How Health Insurance Works in China, and How It’s Changing

Almost everyone in China has had at least some health insurance since new policies were introduced a decade ago. Now China has begun pursuing a second wave of changes.

The new policies, which have triggered protests in several big cities like Wuhan, are aimed at covering deficits in local employee health insurance plans and reducing inequality between cities and rural areas.

China has two main kinds of health insurance: employee hospitalization insurance and so-called residents insurance.

The employee hospitalization insurance is the better of the two and used by a quarter of the country’s population. It covers the urban employees and retirees of state-owned enterprises, as well as the current employees of some private-sector businesses.

In contrast to the United States, employee insurance in China is not managed by companies. Instead, a municipal government typically forms an employee insurance pool to cover hospitalization and a few outpatient expenses.

Companies typically contribute to the pools an amount equal to as much as 9.8 percent of a worker’s salary. Employees do not contribute to the insurance pools themselves.

In addition, those who qualify for employee plans typically have what are called personal health accounts. The money in them can be spent on medicine and further outpatient treatments.

The employee insurance pools currently forward about a third of the money they receive from employers to personal health accounts, and spend the remaining two-thirds on hospitalizations and other expenses. Employees also put about 2 percent of their paychecks into their health accounts until they retire.

Until this month, Wuhan’s employee insurance plan kept forwarding about $38 each month to personal health accounts even after employees retired and their employers were no longer contributing. Wuhan has just cut those monthly transfers to less than $12, saving money for the overall health plan.

The less fortunate three-quarters of China’s 1.4 billion people have urban or rural residents insurance. Residents insurance is for farmers and migrant workers, as well as for children, who are seldom covered by their parents’ health insurance plans. It is also for the many workers whose private-sector employers are not making contributions for them.

Many companies use loopholes or outright evasion to avoid making insurance contributions for their workers. In the past decade, China’s government has been cracking down on companies that flout the rules.

People with residents insurance generally do not get personal health accounts.

Less than 4 percent of China’s population has no health insurance at all. This portion tends to be migrant gig workers who live at the fringes of society.

Not much.

Chinese health insurance plans have narrow restrictions on what is covered, high co-payments and very low coverage maximums. Employee insurance paid out an average of $544 in 2020 for each person covered. Residents insurance paid out an average of just $116 in 2020 for each person covered.

Chinese law says that when a municipality’s pooled employee insurance fund runs a deficit, the city government has to cover the shortfall.

Many of these funds now face deficits. They covered many costs associated with China’s elaborate “zero Covid” campaign for nearly three years, including extensive medical isolation and testing.

In Wuhan, a city making some of the sharpest insurance changes, the pooled employee fund has faced especially high costs.

While the pooled employee funds in many cities are depleted, personal health accounts across China have accumulated more than $130 billion. So the central government wants municipalities to put less money into personal health accounts and redirect some of that money to hospitalization funds.

At the same time, the employee pooled hospitalization plans are taking responsibility for more outpatient expenses for serious illnesses and covering more purchases of medicine.

The rules on spending money from the personal health accounts are also being changed. Beneficiaries will be allowed to direct money to their parents, spouses and children, including family members who live in rural areas. In villages, an illness like cancer can ruin the finances of an entire family.

People with personal health accounts are also finding it harder now to use the money for themselves. Retirees must now spend at least $75 out of pocket each year on medicine and outpatient expenses before they can claim partial reimbursement from the employee insurance pools. Workers who are still employed must spend at least $100 of their own money.

Average income for urban retirees is about $6,000 a year, not including personal savings. Rural retirees live on far less, but also grow some of their own food.

Li You and Joy Dong contributed research and reporting.