How China pays for its COVID-19 medical bills

• China covers the COVID-19 medical costs for all patients including domestic migrants.

• The payment structure is part of the country’s “wartime” governance.

• It also reflects the long-term institutional transformation of the Chinese healthcare system.

During a pandemic, how medical costs are shared among the state, insurers and patients has a profound impact on individual wellbeing and welfare.

In late January 2020, the Chinese authorities regulated that all COVID-19 patients would have their medical expenses fully covered by social health insurance and public finance. These arrangements make the Chinese government’s commitment to paying COVID-19 medical bills comparable to that of the most generous universal healthcare systems in the world.

But is the Chinese approach to funding COVID-19 medical care purely a manifestation of the country’s “wartime” governance; or does it reflect some “norms” of the healthcare system?

The case is likely to be a mixture of both. China has rolled out a multi-pillar social health insurance system since the late 1990s, which has elevated the population under coverage from below 5% to a near-universal level since 2011. The generosity of benefits also increased.

In 2017, the share of out-of-pocket payments towards healthcare expenditure in China was 36.05%, slightly better than the middle-income country average and just behind the higher-middle income country average. Obviously, an individual’s payment liability declined to virtually zero when facing the COVID-19 bill, which is attributable to a further welfare expansion in response to a public health crisis. But the country’s long-term transformation in terms of health insurance generosity should not go unnoticed.

Perhaps a more striking observation is the improved welfare equality for domestic migrants. When the whole of China came to a halt in late January, many migrants and travellers were stranded in host cities. Taking Hunan Province as an example, among the 1,019 confirmed COVID-19 cases by 18 June, 821 were local residents, while the remaining 198 patients were originally from other provinces. For these domestic migrant patients, they enjoyed exactly the same level of health benefits as the locals, i.e. free treatment with no requirement of private deposit to hospital accounts.

Anyone who knows about the Chinese political economy would be surprised to see this level of equality emerging from an environment where local policies are known for localism. Scholars have found that since the mid-1990s, local governments have undertaken the primary responsibility of providing public goods. Corresponding to the various levels of economic development, their fiscal capacities differ too. They have been, therefore, unwilling, or unable, to provide coverage for domestic migrants. As a result, migrants often either forewent necessary care, or had to turn to inferior providers.

Widening access to healthcare

The two-decade-long healthcare reform in China has profoundly changed how host places resolve the healthcare needs of migrants. Before COVID-19 hit, migrants could either participate in the social insurance programmes of host places, or tap insurance benefits from the places where they were insured, although subject to a deduction of 10%. During the pandemic, the regulation on reimbursement deduction was removed. But clearly, even before COVID-19, migrants could transfer their benefits to host places. The widening of access to healthcare benefits for migrants is not purely a temporary, disaster-relief aid: instead, it builds on the healthcare system’s long-term transformation.

So, how has such a long-term transition happened, amid the political legacy of localism? There are various explanations, but the one that stands out is the central government’s increasing role in funding healthcare. Although the Ministry of Finance continues to hold back in subsidising local public hospitals, it takes an aggressive and progressive approach to subsidising insurance premiums, where re-distribution is concerned. In making up the government subsidies, the central government pays for 52% on average. In practice, for the less developed inland provinces, the central government subsidises 80%, whereas in Beijing and Shanghai, the central government subsidies as little as 10%.

Now let us look at a hypothetical COVID-19 patient, a migrant from Yunnan Province receiving treatment in Shanghai. Funding from the local coffers in Yunnan is only 9.29%, the share paid by the Shanghai government is roughly 14%, whereas funding originating from the national treasury adds up to 58.14% . The arrangement for sharing the COVID-19 medical bills neither drains the fiscal capacity of the sending places, nor dampens the interest of host places where the size of migrant population is huge.

In response to the shared challenge from the pandemic, the Chinese experience is of global relevance. We do not intend to argue that a centralised system is better positioned for emergency management. However, for decentralised or devolved health-care systems, coordination between regional governments is crucial for keeping deaths to a minimum, and populations healthy.

A more active role for central finance can provide a useful leverage in incentivising such coordination. Even in Germany, where a strong degree of decentralisation is observed in its COVID-19 policies and the outcome is impressive, the federal government is actively involved in financing local public health services, by announcing a €4 billion stimulus to prop up the chronically underfunded state-level health offices. Facing the heated debate of whether “centralisation” or “decentralisation” works better in the face of a pandemic, policymakers around the word should seek to strike a better balance.