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Article | Global News Briefs

China: Health insurance reforms would affect employer-provided health insurance

Health and Benefits|Total Rewards|Integrated Wellbeing
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By Evelyn Xu | October 28, 2020

Proposed social security health insurance reforms would redirect employer funding to the social pool and reduce claims on private health insurance.

Employer Action Code: Monitor

The government is considering changes to the financing of health insurance under the social security Urban Employee Basic Medical Insurance (UEBMI) plan (referred to locally as social medical insurance, or SMI). If adopted, the changes would significantly affect supplemental private health insurance provided by employers. Currently, a social pool and individual employee accounts reimburse costs for medical care under UEBMI. The social pool covers the cost of hospitalization and serious outpatient treatment, while individual accounts reimburse employees for expenses not covered by the pool, subject to certain restrictions. Individual accounts are funded by employee social security contributions while employer contributions are split between employees’ individual accounts and the social pool (roughly at a 1/3:2/3 ratio). Private health insurance, if any, reimburses employees for expenses covered by the individual accounts.

The proposed reforms would redirect employer funding entirely to the social pool and expand its coverage to include more outpatient care while decreasing use of individual accounts for those expenses, thereby reducing claims on private health insurance.

Key details

Under the proposed reforms:

  • The entire employer health insurance contribution would go only to the social pool, in aggregate shifting funding of about 300 billion yuan annually from individual accounts to the social pool, according to government estimates.
  • Expenses that currently are reimbursed entirely from individual accounts would instead be shared 50/50 between the social pool and individual accounts. The reforms would not change the total amount of coverage for an eligible outpatient claim but would expand the portion covered by the social pool.
  • Reimbursement by private health insurance, which normally equals the amount reimbursed from the individual accounts, payable directly to the insured, would still cover those costs but reduced by 50% in line with the change to cost sharing between the pool and individual accounts. In addition, reimbursement from the insurer would be paid directly to the individual accounts, not the account holders.
  • Use of individual accounts would be expanded to cover eligible expenses incurred by spouses, parents and children.

Employer implications

Over 80% of firms surveyed by Willis Towers Watson provide some type of supplemental health care coverage to their employees. As the reforms would reduce the level of UEBMI expenses payable from individual accounts and covered by private health insurance, existing insured employer plans would therefore experience lower outpatient claims, leading potentially to lower premiums and to a lesser importance of supplemental coverage. The reaction from the market will need to be monitored if the changes are adopted.

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