By Jiwei Qian

Financial Sustainability of China’s Social Health Insurance Funds

Jun. 03, 2016  |     |  0 comments

In March 2016, China’s 13th Five-Year Plan was approved by the National People’s Congress, and the reform of social health insurance was underlined in the plan. In particular, the financially sustainable management of social health insurance is one of the key issues to be addressed in the Chinese health care system.

Towards Universal Coverage

After the dissolution of the central planning system in the 1980s, a Basic Health Insurance Scheme (BHI) was initiated in the mid-1990s for urban employees in formal sectors including State Owned Enterprises (SOEs) and firms in other ownership forms. First, risk-pooling and plan management are organized through a social security bureau at the city level. The basic version of the plan covers only current and retired employees (but not their dependents) of participating employers, be they the government, SOEs, or private firms. The coverage of BHI has increased steadily. Until 2014, there were almost 283 million enrolees in BHI, accounting for about 72 percent of total urban labor force.

The plan is funded through payroll deductions based on a minimum of 8 percent of the worker's salary (6 percent from the employer and 2 percent from the employee). This amount is then split between a social pooling account and an individual account in the name of the worker for the payment of both outpatient and inpatient care. When an individual has an illness which requires inpatient care, he or she can get reimbursement from the social pooling account subject to a locally determined co-insurance rate, and subject also to an upper limit equivalent to 6 times the average annual wage of the city (Qian and Blomqvist, 2014).

BHI terms however vary across provinces. Some cities with good fiscal capacity offer relatively generous benefits and complementary social insurance for BHI enrolees is also offered to improve financial coverage for patients. In Shanghai, for instance, in the mid-2000s an employer contributed 10 percent of income. In some localities the employer’s contribution can be as low as 3 percent in comparison with the national average of about 7.4 percent (Qian and Blomqvist, 2014).

Also, there is a large number of people who did not enrol with BHI as they are not urban workers. For example, there were over 70 percent of urban residents who were not covered by BHI in the early 2000s. In the national survey on health services in 2003, over 79 percent of rural residents did not have any health insurance.

Since 2002, a New Cooperatives Medical Scheme (NCMS) plan has been initiated to provide health insurance for rural residents. NCMS is managed by the local health bureau. Urban Resident Health Insurance (URI) was initiated in 2007 to cover those not covered by BHI, including retirees, self-employed workers, and students. URI and NCMS are managed by the local social security bureau and health bureau respectively. Both URI and NCMS, unlike BHI, are voluntary plans. The numbers of enrolees of NCMS and URI reached 736 million and 314 million respectively in 2014. By the end of 2014, 95 percent of Chinese citizens were covered by one of the social health insurance plans.

To attract enrolment and to improve the benefits of NCMS/URI, the government also provides a subsidy for each enrolee. The minimum government subsidy per enrolee (from both central and local governments) increased from RMB 10 in 2003 to RMB  420 in 2016.

Increasing Fund Surpluses

With an increasing number of enrolees, together with increased government subsidies for the social insurance funds and increasing urban wages, the surplus of social health insurance funds has increased very quickly in recent years. The accumulated surplus of these three social health insurance plans accounted for more than 33 percent of health expenditure in 2014. Compared to the 10 percent average surplus elsewhere in the world, the surplus for Chinese social health insurance is extremely high.

Figures 1 and 2 show the accumulated fund surpluses of three major social insurance schemes. The fund surpluses have increased steadily in all three plans. Accumulated surpluses for social pooling account in BHI increased by more than four times between 2004 and 2014 from RMB 100 billion to over RMB 945 billion (equivalent to over 162 percent of total reimbursements in 2013). For CMS, the accumulated fund surpluses have expanded from less than RMB 10 billion in 2006 to over RMB 104 billion in 2014 (i.e. 35 percent of total reimbursements in 2014). Accumulated surpluses for URI have increased from less than RMB 5 billion in 2007 to over RMB 119.5 billion in 2014 (i.e. 123 percent of total reimbursements in 2013).

Figure 1.  Amount of Accumulated Surpluses of BHI (Billion RMB)

Sources: China Labor and Social Security Yearbook & Statistical Communiqué on Human Resources and Social Security in China, various years.

Figure 2. Amount of Accumulated Surpluses for NCMS and URI (Billion RMB)

Sources: China Health Statistical Yearbook, China Labor and Social Security Yearbook & Statistical Communiqué on Human Resources and Social Security in China, various years.

In particular, the surpluses of BHI and URI are significantly higher than the threshold level set by the Ministry of Finance in guidelines released in 2009. In these guidelines, it was recommended that the surpluses in BHI’s social pooling account should be kept between 50 percent and 75 percent of annual reimbursements. In 2014, the surpluses in URI and social pooling account of BHI combined reached RMB 673.2 billion, accounting for over 82 percent of annual reimbursements in both plans, which is significantly higher than the 75 percent threshold.

One important reason for these high surpluses in social health insurance is that financial coverage for these plans is not very high. Based on a recent audit report from the National Audit Office (2012), the actual reimbursement rate for NCMS and URI (i.e. the ratio of reimbursed and health expenditure) were 49.2 percent and 52.3 percent respectively while the reimbursement rate of BHI was 64 percent in 2011. In other words, out-of-pocket expenditures for enrolees under NCMS and URI account for about 50 percent of health expenses. For BHI, the out-of-pocket expenditure can reach as high as 36 percent on average.

The other reason for the high surpluses is that in some provinces, the contribution rate is particularly high given a large number of migrants and relatively young age structure. For example, Guangdong is one of the major provinces receiving millions of migrant workers. While residents in Guangdong province only accounted for 7.8 percent of population in China in 2013, surpluses of Guangdong’s BHI and URI accounted for 14.1 percent and 14.5 percent respectively that same year. In contrast, residents in three northeastern provinces (Liaoning, Jilin and Heilongjiang) where the population outflow is very high, accounted for 9 percent of the population in China in 2013, while surpluses of BHI and URI in these three provinces only accounted for 8.1 percent and 8.7 percent respectively that same year.

Financial Sustainability

While the surpluses are presently high, financial sustainability remains a serious concern for the future. First, for some cities with aging populations and a shrinking industrial base, deficits in health insurance have emerged recently. In 2014, there were deficits in 185 of 380 BHI plans (i.e. annual expenditures were larger than contributions) (Zhu, 2016). In 2013, 22 BHI plans had used up all their accumulated surpluses and 108 URI plans had deficits in the current year (“Income gap for”, 2015). In many cities, the financial sustainability of social health insurance funds remains a very serious issue.

Second, since almost everybody is already covered by social health insurance, the revenue from premiums is expected to increase at a slower rate. In addition, since GDP growth in China has been slowing down, the growth rate of wages will be lower, thereby lowering contributions to the social insurance funds.

Third, the expenditure from social health insurance is expected increase significantly over the next five years. China’s 13th Five-Year Plan states that the reimbursement rate for health expenditure is going to increase significantly by 2020. For example, according to the Anhui province government (“Anhui 13th Five-year”, 2015), the actual reimbursement rate for inpatient services in Anhui is expected to increase for NCMS from 58 percent in 2015 to over 60 percent in 2016. The reimbursement rate is expected to increase even further over next five years.

Two major directions of reform have been considered in the the 13th Five-Year Plan. One is to consolidate insurance plans to increase risk pooling. The State Council announced in November 2015 that NCMS and URI will eventually merge into a single plan. In April 2016, the Ministry of Finance and the Ministry of Human Resources and Social Security released a joint announcement that the maternity insurance fund is going to merge with the health insurance fund (i.e. URI or BHI). The amount of accumulated surplus from maternity insurance reached over RMB 57 billion in 2014, which may be helpful to improve the fiscal condition of health insurance.

The other direction of reform is payment reform, which is supposed to increase the efficiency of reimbursement from health insurance. In particular, the traditional fee-for-service payment system at county-level hospitals in 311 counties nationwide from late 2012 will be replaced with various alternative payment methods to control costs in hospitals. Until early 2016, over 85 percent and 35 percent of social insurance plans have implemented global budget and payment by standardized clinical paths respectively. In addition, 24 percent of insurance plans have implemented capitation (i.e. reimbursing by the number of enrolees).

However, there are still remaining issues to be addressed (Qian, 2016). First, although some localities have started pilot reforms of payment methods, the social insurers are short of capacity/professional training to improve affordability via purchasing health services from providers. For example, they are short of capacity in evaluating the payment as well as quality of health care services in clinical pathways for many local NCMS plans (Chen and Chen, 2012).

Second, many local social insurers’ objective is merely to balance the budget and not to explore potential payment method reforms in order to control health service costs. In particular, compared to spending fiscal resources in improving the capacity of social insurance, local governments have strong incentives to set a relatively low reimbursement rate to balance the budget.


Anhui Shisanwu: Nongmin zhuyuan baoxiao budi 60% [Anhui 13th Five-year Plan: Hospitalization reimbursement for farmers not lower than 60%]. (2015, November 18). Xinan Evening News. Retrieved from

Chen, X. and Chen, J. (2012). The current situation and problems of hospitalization payment system in New Rural Cooperative Medicine Scheme. China Journal of Health Policy, 5(2), 44-48.

Chengzhen yibao jijin churu luocha zengda [Income gap for healthcare insurance funds in cities and towns widens]. (2015, June 27). China Business Journal.

National Audit Office. (2012). Quanguo shehui baozhang jijin shenji jieguo. [Audit results for national social insurance funds] Announcement No 34.

Qian, J. (2016) The rise of regulatory state in the Chinese health care system. Manuscript.

Qian, J, and Blomqvist, Å. (2014). Health Policy Reform in China: A Comparative Perspective. Singapore: World Scientific.

Zhu, H. (2016, February 19). Tuixiu zhigong shifou yinggai jiaofei canjia yibao [Should retired workers pay to join healthcare insurance]. Retrieved from

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