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DECISION OF THE STATE COUNCIL ON SETTING UP BASIC MEDICAL INSURANCE SYSTEM FOR STAFF MEMBERS AND WORKERS IN CITIES AND TOWNS

    It is an objective requirement and an important guarantee for setting up
the system of socialist market economy to speed up the reform of medical
insurance system and guarantee basic medicare for staff members and workers.
On the basis of summing-up in earnest of experiences in experiment in medical
insurance system reform at different localities in recent years, the State
Council has made a decision that the reform of medical insurance system for
staff members and workers in cities and towns shall be carried out nationwide.

    1.Task and Principle of Reform

    The main task of medical insurance system reform is to set up the staff
members' and workers' basic medical insurance system in cities and towns, that
is to conform to the system of socialist market economy and set up social
medical insurance system to ensure staff members' and workers basic medical
requirements according to the bearable abilities of finance, enterprises and
individuals.

    The principle of setting up the basic medical insurance system for staff
members and workers in cities and towns is: basic medical insurance level
should fit in with the development level of productive forces in the primary
stage of socialism; all employer units and their staff members and workers in
cities and towns should join basic medical insurance and possession
jurisdiction shall be put into practice; basic medical insurance fee should
be borne jointly by employer units and staff members and workers; combination
in unified planning of society with individual accounta for basic medical
insurance funds shall be practised.

    2.Coverage and Mode of Payment  

    All employer units in cities and towns, including enterprises(state-owned
enterprises, collective enterprises, enterprises with foreign investment,
privates ventures and so on), government organs, institutions, social
organizations, people-run non-enterprise units and their staff members
and workers should join basic medical insurance. It shall be decided by the
people's governments of provinces, autonomous regions and municipalities
directly under the Central Government whether rural and township enterprises
and their staff members and workers and owners of urban and township
individual economic organizations and their employees join basic medical
insurance.

    In principle, basic medical insurance takes the administrative areas
above prefectural level as the overall planning units (including prefectures,
municipalities, autonomous prefectures and leagues) and counties
(municipalities) can also be the overall planning units. The three
municipalities directly under the Central Government of Beijing, Tianjin
and Shanghai shall, in principle, carry out overall planning citywide
(hereinafter referred to as overall planning areas for abbreviation).
All employer units and their staff mmembers and workers have to join the
basic medical insurance in their local overall planning areas in accordance
with the principle of possession jurisdiction, and carry out the unified
policy, and practise unified raising, use and management of basic
medical insurance funds. The enterprises that extend across regions and
have greater mobility in production, such as railways, electric power and
oceangoing transport, and their staff members and workers can join basic
medical insurance in other overall planning areas in relatively
centralized ways.

    The basic medical insurance fee should be jointly paid by employer
units and staff members and workers. The rate of payment by units should be
controlled at approximately 6 percent of staff members' and workers' total
wages. The rate of payment by staff members and workers should be generally
controlled at 2 percent of individual wage. The rate of payment by employer
units and their staff members and workers can be correspondingly adjusted
with the development of economy.

    3.Establishment of the Overall Planning Funds of Basic Medical Insurance
and Individual Accounts

    The overall planning funds of basic medical insurance and individual
accounts should be set up.  The basic medical insurance funds should be
composed of overall planning funds and individual accounts. The basic medical
insurance fee paid by staff members and workers should be totally brought into
the individual accounts. The basic medical insurance fee paid by employer
units shall be divided into two parts: one part is used to set up overall
planning funds, the other is put under individual accounts. The proportion
put under individual accounts should generally be approximately 30 percent of
that paid by employer units. The specific percentage should be decided by the
overall planning areas in accordance with such factors as the scope pf
payment for individual accounts and the age of staff members and workers.

    The respective range of payment from overall planning funds and individual
accounts should be delimited, separate accounting conducted, and no mutual
diversion shall be allowed. The threshold standard and ceiling for
payment from overall planning funds should be defined and the threshold
payment standard shall be, in principle, controlled at approximately 10
percent of the local staff members' and workers' yearly average wages. The
ceiling for payment shall be controlled in principle at the level of approximately four times of local staff members' and workers' yearly average
wages. Medical expenses below the threshold standard for payment should be
paid from individual accounts or by individuals themselves. Medical expenses
above threshold standard for payment or below the ceiling for payment should
be mainly paid from overall planning funds, a certain percentage should be
borne by individuals. Medical expenses over the celing for payment can be
solved through commercial medical insurance and other channels.  The specific
threshold standard for payment and the ceiling for payment from overall
planning funds and the proportion of the medical expenses above threshold
standard for payment and below the ceiling for payment borne by individuals
should be decided by the overall planning areas according to the principle of
determining expenditure by revenue and balancing revenue and expenditure.

    4.Amplifying the Mechanism of Management and Supervision of Basic
Medical Insurance Funds

    Basic medical insurance funds shall be brought into specified financial
accounts for management and the special-purpose funds shall be used for the
special purpose, and no diversion shall be allowed.

    The bodies handling social insurance shall be in charge of the raising,
management and payment of basic medical insurance funds and should establish
and amplify budgeting aand final accounting rules, financial and accounting
rules and internal auditing rules. The operating expenses of the bodies
handling social insurance should not be drawn from the funds and it should
be solved through financial budgets at different levels.

    The methods of figuring interest of banks for basic medical insurance
funds are: the portion raised in the current year shall be computed in
accordance with the interest rate of current deposit; the principal and
interest of funds settled and transferred from the preceding year shall be
computed in accordance with the deposit interest of banks of lump-sum deposit
and lump-sum withdrawal for the three-month period; the sedimented funds
deposited into specified social security financial accounts shall be
computed in the light of the savings deposit interest of small deposits for
lump-sum withdrawal for the three-year period, and it should not be lower than
the level of interest rate of the said grade. The principal and interest in
individual accounts belong to the individuals and may be settled and
transferred for use and inheritance.

    Labor security and financial departments at different levels should
strengthen supervision and management of the basic medical insurance funds.  
Auditing departments should audit the revenue and expenditure and management
of bodies handling social insurance at regular intervals. Supervisory
organizations for medical insurance funds should be set up in overall
planning areas with the participation of representatives from the
government departments concerned, representatives from employer units,
representatives from medical institutions, representatives from trade unions
and relevant experts, and social supervision should be strengthened over
basic medical insurance funds.

    5.Strengthening Medical Service Management

    The scope and standards of services of basic medical insurance should be
defined. The Ministry of Labor Security shall, in conjunction with such
departments concerned as the Ministry of Public Health and the Ministry of
Finance, formulate the scope and standards of basic medical services, and the
measures for the settlement of medical expenses, compile the drug catalogue of national basic medical insurance, items of medical treatment, standards of
medical service facilities and corresponding control measures. The departments
of labor security administration of provinces, autonomous regions and
municipalities directly under the Central Government shall, in conjunction
with the departments concerned, formulate the corresponding standards and
measures for implementation of the respective areas pursuant to the
stipulations of the state.

    Management of designated medical institutions(including hospitals of
traditional Chinese medicine) and designated drug stores shall be exercised
for basic medical insurance. The Ministry of Labor Security shall, in
conjunction with such departments concerned as the Ministry of Public Health
and the Ministry of Finance, formulate the measures for the examination and
finalization of qualifications for designated medical institutions and
designated drug stores. The bodies handling social insurance should, in
accordance with the principle of simultaneous development of Chinese and
Western medicine, taking account of both grass-roots, specialized and
comprehensive medical institutions and facilitating the staff members and
workers in seeking medical advice, take charge of defining designated
medical institutions and designated drug stores and conclude contracts
with designated medical institutions and designated drug stores to define
their respective responsibilities, rights and obligations. Competitive
mechanisms should be introduced when designated medical institutions and
designated drug stores are defined. Staff members and workers can choose
a certain number of designated medical institutions for seeking medical
advice and buying medicine, and can also buy medicine with prescriptions at a
certain number of designated drug stores. The State Administration of Drug
Supervision shall, in conjunction with the departments concerned, formulate
the measures for handling accidents of drug purchase at designated
drug stores.

    All localities should carry out the spirit of the Decision of the Central
Committee of the Communist Party of China and the State Council on Public
Health Reform and Development" ( Zhong Fa[1997] No. 3), and take vigorous
action to press ahead the reform of medical and public health system, and
enable the masses to have better medical service with less input of funds
and promote sound development of the cause of medicine and public health.  
The system that medical service and medicine are computed and managed
separately should be set up, and the competitive mechanisms of medical
service and circulation of medicine should be formed, and medical expenses
are controlled at a reasonable level; internal management of medical
institutions and drugstores should be strengthened, acts of medical services
standardized, number of staff reduced and benefit increased, and  
medical cost reduced; price of medical service should be straightened out,
and on the basis of carrying out the separate accounting and management of
medical service and medicine, reducing the proportion of the revenue of
medicine making up the total revenue of medical service, the price of medical
technical services should be reasonably enhanced; and professional and
technical training and the education on professional ethics should be stepped
up to improve medical service personnels' quality and quality of service; the
distribution of medical institutions should be adjusted rationally, and
allocation of medical and public health resources optimized, and community
health services developed actively, and items of basic medical service in
community health service integrated into the scope of basic medical insurance.
The Ministry of Public Health shall, in conjunction with the departments
concerned, formulate the scheme of reform of medical institutions and the
relevant policy of the development of community health service. The State
Economic and Trade Commission and other departments should cooperate with each
other in earnest to do a good job of the reform of the system of circulation
of medicine.

    6.Appropriate Resolution of the Benefits of Medical Treatment for the
Personnel Concerned

    There shall be no change in the benefits of medical treatment for
honorary retirees and veteran red armymen, and medical funds shall be solved
through the original channel of funds, if there is difficulty in payment
indeed, the people's government at the same level should help to solve.
The measures for the management of medical services for honorary retirees
and veteran red armymen should be formulated by the people's governments of
provinces, autonomous regions and municipalities directly under the Central
Government.

    There shall be no change in the benefits for medical treatment for
disabled revolutionary armymen above Grade II Class B, the medical expenses
shall be solved through the original channel of funds and administered by
bodies handling social insurance under separate ledgers. The inadequate
portion for the payment of medical expenses should be solved by local people's
governments.

    Retirees shall join basic medical insurance, they do not pay the
basic medical insurance premiums. The proportion of the amount
of money charged into individual accounts of retirees and the medical
expenses borne by individuals will be given appropriate preferential
consideration.

    Public servants of the state shall, on the basis of joining the basic
medical insurance, enjoy the policy of medical subsidy. Specific measures
shall be formulated separately.

    In order not to reduce the present medical consumption level for staff
members and workers in a number of specific industries and trades, and on the
basis of joining basic medical insurance, as an interim measure, it should be
allowed to set up enterprises' additional medical insurance. Enterprises'
additional medical insurance funds within 4 percent of total wages should be
paid from staff's welfare funds. To the portion that the welfare funds are
inadequate to pay should be listed into cost upon verification and approval
by financial departments at the same levels.

    Basic medical insurance premiums of laid-off workers of state-owned
enterprises, including both premiums paid by units and individuals should be
paid by re-employment service centers according to the base number of 60
percent of local staff members' and workers' average wages in the preceding
year.

    7.Strengthening Organization and Leadership

    The reform of the medical insurance system is of strong policy nature,
and it involves vast staff members' and workers' vital interests and it is
of vital importance to the development of the national economy and social
stability. The people's governments at all levels should strengthen earnestly
their leadership, seek consensus of opinion, enhance awareness, and do
publicity and political and ideological work well, and make vast staff
members and workers and all walks of life of society actively support and
join the reform. All localities should, pursuant to the task, principle and
requirements of the establishment of the system of basic medcial insurance
for staff members and workers in cities and towns and in the light of actual
local conditions, meticulously implement through organization, and ensure the
stable transition from the old system to the new one.

    The work to set up the staff members' and workers' basic medical insurance
system in cities and towns shall be launched at the beginning of 1999 and
completed at the end of same year.  The people's governments of provinces,
autonomous regions and municipalities directly under the Central Government
should formulate the overall planning of medical insurance system reform
according to the requirement of this Decision, and submit it to the Ministry
of Labor Security for the record. The overall planning areas should formulate
plans for the implementation of basic medical insurance according to the
requirement of the planning, and implement them upon examaination and approval
by the people's governments of provinces, autonomous regions and
municipalities directly under the Central Government after submission.

    The Ministry of Labor Security should strengthen guidance and inspection
of the work of setting up staff members' and workers' medical insurance system
in cities and towns, and study and solve the problems emerging in the work in
time. The departments concerned such as the departments of finance, public
health and drug supervision and administration should participate actively in
it, coordinate closely with one another, and make joint efforts to ensure the
smooth progress of the work of the reform of staff members' and workers' basic
medical insurance system in cities and towns.