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CIRCULAR OF THE GENERAL OFFICE OF THE STATE COUNCIL CONCERNING THE TRANSMISSION OF THE SUGGESTIONS OF THE STATE COMMISSION FOR STRUCTURAL REFORM AND THREE OTHER MINISTRIES REGARDING THE EXTENSION OF THE SCOPE OF EXPERIMENT OF THE REFORM OF THE MEDICARE SYSTEM FOR WORKERS AND STAFF MEMBERS

    "The Suggestions Regarding the Extension of the Scope of Experiment of the
Reform of the Medicare System for Workers and Staff Members" (hereinafter
referred to as the "Suggestions") of the State Commission for Structural
Reform, the Ministry of Finance, the Ministry of Labour and the Ministry of
Public Health have been approved by the State Council and are hereby
transmitted to you for earnest implementation.

    The reform of the medicare system for workers and staff members
constitutes an important component part of the reform of the social security
system in China. To advance the reform of the medicare system for workers and
staff members so as to establish a new-type medical insurance system for
workers and staff members, the State Council has decided to extend the scope
of experiment by further selecting a number of cities where conditions are
ripe nationwide in 1996 on the basis of the experiment of the reform of the
medicare system for workers and staff members carried out in Zhenjiang City,
Jiangsu Province and Jiujiang City, Jiangxi Province. The General Office of
the State Council convened a "National Working Meeting on the Extension of the
Scope of Experiment of the Reform of the Medicare System for Workers and Staff
Members" from April 8 to 11 in Zhenjiang City. The "Suggestions" which have
been formulated by the Commission and the three Ministries concerned on the
basis of summing up the experiences gained in experiments in Zhenjiang,
Jiujiang and other cities, extensive investigations and studies as well as
widely seeking opinions, is a document which provides guidance in doing a good
job of the extension of the scope of experiment of the reform of the medical
insurance system for workers and staff members.

    The reform of the medicare system for workers and staff members is an
extremely complicated job which concerns the practical interests of the broad
masses of workers and staff members, is highly policy-oriented and involves
wide segments of society. People's governments of all the provinces
(autonomous regions and municipalities) directly under the Central Government
and the departments concerned shall earnestly implement the spirit of the
"National Working Meeting on the Extension of the Scope of Experiment of the
Reform of the Medicare System for Workers and Staff Members" and unfold the
work of the extension of the scope of experiment of the reform in a positive
and sound manner. To this end, the following requirements are hereby put forth:

    1. People's Governments of all provinces (autonomous regions and
municipalities) directly under the Central Government should pay great
attention to this reform, earnestly strengthen leadership and practice the
responsibility system of the leading member in charge by clearly designating a
leading comrade in charge to be responsible for this work. They should unify
ideas, enhance consciousness and confidence by organizing the study of the
speech by State Councillor Peng Peiyun at the National Working Meeting on the
Extension of the Scope of Experiment of the Reform of the Medicare System for
Workers and Staff Members and the "Suggestions", as well as the experiences of
Zhenjiang City and Jiujiang City.

    2. The work of the reform of the medicare system for workers and staff
members of the cities undergoing the experiment shall be organized and carried
out under the leadership of the provinces (autonomous regions and
municipalities) directly under the Central Government. The people's government
of every city undergoing the experiment should clearly designate a major
leading comrade to be responsible for the work. The departments concerned of
the State Council should step up guidance of the work of the cities undergoing
the experiment. Cities engaging in the experiment should try their best to
formulate practical and applicable proposals of implementation within six
months on the basis of extensive investigation and study and meticulous
predictions and calculations, according to the objectives and principles of
the reform stipulated in the "Suggestions" and in the light of the actual
conditions of the localities. The proposals shall be implemented upon
examination and approval by the people's governments of the provinces
(autonomous regions and municipalities) directly under the Central Government
and be submitted to the Leading Group of the Experiment of the Reform of the
Medicare System for Workers and Staff Members under the State Council for the
record. Official launching of the experiment should be before the end of 1996.

    3. All localities should make full use of such news and publicity media as
broadcasting, television, newspapers, periodicals and magazines in extensive
publicity and motivation to propagate the significance, objectives,
principles, policies and approaches of this reform and to popularize the
knowledge of medical insurance so as to win the understanding and support of
the broad masses of workers, staff members and medical personnel of this
reform.

    4. The extension of the scope of experiment of the reform of the medicare
system for workers and staff members shall earnestly follow the principle of
territory. Organs at the central and provincial (autonomous regional and
municipal) levels and their subordinate enterprises and institutions should
all partake in the experiment of the reform of the medicare system for workers
and staff members in the localities where they are located, and carry out the
unified reform proposals of implementation of the localities.
Appendix: SUGGESTIONS OF THE STATE COMMISSION FOR STRUCTURAL REFORM, THE
MINISTRY OF FINANCE, THE MINISTRY OF LABOUR AND THE MINISTRY OF PUBLIC HEALTH
CONCERNING THE EXTENSION OF THE SCOPE OF EXPERIMENT OF THE REFORM OF THE
MEDICARE SYSTEM FOR WORKERS AND STAFF MEMBERS
(April 22, 1996)

    The existing medicare system for workers and staff members (including free
medical care and labour protection medical care) in China played an important
role in the past in the protection of the health of workers and staff members,
the promotion of economic growth and the maintenance of social stability.
However, with the development of economy and deepening of the reform, problems
have become increasingly prominent and a reform is bound to take place.

    To advance the reform of the medicare system for workers and staff
members, the State Council conducted an experiment of the reform of the
medicare system for workers and staff members in Zhenjiang City, Jiangsu
Province and Jiujiang City, Jiangxi Province starting from the first half year
of l994, in accordance with the decision of the Third Plenary Session of the
Fourteenth Central Committee of the Chinese Communist Party. During the one
year or more, the experiment progressed smoothly and initial results have been
achieved: a new mechanism for the raising of medical funds has been
established; the level of basic medical care for workers and staff members has
been raised; the momentum of over-growth of medical expenditure has been
curbed; a push has been given to the internal reform of medical institutions;
and a certain amount of experiences has been accumulated for further deepening
the reform of the medicare system. In view of the fact that the reform of the
medicare system for workers and staff members is an extremely complicated work
which concerns the practical interests of the broad masses of workers and
staff members, is highly policy-oriented and involves wide segments of
society, and to gain further experience, in accordance with the requirements
of gradual establishment of the medicare system based on the combination of
the unifiedly raised social medical funds of the cities and towns and
individual medical accounts and quickening the pace of reform of the medicare
system during the "Ninth Five-Year Plan" period contained in the "Program of
the Ninth Five-Year Plan of National Economic and Social Development and 2010
Perspective Goals of the People's Republic of China" adopted at the Fourth
Session of the Eighth National People's Congress, the State Council has
decided on the basis of the experiment of Zhenjiang City and Jiujiang City, to
further select a number of cities where the conditions are mature to extend
the scope of experiment of the reform of the medicare system for workers and
staff members in a planned way and step by step.

    1. Objective and Basic Principles of the Reform

    The objective of the reform is to establish the social medical insurance
system based on the combination of the unifiedly raised social medical funds
and individual medical accounts and it will gradually cover all the laborers
in cities and towns in keeping with the requirements of establishing the
system of socialist market economy and raising of the health level of workers
and staff members.

    The basic principles of the establishment of the social medical insurance
system for workers and staff members are as follows:

    (1) Provision of basic medicare for all laborers in cities and towns to
facilitate the shaping of a comprehensive social security system.

    (2) The Level and mode of basic medicare have to be in keeping with the
level of growth of social productivity in China and the capabilities of all
sides involved to bear, with rational tripartite burden-sharing of the medical
costs on the part of the State, units and workers and staff members.

    (3) Combination of fairness with proficiency. Basic medicare treatment
enjoyed by workers and staff members shall be appropriately linked with
individual contributions to the society to mobilize the enthusiasm of workers
and staff members.

    (4) The Reform of the medicare system for workers and staff members should
help reduce the social burden of enterprises and institutions, be conducive to
the transformation of operations mechanism of the state-owned enterprises and
the establishment of modern enterprise system.

    (5) Establishment of restraining mechanisms on medical personnel and
patients, promotion of deepening reform of medical institutions, strengthening
of internal administration, upgrading of quality of medical service and
improvement in efficiency, curbing of waste and establishment and perfection
of rational compensation mechanism for medical institutions.

    (6) Advancement of regional public health planning, promotion of
socialization of medical institutions of enterprises and institutions in a
planned way and step by step and gradual realization of optimal deployment and
rational utilization of public health resources.

    (7) A synchronous reform of the systems of free medical care and labour
protection medical care shall be carried out in accordance with unified system
and policy. The mode of raising medical insurance funds for workers and staff
members and the basic structure of the funds should be uniform. Separate
management and independent accounting can be practiced in the utilization of
the funds.

    (8) Separation of the government from the institutions shall be followed.
The government departments in charge shall formulate policies, rules and
regulations and standards; the collection, payment and operations of the
medical insurance funds for workers and staff members shall be undertaken by
the relatively independent social medical insurance institutions; the
administration and supervision shall be enhanced so as to ensure rational
utilization of the funds.

    (9) Budgetary management shall be practiced with regard to the medical
insurance funds for workers and staff members. The special funds shall be used
for designated purposes and shall not be withdrawn for other purposes, nor
shall the funds be used to balance financial budget.

    (10) The principle of territory shall be followed in the establishment of
the medical insurance system for workers and staff members. Organs at the
central and provincial (autonomous regional, municipal) levels and their
subordinate enterprises and institutions shall partake in the social medical
insurance of the localities where they are located and follow uniform
standards for fees and reform proposals of the localities.

    2. Main Contents of the Extension of Experiment

    (1) Raising of medical insurance funds for workers and staff members

    Medical insurance funds for workers and staff members shall be contributed
to mutually by the employer unit and individual workers and staff members.

    The contribution by the employer unit: the rate of contribution by the
employer unit shall be determined by the people's government of the city
undergoing experiment with reference to the ratio of the actual expenditure of
medical expenses for workers and staff members in the total wage bill of the
workers and staff members of the city in the three preceding years. The
employer unit shall contribute to the medical insurance funds according to the
said rate for the workers and staff members of the unit.

    Authorities empowered with examination and approval of the rate of
contribution to the medical insurance funds for workers and staff members are:
the rate of contribution not exceeding 10 percent of the total wage bill of
workers and staff members shall be approved by the people's governments of
provinces (autonomous regions, municipalities) directly under the Central
Government; those exceeding 10 percent shall be submitted to the Ministry of
Finance for approval upon examination by the people's governments of provinces
(autonomous regions, municipalities) directly under the Central Government.

    In accordance with the division of powers between institutions and
finance, medical expenses of local units shall be borne by the finance of the
locality, the employer units and individual workers and staff members, and the
central finance shall give no subsidy. In determining the ratio of raising of
resources for the medical insurance funds, the localities shall take into full
account the requirements to ensure the basic medicare for workers and staff
members and the burden-sharing capabilities of local finance, enterprises and
institutions, and shall not compete with one another haphazardly.

    Sources of contribution by the employer units: For administrative organs,
institutions with full budget management and hospitals under ownership by the
whole people with budget differentials control, the expenditure shall come
from resources within the budget of the units; for other institutions with
budget differentials control and institutions with budget control of
independent revenue and expenditure, the expenditure shall be from the medical
insurance funds drawn by the units; for serving workers and staff members of
enterprises, the expenditure shall come from the welfare funds for workers and
staff members, for those on honorary retirement and other retired personnel,
the expenditure shall come from the labour protection insurance funds.

    The collection of medical policy premiums paid by workers and staff
members can be entrusted to banks to ensure timely collection. The base figure
of premium payment to the medical insurance funds shall be calculated in
strict accordance with the scope of statistics of the total wage bill of
workers and staff members stipulated by the State Statistical Bureau. For the
concealment in submitting the total wage bill, deliberate deferrals or refusal
of payment of medical insurance premiums by units, the departments concerned
in the cities undergoing experiment shall stipulate corresponding penalty
provisions in accordance with law.

    In principle, cities at the prefectural level shall be the units for
unified raising of medical insurance funds for workers and staff members. For
cities undergoing experiment with districts and counties (cities) under their
jurisdiction having great discrepancies in the level of economic growth, there
could be slight differences in the ratio of raising for the medical insurance
funds. Specific measures shall be stipulated by the people's governments of
the cities undergoing experiment.

    Individual contributions by workers and staff members: to start with, the
contribution of one percent of the worker's wage income shall be deducted by
the employer unit from the wages for workers and staff members. The percentage
shall be raised gradually in the future with economic growth and wage increase.

    Workers and staff members in private-owned enterprises and Chinese workers
and staff members in enterprises with foreign investment should take part in
local social medical insurance. In principle, the mode of contribution and
their medical treatment shall follow the uniform policies and standards of the
localities.

    Individual labourers in cities and towns may take part in social medical
insurance. The rate of their medical policy premiums shall follow the average
level of the localities and shall be borne entirely by the individuals.

    (2) Opening of individual medical accounts for workers and staff members
and setting up of the unifiedly raised social medical insurance funds

    The medical policy premiums paid by individual workers and staff members
and part of the medical insurance fees (generally not less than 50 percent)
paid by the employer units for workers and staff members based on the
calculations with the base figure of the worker's or staff member's wage,
shall be put into individual medical accounts as special funds for designated
purposes, to be used for the payment of medical expenses. For the portion to
be put into individual medical accounts from the medical insurance fees paid
by the units, different ratios can be determined according to age groups of
workers and staff members.

    The principal and interest of individual medical accounts shall be owned
by individual workers and staff members which can only be used for medical
expenditure, can be carried forward and inherited. However, no cash shall be
drawn, nor can it be used for other purposes.

    For balances in individual medical accounts of the year, the interest
shall be calculated according to the interest rate for current deposit by
urban and rural inhabitants; for the portion of relatively stable sedimental
funds, the interest shall be calculated according to the interest rate for
time deposit by urban and rural inhabitants in the corresponding period.

    The balance of medical insurance fee paid by the employer unit for workers
and staff members after deducting the amount put into individual medical
accounts shall go to the unifiedly raised social medical insurance funds for
concentrated accommodation and adjustment.

    As a way of transition, with the approval of the municipal medical
insurance institution, units originally having labour protection medicare can
manage a portion of the unifiedly raised social medical insurance funds for
internal accommodation with the units.

    (3) Mode of payment of medical expenses by workers and staff members

    Payment of medical expenses by workers and staff members shall first be
made from the individual medical accounts. When the individual medical account
is exhausted, it shall be paid first by the worker or staff member himself
(herself). Calculated on a yearly basis, the portion of self-paid medical
expense exceeding five percent of the individual's annual wage income shall be
paid from the unifiedly raised social medical insurance funds. However, the
individual still has to pay a certain percentage. The percentage of individual
burden-sharing decreases as the medical expense increases; for the portion
exceeding five percent of the individual's annual wage income but not more
than RMB 5,000 yuan, the individual's burden-sharing shall be 10 to 20
percent; for the portion ranging from RMB 5,000 yuan to RMB 10,000 yuan, the
individual's burden-sharing shall be 8 to 10 percent; for the portion
exceeding RMB 10,000 yuan, the individual's burden-sharing shall be 2 to 5
percent. In the light of their practical conditions, people's governments of
the cities undergoing experiment may determine the maximum ceiling for medical
expenses to be covered by the unifiedly raised social medical insurance funds.
For medical expenses exceeding the ceiling, cities undergoing experiment can
explore other solutions.

    Medical expenses incurred from special categories of illnesses confirmed
by the state and contracted by workers and staff members, or from birth
control operation and its sequelae, shall be paid from the unifiedly raised
social medical insurance funds.

    (4) Matching reform and internal administration of medical institutions

    Publicly run medical institutions which are non-profit social undertakings
shall be planned and built by the people's governments of the localities. The
capital construction and the purchase, installation and maintenance of large
medical apparatuses shall be included in the capital construction plan and
financial budget of the people's government at the same level, and overall
arrangement be made. People's governments at various levels should increase
their input in medical institutions with the growth of financial revenue.
Financial responsibilities to be undertaken by government should be clearly
defined and the scope and mode of supply of financial resources standardized.
The revenue structure of medical institutions should be readjusted in a
rational way with appropriate addition of items of medical fees which embody
the value of the technical services of medical personnel and adjustment in the
rate of those items, reducing the rate of charges for examinations with large
medical apparatuses and the ratio of revenue from medicine in the gross income
of medical profession on the basis of the rational use of medicine.

    Workers and staff members receiving treatment in a number of designated
medical institutions can purchase drugs from designated retail chemist's
stores with prescriptions so as to urge the medical institutions to improve
the quality of medical service.

    The department of medical insurance administration in consultation with
the department of public health, shall be responsible for the examination and
designation of designated medical institutions in accordance with the
principle of gradual taking shape and perfection of medical system at various
levels and in consultation with the department in charge of medicine, shall be
responsible for the examination and designation of designated retail chemist's
stores.

    Medical insurance institutions should sign contracts with designated units
engaging in medical service and sale of medicine containing such contents as
the scope, items and rates of basic medical insurance service and clearly
defining responsibilities, rights and obligations. Expenses incurred from
medical service and use of medicine exceeding the stipulations cannot be paid
from the individual medical account, neither shall it be paid by the medical
insurance institution. The mode of fixed amount settlement and payment of
average medical service costs should be aggressively pursued on a trial basis.

    The department of public health shall formulate technical standards for
consultation and treatment; the department of public health in consultation
with the department of finance and the department of medical insurance
administration, shall compile a catalogue of medicine for reimbursement under
medical insurance; the department of price control in consultation with the
department of public health and the department of finance, shall fix rational
rates to be charged for medical treatment at different grades which shall be
revised at regular intervals.

    Medical institutions should step up education of the medical personnel in
professional morals and style, formulate and perfect necessary rules and
regulations, standardize and guide conduct of medical treatment so as to reach
the goal of rational diagnosis, treatment and excellent service.

    Separate accounting shall be practiced with regard to the revenue and
expenditure of medical service and those of sale of medicine by medical
institutions. The mode of handing over the net income from sale of medicine to
the department in charge at the higher level for unified administration and
rational return should be practiced on a trial basis.

    Government departments concerned and medical insurance institutions should
conduct evaluation and inspection at regular intervals of the services of
designated medical institutions and units engaging in sale of medicine. Rates
of medical institutions shall be subject to the supervision of the department
of price control and made public.

    (5) Administration and supervision of medical insurance funds

    Handling of medical insurance funds shall be the responsibility of the
social medical insurance institutions. The principle of expenditure being
determined by revenue, balance of revenue and expenditure with slight surplus
should be adhered to; the special funds shall be used for designated purpose
and shall not be used for other purposes, and security of the funds shall be
ensured and realization of value maintenance and increment assured.

    Medical insurance institutions shall establish scientific operation
mechanism, upgrade the level of socialization of services and simplify
procedures of reimbursement of medical costs and account settlement to make it
convenient to the workers and staff members.

    Medical insurance institutions shall formulate and perfect rules of
examination and approval of the budget and final settlement of account, rules
of accounting and auditing. The principle of practice of economy shall be
followed in all items of expenditure and waste shall be eliminated.
Administrative expenses shall be listed in the financial budget and be
appropriated by the department of finance upon submission by the department in
charge after examination and verification to the department of finance for
examination and approval.

    The departments of medical insurance administration shall be separated
from the handling institutions. Establishment of the administrative
departments shall be determined temporarily by the people's governments of the
localities in the light of the actual conditions prevailing there.

    Medical insurance supervisory bodies composed of representatives of
government, representatives of employer units, representatives of trade unions
and workers and staff members and representatives of specialists shall be
formed to hear, at regular intervals, briefings by medical insurance
institutions and medical institutions on the revenue and expenditure of
medical insurance resources, operations and management and services which
shall be made public. The auditing department shall regularly carry out
auditing of medical insurance funds and the revenue and expenditure of
insurance institutions.

    3. Policies Concerning the Experiment

    (1) Medical expenditure of honorary retirees and Red Army veterans shall
be managed separately. One way is to bring it within the scope of the reform
of the medical insurance system for workers and staff members with no opening
of the individual medical accounts and no payment by the individual of medical
policy premiums. Their medical expenses shall be paid from the unifiedly
raised social medical funds. Medical insurance institutions can draw an amount
equivalent to the average actually expended medical expenses in the three
preceding years from the medical insurance funds for separate management and
designated purposes. Overspending, if any, shall be settled through the
original channel of financial resources. The other way which may be followed
is that it is not included in the scope of the reform of the medical insurance
system for workers and staff members and the medical costs shall be settled
through the original channel of financial resources. Localities following this
method shall deduct their medical expenses while making predictive
calculations of the rate of premiums of the medical insurance funds for
workers and staff members. Administration shall be strengthened and waste
prevented whichever method is followed.

    (2) For wounded and disabled revolutionary servicemen above Grade IIB, no
individual medical account shall be opened, nor shall the individual pay
medical policy premium. The medical cost shall be paid from the unifiedly
raised social medical funds.

    (3) Individual workers and staff members shall cease to pay medical policy
premiums upon retirement. Those retired persons who have opened individual
medical accounts, their medical expenses shall first be paid from the
individual medical accounts; those who have not opened individual medical
accounts or those whose individual medical accounts are exhausted, payments
shall be made from the unifiedly raised social medical funds. However, the
individual shall bear a portion of the cost; The ratio of burden-sharing of
the retired persons individually shall be fifty percent of those paid by
serving workers and staff members.

    (4) All serving leading cadres shall participate in the reform of medical
insurance system, join social medical insurance and observe uniform policies
and rules. Appropriate accommodation can be provided for their medical
consultation and hospitalization. In the meantime, administration shall be
strengthened and waste prevented.

    (5) Direct relatives and dependents supported by workers and staff members
shall not be included in the scope of experiment of the reform of the medical
insurance system for workers and staff members temporarily. For them, existing
procedures shall continue to be followed.

    (6) When the overburdening of medical expenses of low-income families and
the workers and staff members who encounter difficulties in life adversely
affects their basic life, the units in which they work shall give appropriate
subsidies to them from the welfare funds.

    (7) During the start-up stage of the reform of the medicare system,
payment of medical policy premiums by individual workers and staff members
shall in principle be made on the basis of payrise. Expenditure of payrise of
enterprises shall be listed in the newly-added efficiency pay.

    (8) Mutual-aid medical insurance for workers and staff members and
commercial medical insurance shall be developed as a supplement to social
medical insurance to satisfy medical requirements in addition to the basic
medicare provided for by the state. However, the principle of voluntary
participation and independent choice shall be adhered to.

    (9) Measures of medical insurance for workers and staff members in rural
and township enterprises shall be decided on the basis of study by municipal
people's governments in accordance with the actual conditions of the
localities.

    4. Organization and Leadership of the Extension of Scope of Experiment

    (1) The State Council shall form a leading group of the experiment of the
reform of the medicare system for workers and staff members (in the form of
office meeting). The leading group has under it an office which shall be
located in the State Commission for Structural Reform with members dispatched
from the Ministry of Finance, the Ministry of Labour and the Ministry of
Public Health. The departments concerned under the State Council should work
in close coordination to collectively do a good job of the experiment.

    (2) The work of the reform of the medicare system for workers and staff
members of the cities undergoing experiment shall be led, organized and
carried out by the people's governments of provinces (autonomous regions,
municipalities) directly under the Central Government. Each city undergoing
experiment shall designate a responsible leading comrade to take charge of the
work in person and strengthen leadership of the work of experiment in real
earnest.

    (3) Cities undergoing experiment should formulate implementation plans for
the reform of the medicare system for workers and staff members of the
localities in accordance with the "Suggestions" and in the light of the actual
conditions of the localities. The implementation plans shall be submitted to
the leading group of the experiment of the reform of the medicare system for
workers and staff members of the State Council for the record upon examination
and approval by the people's governments of provinces (autonomous regions and
municipalities) directly under the Central Government.

    (4) When the implementation plans for the reform of the medicare system
for workers and staff members of the cities undergoing experiment are
approved, extensive publicity and explanations shall be conducted by the
cities undergoing experiment through the organs, people's associations, press
units and other media directed at masses of workers and staff members for
their acknowledgement, participation and support. In the meantime, training of
the cadres of the government departments in charge and personnel of the social
medical insurance institutions shall also be conducted to enhance their
professional standards.