Part II of China's medical security: transition to the market economy (1978-2017)

Cai Haiqing's article continues by recounting the three phases of adapting to new economic relations and bridging the urban-rural divide.

In Part II of Cai Haiqing's article on China's medical security reform, the focus is on the transition from a system catered to individuals within the state apparatus to a more broad-based social medical "insurance" system with social pooling and individual contributions. This shift reflects China's response to the overhaul of state-owned enterprises (SOEs) and the rise of private and foreign companies, which had left many without medical security under the original system.

Furthermore, it also highlights efforts in recent years to integrate urban and rural security networks, ensuring equal rights and common prosperity.

This 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.

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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 was clear that without reforming the employer-based medical security system, it wouldn'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 security system compatible with the socialist market economy and ownership structure became an inevitable trend.

To address this, China initiated the reform of the medical security system. Broadly speaking, the reform can be categorized into the following three periods:

I. Pilot Exploration (Mid-1980s - End of 1998)

Beginning in the early 1980s, certain businesses and regions began to voluntarily reform the conventional employee medical security system through methods such as fixed-amount medical reimbursement and linking medical expense payments to personal contribution.

In 1989, the State Council made instructions on and promulgated the "Key Points of Economic System Reform in 1989" from the State Commission for Restructuring the Economic System. The Key Points outlined pilot reforms in the medical security system in Dandong, Liaoning Province; Siping, Jilin Province; Huangshi, Hubei Province; and Zhuzhou, Hunan Province. Simultaneously, Shenzhen and Hainan Provinces were chosen for comprehensive pilots in the social security system.

In 1993, the Third Plenary Session of the 14th Central Committee of the CPC approved the "Decision to Build a Socialist Market Economy," which explicitly called for the creation of a social insurance system. It mandated that both employers and individuals contribute to urban workers' pensions and medical insurance funds, establishing a combination of social pooling and individual contributions.

In 1994, the National Commission for Restructuring the Economic System, along with the Ministry of Finance, the Ministry of Health, and the Ministry of Personnel [converted into the Ministry of Human Resources and Social Security in 1998], jointly formulated the "Opinions on the Pilot Reform of the Employees' Medical Insurance System." This document proposed piloting a social medical insurance system that combines social pooling with individual contributions. It led to the establishment of the State Council's Leading Group for Medical Insurance Reform, which headed pilot programs in Zhenjiang, Jiangsu Province, and Jiujiang, Jiangxi Province, the so-called "Two Jiangs Pilot Program."

From April 1996 to December 1998, the pilot area expanded. Guided by the General Office of the State Council's document "Opinions on Expanding the Pilot Reform of the Employees' Medical Insurance System," the pilot's scope expanded from the "Two Jiangs" to 56 cities nationwide. This expansion allowed for a broader evaluation of the accomplishments of the "Two Jiangs Pilot Program," which encompassed in-depth research, the identification of issues, the summarization of experiences, understanding of patterns, policy enhancements, as well as a comparison to determine institutional models.

II. Establishing the Basic Medical Insurance (BMI) System for Urban Employees (1999 - 2003)

After more than 4 years of conducting and expanding pilot programs, various departments and sectors had generally agreed on the importance and urgency of reform, agreeing on its objectives, path, system model, and policy framework. Building on this consensus, the State Council issued the "Decision on Establishing an Urban Employee Basic Medical Insurance System" on December 14, 1998. This marked the formal launch of a nationwide urban employee medical insurance system, symbolizing the establishment of a healthcare system tied to employment. This initiative replaced China's nearly fifty-year-old system of free medical services and employer-based insurance with a modern social security system, marking a historic transformation and significant leap forward.

III. Advancing Universal (Urban and Rural) Medical Security (2003 - 2017)

In 2002, the Central Committee of the CPC and the State Council issued the "Decision on Further Strengthening Rural Health Work", stipulating the decision to establish a new type of RCMS and relief system.

To implement the guiding principles outlined in the above document, on January 16, 2003, the General Office of the State Council issued the "Opinions on Establishing a New Type of Rural Cooperative Medical Scheme" proposed by the Ministry of Health and other departments. Through multi-party financing from individuals, collectives, and the government, the previous RCMS evolved into the new rural cooperative medical scheme (NCMS) to address the basic medical needs of rural residents. The same year, the Ministries of Civil Affairs, Health, and Finance jointly released the "Opinions on Implementing Rural Medical Relief," initiating pilot projects for a rural medical relief system nationwide. In 2005, pilot projects for urban medical relief systems were launched.

In 2007, the State Council issued the "Guiding Opinions on Launching a Pilot Project for Urban Residents-Based Basic Medical Insurance (URBMI)." After approximately a year of pilot testing and following the principle of financial subsidies and voluntary participation by residents, a nationwide URBMI was established. This system primarily addressed the basic medical security issues of urban non-employed populations, commonly referred to as "the elderly and the children."

In 2016, the State Council issued the "Opinions on Integrating the Basic Medical Insurance Systems for Urban and Rural Residents." This decision aimed to combine the URBMI with the NCMS, creating the urban and rural residents' BMI system (URRBMI). By the close of 2017, a majority of provinces (24 out of 34) had allocated the administration of URRBMI to the human resources departments. This transition successfully brought about the integration of six key aspects: unified coverage, financing policies, security benefits, insurance catalogs, designated management, and fund management.

Examining the period from 2003 to 2017, the construction of a universal medical insurance system saw comprehensive advancement and rapid development, essentially achieving universal coverage of the BMI system.

Main Characteristics of the Medical Security System Reform since the Reform and Opening Up

During this stage, the reform of China's medical security system mainly exhibited the following characteristics:

1) The Medical Security System Reform Adapted to Economic and Social Development.

After the reform and opening up, the medical security system reform was originally initiated as a supporting system for SOE reforms. Against the historical background of free medical services and employer-based insurance, a large number of transitional policies were adopted to promote smooth reform.

2) The Medical Security System was Aimed at Covering Both Major and Minor Medical Needs, with Priority on the Former.

The urban employee medical insurance established in 1998 primarily covered major illnesses, while minor medical expenses were covered through personal contributions. The NCMS established in 2003 was a "cooperative medical scheme for farmers mainly focusing on major illness pooling." The URRBMI established in 2007 also primarily focused on major illness pooling. Additionally, the rural and urban medical assistance systems established in 2003 and 2005, respectively, mainly focused on major illness assistance, too.

3) Separation of Medical Service Provision and Purchase.

After the establishment and implementation of the social medical insurance system, basic medical services needed by the public were purchased from medical institutions using the social medical insurance fund. This achieved a separation between the financing of medical security and the provision of medical services.