Author 

Dr Yanan Zhang  is a Research Fellow on the DAI@Oxford Programme with a quantitative focus. Her role involves the creation of an evidence base for positive interventions in support of population ageing.

Opinions of the blogger is their own and not endorsed by the Institute

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