Ministry of Labor and Social Security

August 15, 2007

I. Main Achievements and Issues of Medical Security System Construction in China in Recent Years

The Central Committee of the Communist Party of China and the State Council have adhered to the "people-oriented" principle and attached great importance to the well-being of the people. In line with the strategic arrangements for building a socialist harmonious society, a set of major reforming measures have been adopted to improve the medical security system and promote public health in the past decade.

In 1998, the State Council promulgated the Decision of the State Council on Establishing a Basic Medical Insurance System for Urban Employees (GUOFA [1998] No. 44), the basic medical insurance system for urban employees has been established since then and progress have been achieved. By early this year, this system has covered nearly 170 million employees, retirees, self-employed and migrant workers in urban enterprises. In 2002, the Central Committee of the Communist Party of China and the State Council decided to establish new rural cooperative medical system, and 700 million farmers are covered by this system until now. In 2003, a rural medical relief system was initiated and an urban medical relief pilot program started in 2005, which are replicated nationwide. The establishment and implementation of these systems play a positive role in promoting people's living standards and coordinating social-economic development.

With the full implementation of the basic medical insurance system for urban employees as well as the new rural cooperative medical pilot project, the medical service issues related to urban non-employed population, including students and children have become a hot topic. Premier Wen Jiabao announced that "a pilot program on urban basic medical insurance system will be launched" in the Governments Report 2007.

Based on the research and practice across the country, the State Council initiated pilots on the basic medical insurance system for urban residents, which focuses on the coverage of catastrophic diseases. And the State Council issued the Guidelines on Piloting Basic Medical Insurance Scheme for Urban Residents (GUOFA [2007] No. 20).

II. The significance and purpose of the pilot program on basic medical insurance scheme for urban residents

A basic medical insurance system for urban residents is a key to improving the social security system. By building the social security net, the general public would be confident to consume in stead of over-saving, thus enhancing the domestic consumption and transition of economic development mode. The coverage of hospitalization and catastrophic diseases will be ensured through household contribution and governmental subsidy, so as to meet the medical service costs of catastrophic diseases. The aim that everyone benefits from the basic medical security will be realized; social equity and harmony could be maintained.

The overall planning is that two or three cities in each capable province will start pilot in 2007, which will be replicated in more than 80 percent cities across the country until 2009, and in 2010 all the non-employed population in urban areas will be covered in this system. The main purpose of piloting is to explore and perfect the policies of the basic medical insurance system for urban residents, so as to form reasonable fundraising mechanism, sound management and operational mechanism, gradually establish a stable and sustainable urban basic medical insurance system covering catastrophic diseases.

III. Basic principles of pilots on basic medical insurance system for urban residents

The first principle is to start up in low benefit level. The fundraising level and benefit criterion should be determined based on the reality in social and economic development and the affordability of relevant actors in the system. It should focus on covering medical care service of hospitalization and catastrophic diseases of urban non-employed population. With the development of economy, the benefit level will be raised and the scope of beneficiaries will be expanded.

The second principle is voluntary participation. The State Council decides to launch pilots in two or three cities in each capable province where urban residents in those citied will join the system out of their own will.

The third principle is residence management. The responsibilities of the central government and local ones will be identified, that is, the central government is responsible for setting fundamental principles and major policies, while the local governments will work out detailed measures. The residence management is the managerial method used in basic medical insurance system for urban residents.

The forth principle is overall planning. Efforts will be made to ensure the linkage between policies, standards and management measures of different medical security systems in line with the "putting people first" principle, so that the pilot project could be implemented successfully and various medical security systems could develop in a coordinated way.

IV. Main policies of the piloting on the basic medical insurance system for urban residents

1. The coverage. Those who are not covered by the basic medical insurance system for urban employees, namely students in primary and secondary schools (including vocational secondary school and technical secondary school), children and other urban non-employed population, may voluntarily join the basic medical insurance system for urban residents.

2. The fundraising level. The fundraising level should be determined by local economic development, based on the affordability of local residents. Given different disease risks and medical costs, different contribution rate will be set for urban minors and adults. In order to encourage the residents to join the system as early as possible and pay full premium, the local governments are encouraged to establish a mechanism linking up fundraising level, contribution period and benefit package to avoid cases of people withdrawing from the system after recovery.

3. The focus of the scheme. The fund of the basic medical insurance for urban residents will focus on covering the in-hospital expending and outpatient service for catastrophic diseases medical care. With the catastrophic diseases covered, the capable regions may implement the scheme covering out-hospital services gradually.

4. Contribution. The households will be the main contributor to the premium of the basic medical insurance for urban residents, and the governments will provide subsidies. Insured residents contribute the premium and enjoy the benefits. The capable employers could offer allowance to the employees whose family members join the basic medical insurance system for urban residents. Preferential tax policies will be granted to the above-mentioned contribution and allowance.

5. Governmental subsidies. In the pilot cities, the insured residents will be subsidized with no less than 40 Yuan per person annually, and for the central and western areas, the Central Finance will pay half of 40-yuan subsidy through transferred payment. In addition to the average allowance of no less than 40 Yuan, the governments in principle will subsidize the vulnerable minors receiving minimum living allowance or heavily disabled minors with an extra 10 Yuan per person annually, and for the central and western areas, the Central Finance will give an additional 5 Yuan per person through transferred payment. As for the elders above 60 years old living with low income family, those receive the minimum living allowance, and the heavily disabled without capability to work, the governments will subsidize them with no less than 60 Yuan per person annually to pay the premium (in addition to the average subsidy of no less than 40 Yuan annually), and for the central and western areas, the Central Finance will offer 30-yuan subsidy through transferred payment. With respect to subsidies for eastern areas, the new rural cooperative medical service will be used as a reference.

6. Medical Insurance Expenses. Three principles shall be applied on medical insurance fund expenses for urban residents: the revenue should determine the expenditure; the revenue should cover the expenditure; and there should be slight fund balance. The threshold of reimbursable expenses, ratio of reimbursable amount and ceiling line should be rationally decided, payment approach should be developed for cost containment purposes. The efficiency of the fund should be stressed to ensure the sound operation of the fund and the system. Affordable medical services and payment approaches should be explored for the vulnerable urban residents, who do not hold jobs, so as to ease their burden of possible medical expenses. The fund of basic medical insurance system for urban residents is used to cover medical expenses that are allowed under the reimbursement criteria while other medical cost could be paid through supplementary medical insurance, commercial health insurance, medical relief schemes and social charity fund.

7. Administration and services of medical insurance. In principle, the administration and services of the basic medial insurance scheme for urban residents shall be implemented in accordance with the regulation of the basic medical insurance system for urban employees. Favorable regions are encouraged to pool their basic medical insurance administrative resources together, to establish and develop social supervision organizations with broad social involvement, to establish medical insurance standard organization and specialist consultation organizations, to promote professional technical standards and business procedures, to enhance administrative institutions of medical insurance, and to strengthen the construction of medical insurance information system. The fund of the basic medical insurance system for urban residents will be managed through the special financial accounts of social security fund with separate account book. Financial and account rules will be strictly implemented in accordance with relevant regulations, to manage and supervise basic medical insurance fund. In order to secure fund safety, risk management mechanism should be explored and set up. The service scope of basic medical insurance for urban residents should be rationally determined taking into consideration the medical service requirements and the affordability of the fund. The management of designated medical institutions as well as designated pharmacies should be regulated. The administrative assessment and approval process should be simplified to make it more convenient for residents to join the system and reimburse the cost. The management of medical expenditure shall be strengthened, and the research on incentive measures of medical insurance management and service should be carried out. The payment settlement method should be further developed, focusing on medical service settlement through service payment agreements.

8. Play out the roles of the community service institutions. The functions of urban community service institutions should be strengthened and pooled together. Community service platform will be reinforced to provide better basic medical insurance administration and services. Community health service institutions shall be promoted and those meeting certain conditions will be included into the designated medical institutions. The self-payment part will be decreased if the insured residents receive medical service in community health service institutions.

V. Developing and promoting medical insurance systems.

1. The basic medical insurance system for urban residents, the basic medical insurance system for urban employees, new rural cooperative medical service, urban and rural medical relief and commercial health insurance schemes should be well integrated and planed in a holistic manner, so as to promote the development of a multi-level medical security system, and further develop the basic medical insurance for urban employees, standardize medical insurance payment policies and strengthen medical service management. Effective measures will be taken to include employees of mixed ownership enterprises, private enterprises and self-employed into the coverage of basic medical insurance system for urban employees. More efforts should be made to include migrant workers into the coverage of basic medical insurance system for urban employees, in particular medical schemes on catastrophic diseases. Attention should be paid to employees and retirees of state-owned enterprises with economic difficulty and bankrupted enterprises to take on the issue of their fund contribution. The urban residents with working ability in their working age are encouraged to be employed and participate in the basic medical insurance system for urban employees.

2. Deepen the reform on medical and drug management system. The reforms of medical services, drug production and circulation and medical insurance system should be coordinated and well linked, to play out the roles medical insurance in mobilizing medical resources, ensuring medical service quality and medical cost containment. Regional medical planning should be reinforced. The medical industry standards should be established and improved. The clinical diagnosis and treatment standards, clinical diagnosis guidance, clinical drug prescription regulation and outpatient treatment and hospitalization standard should be developed. The residents would be encouraged to fully utilize the community medical service institutions and the Chinese traditional medical services.

(China Development Gateway August 15, 2007)