Reform of the Medical Insurance System: Benefits and Issues

On January 30th 2015, Zheng Xiaojuan, a liver cancer patient, was receiving the radiation therapy in an urban hospital. As a rural resident, she only received 49% reimbursement from her medical insurance on her medical fees, a rate far below urban residents’ 80% to 90%.On February 16th 2015, Wang Ning, a migrant worker, was hospitalized for breast cancer. She works in Hangzhou, but she has to receive medical treatment back in her registered permanent residence Shaanxi, in order to use her medical insurance.

The factor contributing to these situations is that China’s current medical insurance system is closely linked with the household registration system.

However, on July 30th 2014, the State Council issued “Opinions on Further Promoting the Reform of the Household Registration System (Opinions).” “Innovating the management model of population”, which refers to gradually abolish the distinction between rural and urban household registration, is one of the key missions.

With the reform of the household registration system further deepening, questions such as “how to consummate the medical insurance system” and “will the reformed medical insurance system benefit citizens” continue gaining momentum.

Benefit for Rural Residents: A Higher Reimbursement Ratio 

Currently, China’s medical insurance system has three programs: the New Rural Cooperative Medical Scheme (New Rural Cooperative Scheme), covering rural residents, the Urban Employees Basic Medical Insurance (Urban Employees Insurance), covering urban employees, and the Urban Residents Basic Medical Insurance (Urban Residents Insurance), covering unemployed urban residents.

“Since there is no rural household registration after the reform, the New Rural Cooperative Medical Scheme is no longer needed.” said Chen Guanghui, the Office Director of the Medical Insurance Department in Xianyang Central Hospital.

According to Chen, after the reform, rural residents will also be categorized into urban medical insurance programs. In his opinion, this change will help rural residents to enjoy a higher reimbursement ratio.

Chen took Xianyang, a city in Shaanxi province as an example. According to the policy made by Xianyang Public Health Bureau, if rural residents under the New Rural Cooperative Scheme receive medical treatments in a rural designated hospital, the reimbursement ratio can be 80% to 90%. However, if they choose an urban designated hospital within Shaanxi province, the ratio is only 50% to 70%, and there will be a deductible fee which means only the amount over 2000 RMB can be reimbursed.

Qu Zhen, the Vice Director of the New Rural Cooperative Medical Scheme Office of Xianyang Public Health Bureau, explained in an interview in November 2013 that one purpose of this policy is to encourage rural residents to choose local hospitals, to help relieve the crowding urban hospitals, and to avoid the wasting of medical resources in rural areas.

However, Zheng Xiaojuan, a liver cancer patient coming from a rural county in Xianyang city, thought this policy is useless because of the regional development disparity.

Zheng said that she would prefer going to an urban hospital because many rural hospitals do not have the capability to treat cancer, and doctors and facilities in urban hospitals are much better equipped than their in rural areas.

During April 2013 to January 2015, Zheng has received 6 radiation treatments in Xianyang Central Hospital and the total medical fees amounted to 67,861RMB. However, her rural medical insurance only reimbursed 32,984 RMB, or 49% of her total medical fees.

“Although half of the medical fees are reimbursed by the insurance, the rest is still a heavy burden for my family.” said Zheng.

Zheng and her husband are both farmers. Their livelihood depends entirely on their orchard farm and their average annual income is about 20000 RMB. To treat Zheng’s cancer, her family not only spent all of their savings but also plunged into debt. In order to take care of her in the hospital, her husband barely worked for one year, and consequently barely any income. Besides, Zheng’s disease is difficult to be completely cured. She still needs to take medicine and receive radiation treatment in the future and the costs are hard to estimate.

“After the reform of household registration system, rural residents can enjoy the same medical insurance program with urban residents. In other words, the reimbursement ratio will be 80% to 90% and there will be no deductible fee when rural residents receive medical treatments in the urban designated hospitals,” said Chen. “Without doubt, a higher reimbursement ratio will lighten the financial burden of rural patients.”

Issue for the Hospital: Risk of Widening Regional Difference 

Although the reform of the medical insurance system can bring rural residents benefits, it can also cause an issue for hospitals.

Wen Yi, the Office Director of the Medical Insurance Department in the Second Affiliated Hospital of Shaanxi University of Chinese Medicine, warned that the equal reimbursement ratio may further widen the differences between urban and rural hospitals.

He proposed the possibility that the equal reimbursement ratio could lead more rural residents to choose urban hospitals for their better care quality, and the gap between urban and rural hospitals will be further extended.

Also, he suggested that one way to avoid this situation is to promote the construction and development of rural hospitals.

“If rural hospitals can provide the same medical services as urban hospitals, there is no need for rural residents to go to urban hospitals. The pressure on urban hospitals could be eased and rural hospitals don’t need to worry about the negative effects caused by a lack of patients or funding. ”said Wen.

However, Qu does not entirely agree with this view. He admitted in the interview that the improvement on rural hospitals is essential, but he does not see the scenario where urban hospitals take over rural hospitals’ patients.

“A treatment that costs 300RMB in a rural hospital may cost 1000 RMB in an urban hospital. The same reimbursement ratio results in almost no difference in the actual price,” said Qu. “Thus, rural patients would not always prefer urban hospitals, unless the disease is beyond their local hospitals’ capabilities.

Benefit for the Government: Expanding the Funding Pool 

Expanding the funding pool is another benefit of canceling the New Rural Cooperative Scheme, according to Wen.

Wen explained that part of insurance premiums paid by citizens go to individual medical serving accounts, and the rest is used to set up the funding pool which can be used to pay the formula-based reimbursement of in-patient services for all people within a certain unified area. The amount of funding pool has a direct relationship with the implementation of medical insurance system.

“An important reason that rural residents can’t enjoy the same reimbursement ratio as urban residents is that the funding pool for rural residents is much less than urban residents.” said Wen.

According to Xianyang’s policy, different insurance programs function differently in how they are financed and operate. Under the New Rural Cooperative Scheme, rural residents only need to pay 65 RMB per year. Under the Urban Employees Insurance, employees need to pay 6% of their salary as insurance premium. Under the Urban Residents Insurance, residents need to pay 100 RMB per year. Thus, the insurance premiums paid by rural residents are the fewest among the three programs.

The data published by the Ministry of Human Resources and Social Security in 2012 shows that the average amount of fund raised by Urban Employees Insurance are 2289 RMB, while the New Rural Cooperative Scheme is 309 RMB.

Besides, according to the data published by Xianyang Public Health Bureau on February 16th 2015, the total fund collected by New Rural Cooperative Scheme is about 1.45billion RMB. Although the data about Urban Employees Insurance and Urban Residents Insurance are not published, Wen said that it should be more than the New Rural Cooperative Scheme based on the past trend.

Also, Wen mentioned that since the population size and morbidity rate of rural residents are much higher than those of urban residents, the funding pool for rural residents almost always runs in deficit, while that for urban residents is in credit.

However, after canceling the New Rural Cooperative Scheme, rural residents have to pay the insurance premium at the same rate as urban residents. As a result, each rural resident pays at least an extra 55 RMB than before. There is a prediction that the reform of household registration system will lead to a millions growth of national’s funding pool.

“The plenty unified planning funding will help to raise the reimbursement ratio and enlarge the reimbursement categories.” said Wen.

Issue for Government: the Non-Uniform Management

According to a report published by Economic Information Daily on August 15th 2014, the dual coverage rate of medical insurance is about 10%, and over 100 million people are registered under more than one insurance program.

Chen explained that it is because the three medical insurance programs are subordinated to two different departments and the two departments fail to share data.

Consequently, some rural residents who have already participated in the New Rural Cooperative Scheme also registered under the local Urban Employees Insurance when they work in the city in order to take advantage of the higher reimbursement ratio for urban employees.

As the Economic Information Daily reported, the repetitive insurance not only increases citizens’ burden but also causes over 200 million RMB invalid fiscal subsidies every year.

“After the reform of Household Registration System, however, there will be only two medical insurance programs. No matter rural residents or urban residents, they can choose insurance programs according to their employment status. It could address this issue of dual coverage,” said Chen. “But the premise is to solve the problem of administration protocols.”

In most areas, the Urban Residents Insurance and the Urban Employees Insurance are managed by the Ministry of Human Resources and Social Security, while the New Rural Cooperate Scheme is administered by the Ministry of Health.

In 2009, the New Medical System Reform Scheme has proposed a system of unified administration, but only 7 provinces have implemented it so far. The reform of Household Registration System results in the necessary and urgent integration of the administration of the three programs. However, Chen said that due to the economic interests, the integration process is proceeding very deliberately.

“About how to integrate the administration authority, the two departments have different views. In order to get more department budget and fiscal subsidies, no one would like to give up its right.” said Chen.

Also, Chen hinted that the reform might further intensify the conflicts between the two departments.

“Abolishing the New Rural Cooperate Scheme will hurt the interest of the Ministry of Health. It is likely that the Ministry of Health will fight for the control of Urban Residents Insurance and Urban Employees Insurance, while the Ministry of Human Resources and Social Security is unwilling to see it happens.” said Chen. “The state has to balance the interests and make a decision soon.”

Benefit and Issue for Migrant Workers 

According to the “Opinions”, another mission of the reform of the household registration system is to adjust the household relocation system with a goal to turning 100 million migrant workers from rural areas and people with temporary residence permit into permanent urban residents. In Wen’s opinion, this change is good for those people to receive medical treatments where they work.

The current medical insurance only covers the designated hospitals within the province in which the patient’s registered permanent residence is located. For example, if a Shaanxi citizen receives medical treatments in another province, the medical fees will not be reimbursed.

“Because of this, many migrant workers have to go back to their registered permanent residence to receive medical treatment, otherwise the medical fees won’t be reimbursed and they can’t afford it.” said Wen.

According to Wen, after the reform, those migrant workers will subscribe to the local medical insurance system. If they receive medical treatment in the local hospital, their medical fees can be reimbursed, and the reimbursement ratio is the same as the locals.

However, Wang Ning, a breast cancer patient does not think it the same way. In her opinion, whether the new policy could benefit migrant workers is determined by their income.

Wang and her husband are both rural residents in a county of Xianyang, but they work in Hangzhou. She is a warehouse keeper and her husband is a worker in a woven bag factory. Their monthly income is about 7000 RMB.

In August 2014, Wang was diagnosed with breast cancer. This news shocked her family. In order to save money, she chose to receive surgery in a private clinic.

“We couldn’t afford the medical fees in Hangzhou’s municipal hospitals. It is about 150,000 to 200,000 RMB,” said Wang. “I saw some clinics’ advertisements on the internet which offered treatment to cure my disease for only 6000 RMB, so I chose it.”

Unfortunately, this surgery didn’t alleviate her conditions but exacerbate it. She had to go back to Xianyang to receive further treatments.

According to the estimation by her current attending doctor Gao Jun, her total medical fees will be about 80,000 RMB. Her rural residency only grants a reimbursement ratio of 50%.

After the reform, her medical fees cost in Shaanxi won’t be reimbursed, but those cost in Hangzhou’s hospital could be reimbursed by up to 80% to 90%.

It seems good, but surprisingly, Wang prefers the current policy. She said that although the reimbursed ratio in hospitals in Hangzhou is high, the medical fees are also high and the total cost in Hangzhou would be much higher than those in Xianyang.

“For those people who have a high-salary work, the new policy can be beneficial because they can afford the expensive medical fees in Hangzhou anyway. However, for the low-income workers like us, the current policy is better.” Wang added.

It seems good, but surprisingly, Wang prefers the current policy. She said that although the reimbursed ratio in hospitals in Hangzhou is high, the medical fees are also high and the total cost in Hangzhou would be much higher than those in Xianyang.

“For those people who have a high-salary work, the new policy can be beneficial because they can afford the expensive medical fees in Hangzhou anyway. However, for the low-income workers like us, the current policy is better.” Wang added.

“For those people who have a high-salary work, the new policy can be beneficial because they can afford the expensive medical fees in Hangzhou anyway. However, for the low-income workers like us, the current policy is better.” Wang added.

Facing this concern, Wen responded that the key to solve this problem is to achieve a national co-ordination on medical insurance programs. No matter where their registered permanent residence is and no matter where they receive medical treatment, citizens should be able to receive reimbursement on their medical fees directly.

“After the national co-ordination is realized, citizens will have more freedom to choose hospitals based on their economic conditions. The medical insurance system can therefore better benefit people.” said Wen.

Since 2013, China has been exploring and establishing the system of trans-provincial reimbursement. So far, only several pilot cities implemented this system and the reimbursement process is still lengthy. The Health Minister Chen Zhu commented in an interview on March 4th 2012 that the national co-ordination in medical insurance will be certainly achieved nationwide in 2020. However, based on the current situation, Wen said he feels doubt about this promise.

“The essence of reforming the household registration system is to eliminate the discrepancies in social welfare and public service between the rural and urban people. To achieve this goal, consummating these relevant ancillary systems is important,” said Wen. “As for the medical insurance system, although some people can benefit from the reform, there still exist several problems. The reform still has a long way to ahead.”

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