Population aging and its effects on the gap of urban public health insurance in China

Abstract

To see whether the population aging in China will significantly affect the gap of Urban Employees' Basic Medical Insurance (UE-BMI) in China, we first project the gap of UE-BMI's pooling account in the next fifty years. Then, we build an 80-genaration overlapping generation (OLG) model by modeling the UE-BMI at both aggregated and individual levels. The baseline model is calibrated and solved to be consistent with our projection, where UE-BMI's gap will bring visible pressure on China's fiscal budget in the next decades. In our policy experiments, our simulation under different fertility scenarios reveals that increasing fertility cannot effectively reduce the gap of the UE-BMI. Meanwhile, a low fertility in the future will induce a permanent welfare loss of households. Increasing the employer contribution rate or canceling the personal accounts of the UE-BMI could relieve the gap issue. However, the existence of crowding-out effects may potentially prevent the government from applying these reforms.