Private and public cross-subsidization: financing Beijing’s health-insurance reform

Abstract

In 1998, the Chinese government proposed a universal health-insurance program for urban employees. However, this reform has been advancing slowly, primarily due to an unpractical financing policy. We surveyed over 2000 families and evaluated the financial impacts of Beijing’s reform on public and private enterprises. We found that most state-owned enterprises provided effective health insurance, whereas most private firms did not; overall, 33% of employees had little or no coverage. On average, employees of private firms were healthier and earned more compared to public firms. Because the premium was proportional to income, private firms would pay more for insurance than the predicted health-care expense of their employees. International firms subsidize the most, contributing more than 60% of their insurance premiums to the employees of the public sector. Such an aggressive cross-subsidization policy is difficult to be accepted by private firms.