**1. Introduction**

### **1.1 Provincial insurance schemes in China**

In 1998, the State Council of China issued a decision on establishing the basic medical insurance system for urban employees [1].

As a consequence, a universal medical insurance system (UMIS) was designed to improve access to medical services and reduce out-of-pocket (OOP) costs for all Chinese citizens [2]. By 2014, 97.5% of the population had some form of insurance coverage. The key options are the urban employee basic medical insurance (UEBMI), the new rural cooperative medical scheme (NRCMS), or the urban resident basic medical insurance (URBMI). The differences are in the type of population covered (e.g., in 2014, 283.3 million urban employees, 736 million rural citizens, or 314.5 million urban residents), in the annual premium per capita

(in 2014, 2841 RMB for UEBMI, 411 RMB for NRCMS, or 409 RMB for URBMI) and consequently, the scope of available funds and coverage [2].

All employing units (employers) and their employees in cities and towns are intended to participate in the UEBMI. The expenses of basic medical insurance shall be shared by employers and employees. The basic system includes the combination of social coordination funds and individual medical saving accounts (MSAs).

The basic medical insurance premiums are paid by individual employees with a 2% payroll tax and by employers with 6% payroll tax. About 30% of the contributions of employers are paid into the personal MSAs, while the remaining 70% of the basic medical insurance premiums are collected as coordination funds. Individual MSAs are used for outpatient payment, the coordination funds are used for hospitalization and to provide for coverage of some special diseases with high medical costs in outpatient departments [3]. The maximum ceiling payment is limited at four to six times the average annual wage of local employees. The excess cost can be insured by commercial medical insurance or government medical assistance. In 2010, these basic medical insurance principles were included in the Social Insurance Law of the People's Republic of China [4].

### **1.2 Why is change needed?**

Although all provinces have implemented provincial solutions for the basic medical insurance for employees, a few shortcomings have been observed over the years. These include the risk that the funds in the MSAs are not always used efficiently and may not suffice to cover a comprehensive outpatient care. In consequence, patients may prefer to use inpatient care facilities, which however, lead to higher overall costs [3, 5]. Simply put, individual choices on use of health-care funds are done with the short-term individual or family advantage in mind, whereas with pooled HC funds, decisions can be made based on overall health outcome of the population, and supply cost can be negotiated or managed accordingly. Not every individual owner of an MSA has the capability to invest in that HC service, which maximizes health outcomes with the available funds, and there is a risk that individual choices favor delayed treatments at more advanced stages of disease and to worse outcomes. An international study on the efficiency of MSA across different countries (China, Singapore, South Africa, and the United States of America) concluded that "the available evidence suggests that MSA schemes have generally been inefficient and inequitable and have not provided adequate financial protection" [6].

In addition, many healthy people or high-income employees do not use the savings in the personal accounts and therefore, they accumulate over time in the personal MSAs and are not available for the financing of current health-care services [7]. For example, in the Liaoning Province, the recent average proportion of health-care funds accumulated in individual accounts reached 40%, resulting in almost half of medical insurance funds being accumulated as surplus held in the MSAs. The same situation as was observed in Shanghai in 2015, with 40.3% of premium surplus accumulated in medical savings accounts [8]. In a model with a pooled fund administered across the whole membership, the entire budget could be allocated for health-care services across the members as needed. Thus, at any time, the money which is not spent by healthy people can be used for the treatment of sick people.

In terms of equity, a high variation in scope of coverage is also observed [9]. For access to medicines, distorted funding mechanisms create financial barriers for access to medicine in China [10, 11]. Research in 2014 on the impact of the UEBMI on equity revealed improved equity for inpatient services, but inequity growth for outpatient services [12].

#### *Value-Based Evaluation of Chinese Provincial Health Insurance Policy Schemes DOI: http://dx.doi.org/10.5772/intechopen.84373*

Affordability of medicines, a major part of outpatient care, is also still of concern [13]. There is a high regional variability in the scope of coverage and reimbursement methods [13]. For example, in some cities, the coverage for pharmaceuticals lies within the general outpatient coverage scheme; in others a range of "regulated diseases" are defined for coverage, whereas in other cities, a secondary drug reimbursement lists exist.

Due to these challenges and shortcomings, provincial insurance authorities want to improve their insurance policies for UEBMI by raising reimbursement for outpatient care services and products. This will in turn improve utilization of all available funds to increase the overall efficiency of healthcare.
