Sustainable Social Security
For a large country like China, nationwide coordination of pension funds has become an irresistable trend. Building the central adjustment system represents China’s resolution to address challenges in the realm of social security.
This June, China announced a policy to establish a central adjustment system to cover basic pension funds of enterprise employees. The new policy went into effect on July 1, 2018, with the aim to balance pension payment burdens of local governments and realize sustainable development of China’s retirement insurance system. Reasons behind the Central Adjustment
In recent years, reforms of China’s basic pension system have delved deeper to achieve major progress. In general terms, its retirement insurance system features stable operation and strong funding support, guaranteeing timely and full pension payments to retirees. In 2017, the total revenue of China’s pension funds reached 3.3 trillion yuan, and the total expenditure hit 2.9 trillion yuan. By the end of 2017, the cumulative account balance reached 4.1 trillion yuan.
However, hidden beneath the overall steady operation of China’s pension system are widening gaps among various regions. The dependency ratio between the population typically not in the labor force (children and seniors) and working-age adults varies greatly among regions. The imbalance in regional pension funds has become increasingly glaring in recent years. Although numerous factors may come into play including diversifying employment and imbalanced economic development, the imbalance is primarily caused by an aging population and increasing population mobility.
By the end of 2017, China was home to 241 million seniors aged 60 and above, accounting for more than 17 percent of its total population. In 2017, its elderly population grew by more than 10 million year-on-year for the first time. This enormous figure and the massive population flow in the country exacerbated the regional imbalance of pension funds. Specifically, the surplus of pension funds has mostly occurred in eastern parts of China, while some western and northeastern provinces have been hit with great pressure on their pension funds. According to the China social security development Report2016 issued by the Chinese government in November 2017, fund revenues of seven provincial-level administrative units including Qinghai and Jilin failed to cover their pension expenditures in 2016. Among them, the northeastern province of Heilongjiang was underfunded by 32 billion yuan in its pension fund in 2016, and its cumulative fund shortage reached more than 23 billion yuan. However, another nine provincial-level administrative units including Guangdong, Jiangsu, and Zhejiang each reported a cumulative pension fund surplus of at least 100 billion yuan. Guangdong Province topped the list with a surplus of nearly 726 billion yuan.
The imbalance in pension funds at the provincial level is a difficult issue to be addressed, so adjustment across the nation is needed. The new
policy covers the following aspects: First, the central adjustment system will draw a certain portion from provincial pension fund pools for redistribution later. Second, fund distribution of the central adjustment system will be based on the scale of the capital pool. Third, funds raised through the central adjustment system will be allocated to local governments for pension payments only, and not used to balance budgets. Fourth, the existing central fiscal subsidy policies will continue and the central government will continue supporting local governments in pension distribution.
Addressing Concerns
The announcement of the central adjustment system for basic pension funds has generated heated discussion. Whether the new policy will create burdens on enterprises, employees and local governments has aroused great public concern.
“The central adjustment fund is comprised of pension funds paid by each provincial-level region,” explains You Jun, China’s Vice Minister of Human Resources and Social Security. “Establishing the central adjustment system is primarily aimed at balancing deficits and surpluses in provincial pension funds. The total volume of the national pension fund will not change. The new policy doesn’t raise the payment ratio of enterprises or individuals, nor does it change existing methods of pension calculation and payment.” Thus, the new policy will not create burdens for enterprises or employees, nor will it have any negative impact on the welfare of retirees.
“The central adjustment system for basic pension funds was designed to balance the payment burdens of local governments and promote fair sharing of social security funds among the public at large,” opines Jin Weigang, head of the Chinese Academy of Labor and Social Security.
During the implementation process of the central adjustment system, balancing the interests of various parties will be tricky. Many have also weighed in on fair and reasonable turn-in and distribution solutions for funds raised through the central adjustment system.
These concerns can be resolved by institutional design. For example, in terms of incentive and restrictive mechanisms, the new policy stipulated that after receiving subsidies and funds allocated by the central government, remaining provincial funding gaps needs to be covered by local governments. The new policy also proposed that an evaluation system be established. Various issues such as pension payment and fund management will be included in the work evaluation list for provincial-level governments.
Nationwide Coordination
Thesocialinsurancelawof the People’srepublicof China called for the country’s basic pension funds to become coordinated nationwide gradually to achieve unified collection and allocation of funds by the state. The report delivered at the 19th National Congress of the Communist Party of China placed nationwide coordination of pension funds high on the agenda. However, because regional economic development is still unbalanced across China, nationwide coordination of pension funds poses a huge challenge. Even only a handful of provinces could realize provincial-level pension funds coordination in any real sense. Most Chinese provincial-level administrative units are doing provincial-level adjustment or building other mechanisms to promote reform of their respective pension systems.
Thus, the central adjustment system is the first step towards nationwide coordination. As a transitional policy, the system can ease the serious imbalance in pension funds among different provinces and regions and facilitate a sustainable basic pension scheme. During the transition period, the central government should carefully consider economic development disparities across the country, increase efforts to formulate methods for trans-provincial pension transfers and renewals, and rationally divide responsibities between central and local governments. The central adjustment system presents an opportunity for China to invest greater efforts to plan and realize nationwide coordination of the country’s basic pension funds.
For a large country like China with a rapidly aging population and unbalanced regional development, nationwide coordination of pension funds has become an irresistable trend. Building the central adjustment system represents China’s resolution to address challenges in the realm of social security. “The central adjustment system enables the country to allocate and distribute pension funds from an overall perspective,” says Chu Fuling, professor with the School of Insurance at China’s Central University of Finance and Economics. “In this crucial period marked by an accelerated aging process and rapid transformation and upgrading of economic structure, China faces long-term pressures from pension payments. The central adjustment system will help strengthen the sustainability of China’s pension system.”
The report to the 19th National Congress of the Communist Party of China (CPC) called for the Healthy China initiative, which aims to “improve community-level healthcare services and strengthen the ranks of general practitioners.” The initiative is intended to enhance rational allocation of medical resources, increase healthcare efficiency, reduce excessive reliance on first-class hospitals and improve patient experience.
In early 2018, the Chinese government announced plans to train more qualified general practitioners and expand deployment of contracted family doctors. In China, general practitioners are physicians who diagnose, treat and manage a wide array of patient conditions and provide medical services ranging from early treatment of regular illnesses, prevention, healthcare and rehabilitation to chronic disease management at community level as well as routine, integrated and customized healthcare services for individuals or families. According to the National Health Commission of China, less than 200,000 community-level general practitioners are providing services across the country, which is only about half of the number needed.
In 2015, as a pilot zone for community-level healthcare reform in China, Shenzhen’s Luohu District began to implement a general practitioner system which has proven very successful.
Gatekeepers for Community Healthcare
Wenhua Community in Luohu District has a population of 25,000, of whom many are migrants. The community hospital is staffed with 10 general practitioners and 12 nurses. Wu Tianlong is a general practitioner posted there.
Before she met Wu, community resident Xu Yanyan preferred to see doctors at prestigious Hong Kong hospitals like many high-income Shenzhen residents. About six years ago, her two-year-old son came down with a cough that persisted even after consulting several doctors in Hong Kong. So she decided to try her luck at the community hospital.
“Frankly, seeing Doctor Wu was so young, I didn’t have much confidence in his expertise,” Xu recalled. To her surprise, three days later her son’s cough was cured after taking medicine Wu prescribed.
Two years later, Xu’s younger son came down with a cough. This time, Wu recommended a very cheap drug. “Each bottle contains six grams of tablets, and they’re very affordable,” Xu said. “Doctor Wu helps my family save a lot of money on medical care.”
Back then, the contracted family doctor system had yet to be implemented in Shenzhen. But, whenever her sons got sick, Xu habitually consulted Wu over the telephone. “Every time I called, he asked in detail about my sons’ symptoms and then dispensed useful advice,” she said. “He knows key physiological information about every member of my family, even our heights and weights.”
Compared to specialized physicians at large hospitals, community-level general practitioners not only treat illnesses, but also focus on individual patients’ health.
“You shouldn’t interrupt patients when they talk to you but encourage them to ask whatever they want,” explained Zhang Xiaoxiao, a doctor at the Health Service Center of Luohu Community. “By conversing with patients, you get information that can be very helpful for diagnosis. Sometimes I feel like a detective.” In her eyes, how general practitioners communicate with patients is totally different from specialized physicians.
Once, a boy suffering from frequent stomachaches came to see Doctor Zhang. “In most cases, a specialized physician would suspect gastric diseases and order a gastroscopy or helicobacter pylori infection examination.” Zhang said.
After talking with the boy, she realized that his stomachaches occurred only in the morning from Monday to Friday, but never in the afternoons or evenings. On pressing further, she learned that the boy was walking quite far to school since reaching middle
school, so he didn’t have time for breakfast. And his stomachache usually subsided after the first morning class.
Zhang diagnosed that the boy had temporal abdominal cramping and suggested he get up earlier in the morning to eat breakfast before going to school. Following her advice, the boy never again had such pains. When the boy came back for a follow-up visit, Zhang only talked with him instead of performing an examination or ordering tests.
In Zhang’s opinion, general practitioners usually provide medical services through heart-to-heart communication with patients,
rather than with medicine and procedures. Luohu Experience
Three years ago, before the general practitioner system was introduced to Luohu, Zhang Xiaoxiao didn’t get much satisfaction from her work. At that time, second- and third-tier hospitals and community healthcare centers in Shenzhen lagged far behind hospitals in Guangzhou, capital of Guangdong Province, in terms of medical resources—never mind institutions in Beijing and Shanghai. Many local patients preferred to see doctors in Beijing, Shanghai, Guangzhou or even Hong Kong and Southeast Asian countries. Shenzhen became known as a “healthcare desert.”
The new healthcare reform that began in 2015 quickly became a game-changer. That year, with its Luohu District as a pilot area, Shenzhen launched a reform focusing on community-level healthcare. Luohu merged five hospitals and 23 community healthcare centers into Luohu Hospital Group.
Sun Xizhuo, president of Luohu Hospital Group, and his healthcare reform team committed to ensuring local residents access to quality, effective healthcare services within a 15-minute walk. The hospital group pays great attention to disease prevention and health management to “free residents from illnesses and hospitalization, cut their healthcare burdens and enable them to enjoy high-quality medical services.”
Since 2015, a series of new medical reform policies have been carried out in Luohu District.
A mobile app developed by the district, Healthy Luohu, is now used by every local doctor. With the app, patients can make an appointment, pay for medical services and consult contracted doctors. Every hospital and healthcare center under Luohu Hospital Group can share information via the app. Moreover, it helps doctors regularly monitor the health of local residents, diagnose illnesses earlier and reduce disease prevalence rates. If a patient needs to be transferred to another hospital, his or her medical data can be immediately delivered accordingly. Transferred patients need not register at the new hospital.
In Luohu, medical insurance funds adopt a management approach called a “capped budget.” Local residents are free to choose local hospitals or clinics as their contracted medical service institutions. Each year, the medical insurance administration pays Luohu Hospital Group a certain amount of money according to the number of the insured who chose it as their contracted medical service institution the previous year. The amount is based on per capita medical insurance in Shenzhen plus the annual growth rate of medical insurance in the city. If the amount does not cover the medical expenditures of the contracted patients each year, Luohu Hospital Group will bear the loss itself. If there is a surplus, the hospital group will keep it.
Under these terms, the hospital group can maximize its profits in only two ways: one is to ensure contracted residents are healthy and reduce their medical spending, and the other is to attract more contracted residents by improving service quality.
According to Sun, China still lacks a complete academic and assessment system for general practitioners, and some overlapping services affect the efficiency of community-level general practitioners. “For instance, public health education such as teaching children how to wash their hands should be overseen by centers for disease control, leaving community hospitals to focus on treatment of chronic diseases and providing basic public healthcare,” he added.
“I don’t think our practice should be called the ‘Luohu Model’ because it’s merely a reform,” Sun noted. “I hope more medical insurance categories will be introduced to promote community-level medical services so that large hospitals can concentrate on medical teaching and research as well as treating acute and severe diseases. That would help China form a better medical service system.”