Part I of Cai Haiqing on China's medical security system: planned economy era (1949-1978)
Former provincial health official illustrates China's early state-centric, employer-based medical system, its successes, and challenges in the face of the market economy.
The article examines China's medical security system evolution from 1949 to the beginning of the reform and opening-up period. It's worth noting that when the terms "employer" and "employee" are used in the following text, they do not imply employment relationships in the market economy. During the planned economy era, private elements were minimal, and urban residents were employed by state-owned enterprises (SOEs) or public institutions. These entities were responsible for providing lifelong welfare, healthcare, and pensions. Rural residents, on the other hand, lacked formal employers and lived within collective communities.
The article was originally published in Chinese on the WeChat account Hailiao Qingtan海清清谈, the personal account of Cai Haiqing, former Director of Treatment Insurance, Jiangxi Province Healthcare Security Administration. It was then reposted by China Health Insurance中国医疗保险, a mainstream magazine affiliated with the National Healthcare Security Administration of China.
Given the space limit of one email issue, this is only the first part of the full article. The other parts, to be published later, will go into more details about the reforms and workings of the current system.
China's Medical Security System: Development and Outlook
Since the founding of the People's Republic of China, the Communist Party of China (CPC) has consistently adhered to a people-centered governance philosophy, giving strategic priority to ensuring the health of the people and adhering to truth and facts. In response to the evolving needs of China's economic and social development, the CPC has actively expanded and reformed the nation's medical security system. This evolution has seen a shift from a rudimentary state-employer model to a more sophisticated social insurance model marked by broader social integration, comprehensive coverage, and a layered approach to healthcare.
Currently, China boasts the world's largest basic medical security network, covering its entire populace. A multi-layered medical security system framework has already been established based on basic medical insurance (BMI) and supplemented by medical assistance. Additionally, the system incorporates supplementary health insurance, commercial health insurance, charitable donations, and mutual medical aid. These reforms have significantly improved access to basic healthcare services, garnering international recognition for their achievements.
The Historical Evolution of China's Medical Security System
The medical security system is an integral part of the economic and social fabric influencing the people's well-being. Its evolution is inherently shaped and constrained by the economic and social trajectories of respective nations. This necessitates its adaptive nature and phased development.
Adapting the Medical Security System to the Planned Economy
The People's Republic of China, at its inception, inherited a mess riddled with problems from the previous Kuomintang government. The nation faced numerous issues: industrial decline, agricultural stagnation, and severe damage to production facilities, leading to many factory shutdowns and widespread unemployment. Particularly during the rule of the Kuomintang (1927-1948), hyperinflation prevailed, resulting in rampant speculation and soaring prices, which posed significant challenges to the healthy recovery of the national economy.
In the face of challenges to the livelihoods of both urban and rural residents, the Central People's Government [PRC's supreme organ for exercising state power from 1949-1954 when the National People's Congress was not in session] prioritized social security, supporting disaster-stricken citizens and jobless workers, while at the same time maintaining a wartime ration system. Collaborating with enterprises, non-governmental organizations, and grassroots entities, it swiftly initiated social relief and labor insurance, etc., laying the groundwork for a state-employer security system. By 1956, China had established a nascent yet comprehensive social security framework, mandating state leadership and local responsibilities.
In August 1966, the Cultural Revolution began, thrusting China into a decade-long turmoil known as the Ten Years of Chaos. This era saw political ideology prioritize supremacy, with a surge in communist and collectivist sentiments. Urban economies became predominantly state-owned, while rural areas transitioned into "People’s Communes" which were "larger in size and a higher degree of public ownership"[一大二公]. Societal welfare provided by the state and state-owned enterprises (SOEs) were considered as a reflection of the superiority of the socialist system and an inherent component of production and distribution processes. Following the dissolution of the Ministry of Internal Affairs at the end of 1968, the labor union responsible for labor insurance affairs also fell into a paralyzed state. Labor insurance oversight weakened, and the state could no longer effectively control the implementation of the social security system. Consequently, the responsibility for the security system shifted from the state to employers, causing the social security system to undergo a rapid transformation into an employer-managed, self-administered, and isolated operational system.
During the era of planned economy, the urban medical security system primarily consisted of employee medical insurance and free medical services. Meanwhile, in rural settings, a cooperative medical care system was established where individuals and collective farms shared the medical expenses.
Urban Medical Security System in the Era of Planned Economy
On February 26, 1951, the Government Administration Council of the Central People's Government [which was established on October 1, 1949, and dissolved on September 15, 1954. It held a much narrower scope of responsibilities compared to the contemporary State Council.] issued the "Labour Insurance Regulations of the People's Republic of China," which explicitly mandated that enterprises or capital entities contribute labor insurance premiums to establish an employee medical insurance system. This system aimed to provide medical security for employees of state-owned and collective enterprises, along with their directly dependent family members. It involved full reimbursement for employees' medical expenses and 50% reimbursement for their dependents.
In July 1952, the "Instructions for Free Medical and Disease Prevention Services for National Servants of People's Governments, Parties, Groups, and Their Affiliated Institutions at All Levels" (hereinafter referred to as the "Instructions") initiated a phased rollout of the nationwide free medical and disease prevention system. To put the Instructions into action, the Ministry of Health, with the Government Administration Council's approval, issued the "Implementation Measures for Free Medical and Disease Prevention Services for Civil Servants" on August 30, 1952. Subsequently, on January 23, 1953, "Several Provisions on Free Medical Care" was issued, marking a refinement and enhancement of the free medical care system. The system was funded by the state budget, and its implementation coordinated by health departments at all levels. The beneficiaries included employees within the state apparatus, disabled soldiers, university students, and others.
Rural Medical Security System in the Era of Planned Economy
In 1955, with the widespread establishment of rural cooperatives, the Mishan Township of Gaoping City in north China's Shanxi Province initiated "medical and cooperative integration", a collective healthcare system within the rural health station, financed through "health fees" paid by cooperative members and augmented by subsidies from the agricultural cooperative itself.
On June 30, 1956, "the Model Constitution for Advanced Agricultural Cooperatives," approved by the Third Session of the First National People's Congress (NPC) and promulgated by Mao Zedong, stipulated that agricultural cooperatives should be responsible for providing medical treatment to members who get injured or ill due to work-related causes and reimbursing them based on specific circumstances. This was the first time rural collective organizations were assigned responsibility for medical care for their members.
In December 1968, Mao Zedong made instructions on a research report titled "The Cooperative Medical Scheme Welcomed by the Poor and Lower-Middle Peasants," promoting the cooperative medical scheme (CMS) in Leyuan Commune, Changyang County, central China's Hubei Province. Mao's instructions significantly catalyzed the nationwide establishment of the rural cooperative medical scheme (RCMS) based on voluntary mutual aid and financed by collective rural economies. Until then, the rural RCMS had been an optional venture pursued by farmers.
It wasn't until December 15, 1979, when the Ministry of Health released the "Rural Cooperative Medical Scheme Charter (Draft for Trial)," that the state began to regulate the RCMS by establishing standardized guidelines for tasks, management, funding, medical personnel, and the cultivation and use of traditional herbs. The RCMS played a crucial role in alleviating the shortage of doctors and medicines in economically disadvantaged rural areas and in helping farmers overcome the challenges of accessing medical care. It was recognized by the World Bank and World Health Organization as the "only model for health funding in developing countries."
The World Bank and the World Health Organization have indeed recognized China's RCMS as an important example of a successful healthcare model in a low-income developing country.
e.g. The Chinese System of Financing Health The Chinese health system provides an important example of success in the effective delivery of low-cost services. Along with China's high level of literacy and food policies which help ensure adequate nutrition, China's health system has been important in raising life expeltancy to almost seventy years, well above the average for countries of comparable income.
—Financing Health Services in Developing Countries (1987), World Bank
However, to the best of our abilities, there's no specific statement claiming that China's medical insurance system is the "only model for health funding in developing countries." The World Bank and the World Health Organization normally suggest nations adapt to their own circumstances.
In specific historical contexts, employee medical insurance, free medical care, and the RCMS played vital roles in preserving the health of employees in SOEs, government agencies, and public institutions, as well as supporting disabled soldiers and university students. Additionally, they helped address healthcare needs for the large rural population. This contributed significantly to the development of socialism.
Characteristics of the Medical Security System in the Era of Planned Economy
1) Operated by Employers.
In urban areas, the prevailing model involved employers taking on complete responsibility, covering all costs, and serving as the sole reimbursers for their employees. Labor unions within SOEs and state institutions took on the responsibility of funding, management, and benefit distribution for employee medical insurance. RCMSs in the rural areas were based on People's Communes or production brigades/teams. Funding and benefits were determined by relevant authorities, emphasizing collective responsibility, isolated operations, and limited government subsidies.
2) Relatively Low Quality of Medical Services
Due to limited medical technology and funding during this period, although the system aimed to cover both severe and minor illnesses, in practice, it often only addressed common ailments. RCMSs primarily relied on traditional Chinese medicine to address the common and frequently occurring health problems faced by farmers. However, this approach often proved inadequate when it came to dealing with severe or serious illnesses. Meanwhile, funding deficits were widespread.
3) Combining Fundraiser and Service Provider into One
In urban areas, employers were the primary funding source for labor medical insurance. Many even had their own medical institutions, thereby integrating funding with service provision. In rural areas, People's Communes or production brigades/teams were both the primary funding bodies and the medical service providers for RCMS, forming a three-tier network of counties, townships, and villages.
Exploring a Medical Security System Compatible with the Market Economy
Following the reform and opening up, China's economic development shifted from a planned economy to a market economy, rendering the employer-based medical security system increasingly incompatible with the changing economic landscape.
Firstly, with rural reforms such as the household contract responsibility system, the rural collective economy started to disintegrate. Consequently, the traditional RCMS, rooted in the rural collective economy, lost its footing and began to struggle.
Secondly, the rural land contract reform kickstarted the overhaul of SOEs. SOEs began to operate independently, managing their profits and losses, facing direct market competition, and even the prospect of bankruptcy. Maintaining a medical security system solely reliant on employers would result in varying medical security costs across different businesses, which could promote unfair competition. Maintaining the medical security interests of employees would be especially challenging for poorly managed companies at risk of bankruptcy.
Thirdly, the introduction of at-will employment led to a common occurrence of people leaving their jobs or becoming unemployed. The existing employer-based security system made it challenging to ensure the medical security rights of these individuals.
Fourthly, as reform and opening up became a fundamental national policy in China, private and foreign-funded enterprises proliferated. They necessitated a medical security system tailored to their unique characteristics to safeguard the medical security rights of their employees.
It's clear that without reforming the employer-based medical security system, it won't just be ineffective as a mechanism for social stability and coordination but could also potentially fuel increased social conflicts. This might potentially impede market economy reform and economic development. Consequently, exploring a medical insurance system compatible with the socialist market economy and ownership structure became an inevitable trend.