China’s Cities Are Cutting Health Insurance, and People Are Angry
Local governments across China, facing a financial tipping point after three years of expensive Covid measures, are forcing abrupt changes on the country’s health care system, squeezing benefits and angering citizens.
Thousands of seniors, who are most vulnerable to the cutbacks, converged on municipal parks and other public spaces in recent days to protest the changes. They gathered in the chilly northeastern city of Dalian, in semitropical Guangzhou nearly 1,500 miles away and in Wuhan in central China, where the Covid pandemic began at the end of 2019.
One of the most immediate problems is that municipal insurance funds that pay for many people’s hospital care are running out of money. The funds, supported by taxes on employers, face big deficits that city governments are required by law to top up.
To free up money to bail out hospitals, municipalities have started contributing much less to another important category of insurance, known as personal health accounts, which the middle class uses to pay for medicine and outpatient care.
While public opposition to the changes has not reached the scale of demonstrations in late November against “zero Covid,” the strict policy of mass testing and lockdowns that was reversed in early December, they underscore the disillusionment among many Chinese. Benefits promised to seniors when the economy was growing fast are becoming more precarious.
“The personal account is our own money,” Chen Guangyao, 59, a retiree from a state-owned factory in Wuhan, said last week. He didn’t join protesters on Feb. 15 and 16, but said he shared their anger.
“The government can’t take money from other people’s pockets through medical reform, which is encroaching on the interests of the people,” he said, pausing from practicing his saxophone in a park.
Each city government is taking a slightly different approach to finding savings on health insurance. In Wuhan, the authorities are trying to soften the blow from big cuts in personal health accounts by adding some outpatient coverage and medicine purchases to hospitalization plans.
The furor over health insurance highlights a broader fiscal crunch in China’s localities, which often bear the brunt of paying for policies handed down from Beijing, such as “zero Covid.”
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On top of bearing extra costs during the pandemic, local governments face growing health care needs for a rapidly rising number of retirees. Yet the main source of municipal revenue has shriveled as real estate developers buy less public land because of a housing shakeout long in the making.
Some civil servants and teachers are being paid late or getting pay cuts. Entities affiliated with local governments are missing loan payments or trying to reschedule their debts, which could force losses on banks and other lenders.
But the changes to health insurance are being felt in an acutely personal way.
Three-quarters of China’s population of 1.4 billion — farmers, migrant workers and others in low-wage occupations as well as children — don’t have personal health accounts and must rely on bare-bones coverage known as residents insurance.
Roughly a quarter of the people have employee hospitalization plans plus personal health accounts, including many current and former employees of state-owned enterprises and better-paid employees and retirees of private companies. Civil servants, who make up only a tiny share of the population, have supplementary insurance in addition to hospital insurance and personal health accounts, said Xian Huang, an associate professor of political science at Rutgers University who studies China’s health care system.
Holders of personal health accounts who are not part of the civil service — the people protesting now — “are not the most privileged group, but they are still a privileged group,” Professor Huang said.
During the pandemic, the national government allowed many businesses to reduce their mandatory contributions to the health insurance funds for employees that pay hospitalization costs. Lower contributions from businesses coincided with higher costs at hospitals because of Covid.
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It is no accident that the biggest protests have been in Wuhan.
In January 2020, the city’s hospitals responded to the first Covid outbreak with a successful but extremely expensive effort to stamp out the disease by medically isolating and treating thousands of infected people. The national government subsequently announced that it would overhaul hospitalization insurance within three years.
Demographic changes in China have complicated the task. The number of births each year has dropped by nearly two-thirds since the late 1980s. Fewer young workers support more and more retirees who require ever more health care.
Cities are now cutting how much money their hospitalization plans transfer to the personal health accounts of retirees. Wuhan’s reduction of transfer amounts by a little more than two-thirds is particularly steep.
Local governments are also introducing or increasing deductibles. Wuhan has begun requiring retirees to pay the first $75 of expenses each year and current workers to pay the first $100.
The average income for urban retirees is about $6,000 a year, not including personal savings. Rural retirees subsist on much less.
Social policy experts have cautiously welcomed the health insurance policy changes.
“After years of delay, the government needs to reform a social safety net that is extremely fragmented and unequal, with relatively good benefits for people like those protesting in Wuhan and very sparse benefits for people in the countryside or without formal employment,” said Mary Gallagher, a professor specializing in China’s labor and social issues at the University of Michigan.
Yang Qingming, 69, worked as a housemaid and never qualified for employee insurance. Now in retirement in Wuhan, she relies on residents insurance, like three-quarters of China’s people. She lives on $300 a month and spends half of it on medicine for high blood pressure and diabetes. Her insurance reimburses her for almost none of the cost of her medicine.
Her recent gallstone surgery cost nearly $1,500, but less than a third of it could be expensed under her insurance plan, she said. She has delayed surgery for colitis, she said, because she does not have the money.
“If I don’t go for treatment, the pain is unbearable; if I go to see a doctor, I can hardly afford it,” she said.
The new medical insurance system rolled out by Wuhan allows people with employee insurance to use the money from their existing personal accounts to begin paying for the medical care of their parents, spouses or children.
Many older urban Chinese feel that they led difficult lives when they were young and China was poor. Those with employee health insurance contend that they helped build today’s relatively prosperous China, and resent being asked to sacrifice money from their personal health accounts.
“The socialist country today was created by us, the older generation,” said a senior who said he had attended recent protests in Wuhan. He spoke on the condition of anonymity to avoid police retaliation.
Some in China favor raising taxes to pay for more social services and stabilize the finances of local governments. China has almost no property taxes, except for nominal sums collected in several cities, including Shanghai. China has no inheritance taxes or taxes on investment gains.
In a speech last month at the National University of Singapore, Lou Jiwei, a former finance minister who still has considerable influence, called for broader experiments with real estate taxes.
Robin Xing, the chief China economist at Morgan Stanley, said a real estate tax would not raise enough money to bail out the country’s local governments. He predicted that these governments would have to sell some of their many assets, like hotels and conference centers.
The health insurance difficulties are just the start of a much bigger problem from China’s rapid aging.
Pensions are also handled by local governments, and government agencies allowed many employers to reduce pension contributions, too, during the pandemic.
“Health care is Part 1,” Mr. Xing said. “Pensions, when you get more and more people retiring, is Part 2.”
Li You contributed research.
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