Medical insurance in China: What insurance policies can companies subscribe for their employees?
Are you interested in running your own business in China? If that is the case, then China’s medical insurance (aka. health insurance) system is a must-know for you when you consider the recruitment of local or foreign employees. As part of China’s mandatory social security system (medical insurance, pension fund, industrial injury insurance, unemployment insurance, maternity insurance and housing fund), commonly known as ‘five insurances plus one fund’ (五险一金), medical insurance in China is a welfare policy where an employee is entitled to have a certain portion of their treatment cost covered in the event of illness or non-occupational injury. Required to be paid by both employers and employees on a monthly basis, medical insurance reimburses the medical expenses to designated hospitals for treatment. It’s necessary to mention that medical insurance only covers treatment accepted and managed by governmental-approved hospitals and clinics.
What types of medical insurance policies can you consider purchasing for your employees in China?
Medical insurance policies for employees in China can be broken down into two categories: public insurance and private insurance.
Public insurance policy (aka. Social insurance policy) is the national obligatory insurance, of which the healthcare costs are co-paid by the employer and employee. Although the contribution rates to it vary from one municipality to another, they are usually sitting around 6% of the salary cost for the employer and 2% of the salary for the employee. The reimbursement rates normally range from 50%-80% depending on the actual situations, such as the types of diseases and drugs prescribed, the insurance tier and in-patient/out-patient care.
China has three tiers of public insurance policies: tier-one, two or three. Tier-one is the best but most expensive, and tier-three is the cheapest but worst, providing only the most basic medical care. Most major cities in China provide tier-one and tier-two insurance policies where you can get a high level of healthcare. Employers should look into which policy tier fits their company conditions best before considering purchasing for employees.
Also known as commercial insurance or medical insurance supplemental cover, it refers to the form of insurance for the purpose of making profits through the operation of insurance contracts, which are operated by the specialized insurance companies. Private insurance is not mandatory and can be treated as a kind of supplementary benefit for employees. Despite being more expensive, private insurance generally offers higher reimbursement rates for policyholder (above 80% but can vary a lot, depending on the insurance company and product) and focuses on compensating for the fees that cannot or cannot be adequately reimbursed by public insurance policies.
The popularity of private medical insurance
The popularity of private medical insurance is fast growing in China. According to the data from the China Banking Regulatory Commission (银监会), the market size of private insurance experiences an annual compound growth rate of roughly 20% from 2016 to 2020. This is due to two factors: the rise of China’s middle-income class who are willing to spend more on private healthcare, and the limitations of China’s public healthcare system (limitations of critical illnesses coverage, limited access to private facilities, and high portion of self-pay).
Private insurance in China has a number of advantages:
- Private healthcare facilities are cleaner, more modern and better organized.
- Higher reimbursement rates.
- Multi-lingual medical staff.
- Less time and frustration waiting in line for out-patients. Professional coordinating recovery with multiple departments for in-patients.
- The possibility of including the insuree’s family members into the insurance coverage.
Source: China Banking Regulation Commission, Medical Insurance market size
Insurance policies for foreign employees in China
While the number of foreign companies in China’s medical insurance market is increasing, the dominant players are still big domestic insurance companies. The three largest providers in China’s medical Insurance market are Ping An Health Insurance Company, China Life Insurance and PICC Health. China’s medical insurance system is registered at the regional level, which makes regulations across cities not exactly the same. Cities like Beijing, Tianjin, Shenzhen and Nanjing, for example, treat international employees the same as domestic employees. On the other side, for cities like Shanghai, companies pay for employees’ private medical insurance on a voluntary basis.
However, as an effective method to make foreign employees feel respected and motivated, many companies still offer to purchase a series of medical insurance policies for employees, among which products from international healthcare providers are the most popular, such as Cigna, Aetna, MSH and Bupa. To cater to the needs of expats in China, these products provide the necessary information in English and give policyholders access to approved hospitals worldwide. The cost of international insurance policies for a foreign employee is on average 28500 RMB per year.
Digital transformation of medical insurance companies
Although the traditional sales channels of medical insurance products (through acquaintance or agents) remain the focus of Chinese individuals, the medical insurance industry in China is undertaking a digital transformation to accommodate consumers’ shift focus towards online purchase. For example, Ping An invest in InsurTech start-ups as a new digital distribution channel for their insurance products, as online sales is playing an increasingly important role for insurance companies’ market growth nowadays in China.
Key takeaways for future investors
1. Public medical insurance can be divided into three tiers and is compulsory for companies to purchase for their employees.
2. Financially potent companies can consider purchasing private insurance policies as a supplement to traditional public ones for better employee well-being.
3. Ping An, PICC and China Life are the largest and most trustworthy providers in China’s medical insurance market.
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