Urban residents in China are typically covered under social insurance. Funds for the UEBMI occupy 8% of the employee’s wage (6% are paid by employers and 2% by employee contribution), though these rates vary according to time and municipalities. Unlike other types of insurance schemes, UEBMI is mandatory.
These individuals must continue to pay the premium in order to be covered by the health insurance.
Retired employees are still covered by the UEBMI, but the relative costs and benefits change after they retire. Those who have contributed to the UEBMI for a certain number of years beyond the stipulated threshold can stop paying the health insurance premium, enjoying a lower coinsurance rate after they retire.
By contrast, the American health insurance system
- stipulates that non-elderly individuals be offered private health insurance with premia copayments and deductibles.
- Elderly are covered by Medicare.
Medicare consists of four parts A, B, C and D. These individuals are eligible for Part A at age 65 without having to pay premiums. While most people do not have to pay a premium to be eligible for Part A, all individuals are expected to pay for other parts; for example, it is necessary that an individual pay to be eligible for Part B (Medicare Insurance) should they want it.
Unlike from the American health insurance system, the Chinese health insurance coverage rate does not shift at the point of retirement, though the relative costs and benefits for those insured employees do.
Urban Employee Basic Medical Insurance (UEBMI)
The Urban Employee Basic Medical Insurance (UEBMI) premiums stem from both employers and employees. The contributions of employers are divided into two accounts: 70% goes into a social pooling account (SPA), and 30% is deposited into individual medical savings accounts (MSAs). The funds paid by employees are deposited into their MSAs; each year, a small percentage (2%, for instance) of MSA deposits go to current-year funds in the individual’s MSA. The current-year funds are considered disposable income for medical expenses.
Medical expenses are financed according to three tiers: MSAs, out-of-pocket spending in the form of deductibles, and social-risk pooling. MSAs incentivize consumers to be more costaware in their demands for health services, deductibles increase cost sharing among patients, and social-risk pooling aims to protect employees from catastrophic expenses.
Employees pay for all of their health-care expenses until the current-year funds in their individual accounts (first tier) have been spent. Whatever funds remain unspent are carried to the next year, going into the past-years funds in MSA; funds that are unspent at the end of a person’s life are inheritable. When current-year funds in the individual accounts are exhausted, employees must pay a deductible (second tier) out-of-pocket up to a flat amount. The health care expenses that exceed the deductible are then paid from the social-risk-pool fund (third tier), with patients paying a rate of coinsurance. Such a risk-pool fund limits workers’ financial loss.
Medical Savings Accounts (MSA)
Each city in China establishes its Bureau of Social Insurance, which can serve as the group purchaser of services, in order to contract prices and quality of services with health-care providers. MSA funds are deposited into an interest-earning account in the Industrial and Commercial Bank of China.
An MSA approach emphasizes individual Choice, with MSAs themselves providing incentives for consumers to be more cost-aware in their demands for health services.
MSAs give the individual full control over how their resources are allocated for health-care services. Since most individuals would view health care expenses with respect to other desired consumption goods, it stands to reason that such individuals would be more careful when deciding how and when to use such services.
Past-years funds in an MSA account are funds that the individuals can draw from to pay any deductibles and medical bills that are not covered by health insurance. In addition, unspent current year funds in an employee’s MSA are deposited into past-years funds, earning the same interest rate as a 1 year certificate of deposit. In these situations, individuals are responsible for their own health service utilization, and as such there is clear financial incentive to use less care.