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The Chinese Health Care System

by Hai Fang, Peking University

What is the role of government?

In China, the central government has overall responsibility for national health legislation, policy, and administration. It is guided by the principle that every citizen is entitled to receive basic health care services, with local governments—provinces, prefectures, cities, counties, and towns—responsible for providing them according to local circumstances. Health authorities include the National Health and Family Planning Commission and the local Health and Family Planning Commissions (or Bureaus of Health, if they have not been merged with local Family Planning Commissions), which have primary responsibility for organizing and delivering health care and supervising providers (mainly hospitals). Health authorities at the prefectures/city, county, and town levels have limited flexibility in carrying out provincial health policies.

Who is covered and how is insurance financed?

Generally, health insurance is publicly provided and financed by local governments.

Publicly financed health insurance: In 2013, China spent approximately 5.6 percent of its gross domestic product (CNY3,187B, or USD871B) on health care, with 30 percent financed by local governments and 36 percent by publicly financed health insurance, private health insurance, or social health donations (National Health and Family Planning Commission, 2014). There were three main types of publicly financed insurance: 1) urban employment-based basic insurance (launched in 1998); 2) urban resident basic insurance (launched in 2009); and 3) the new cooperative medical scheme for rural residents (launched in 2003).

(Please note that throughout this profile, all figures in USD were converted from CNY at a rate of about CNY3.66 per USD, the purchasing power parity conversion rate for GDP in 2014 reported by OECD (2015) for China.)

Urban employment-based basic insurance is mainly financed from employee and employer payroll taxes, with minimal government funding. Participation is mandatory for employees in urban areas; the insured population was 274.2 million in 2013 (National Health and Family Planning Commission, 2014). Employees’ non-employed family members are not covered. Urban resident basic insurance, which is voluntary at the household level, covered 299 million self-employed individuals, children, students, and elderly adults in 2013. Both urban employment-based and urban resident insurance are administrated by the Ministry of Human Resources and Social Security and run by local authorities. The new cooperative medical scheme, mainly administrated by the National Health and Family Planning Commission and run by local authorities, is also voluntary at the household level and covered a rural population of 802 million in 2013, representing a coverage rate of 98.7 percent.

Urban resident basic insurance and the new cooperative medical scheme are mainly government financed. In regions where the economy is less developed, the central government provides the largest share of subsides, with provincial and prefectural governments providing the rest. In more-developed provinces, most government subsidies are locally provided (mainly provincial). Coverage of publicly financed health insurance is near-universal—exceeding 95 percent of the population since 2011 (Jiang and Ma, 2015). The few permanent foreign residents are entitled to the same coverage benefits as citizens. Undocumented immigrants (there are very few) and visitors are not covered by publicly financed health insurance.

Private health insurance: Complementary private health insurance is purchased to cover deductibles, copayments, and other cost-sharing, as well as coverage gaps, in publicly financed health insurance, which serves as the primary coverage source for most people. Private coverage is provided mainly by for-profit companies. In 2014, total premiums collected amounted to CNY158.7B (USD43.4B), an increase of 45 percent compared to the prior year, and represents approximately 10 percent of total (public and private) health insurance spending (Zhao et al., 2015; Liu, 2015).

Purchased primarily by higher-income individuals and by employers for their workers, private insurance often enables people to receive better quality of care and higher reimbursement, as some health services are very expensive or not covered by public insurance. There are currently no statistics on the percentage of the population with private coverage, but the Chinese government is encouraging development of this market. Growth in private coverage has been rapid, with some foreign insurance companies recently entering the market.

What is covered?

Services: Publicly financed insurance covers primary, specialist, emergency department, hospital, and mental health care, as well as prescription drugs, and traditional medicine. A few dental services (e.g., tooth extraction, but not cleaning) and optometry services are covered, but mostly they are paid for completely out-of-pocket. Home care and hospice care are often not included either. Local health authorities define the benefits package. Preventive services such as immunization and disease screening are included in a separate public-health benefits package funded by central and local government; every citizen and migrant is entitled to these without copayments or deductibles. Coverage is person-specific; there are no family or household benefit arrangements.

Cost-sharing and out-of-pocket spending: Inpatient and outpatient care, including prescription drugs, is subject to different deductibles, copayments and reimbursement ceilings. There are no annual caps on out-of-pocket spending. In 2013, out-of-pocket spending per capita was CNY2,327 (USD636) to CNY3,234 (USD886) and CNY1,274 (USD348) in urban and rural areas, respectively—representing about 34 percent of total health expenditures (National Health and Family Planning Commission, 2014).

Most out-of-pocket spending is for prescription drugs. Reimbursement ceilings are significantly lower for outpatient care than for inpatient care. For example, in 2013, ceilings were CNY3,000 (USD820) for outpatient care and CNY180,000 (USD49,180) for inpatient care in the rural new cooperative medical scheme in Beijing.

Provider networks are specific to the insurance scheme, normally at the prefecture-level for urban employment-based basic health insurance and urban resident basic health insurance (which may share the same network, but with different benefits) and at the county-level for new cooperative medical scheme. People can use out-of-network health services (even across provinces), but these have higher copayments. There are no universal cost-sharing arrangements, and each risk pooling unit (network) has its own policies. Cost-sharing in primary care facilities (village clinics, rural township hospitals, and urban community hospitals) and secondary/tertiary hospitals is also different, with the lowest copayments in the former. Secondary and tertiary hospitals are accredited by the local health authorities based on their qualifications, and both provide primary care, outpatient specialists, and inpatient hospital care. Migrant populations face much higher cost-sharing and out-of-pocket spending, since they often use care out-of-network. Fee schedules for primary and secondary care are regulated by the local health authorities and the Bureaus of Commodity Prices, and it is unlawful to charge patients above the fee schedules.

Safety net: For individuals who are not able to afford individual premiums for publicly financed health insurance or out-of-pocket spending (which is not capped), a medical financial assistance program, funded by local governments and social donations, serves as safety net in both urban and rural areas. In Beijing, the individual poverty level in 2015 was defined as CNY670 (USD183) per month in rural areas and CNY710 (USD194) in urban areas; poverty levels for other provinces may be lower than Beijing. Medical financial assistance programs prioritize inpatient care expenses. Funds are mainly used to pay for individual deductibles, copayments, and medical spending exceeding annual caps, as well as individual premiums for publicly financed health insurance. In 2013, 63.6 million people (approximately 5% of the Chinese population) received such assistance for health insurance enrollment, and 21.3 million people (1.6% of the population) received funds for direct health expenses (China National Health and Family Planning Commission, 2014).

There are other financial assistance programs to help with unreimbursed emergency department expenses and other health expenses. Mostly these are funded by local governments.

How is the delivery system organized and financed?

Primary care: Primary care is delivered mainly through village doctors and health workers in rural clinics, general practitioners (GPs) in rural township and urban community hospitals, and secondary and tertiary hospitals. Village doctors, who are not licensed GPs, can work only in village clinics. In 2013, there were 1.08 million village doctors and health workers (National Health and Family Planning Commission, 2014). Although rural patients are encouraged to seek care in village clinics or township hospitals and urban patients in community hospitals—as such providers are associated with lower cost-sharing rates—residents can also see any GP in upper-level hospitals directly.

Registration with a GP is not required and, except for the very few areas that use GPs as gatekeepers, referrals are generally not necessary to see outpatient specialists. In 2013, China had 194,310 licensed and assistant GPs (including preventive medicine), representing only 8.5 percent of all licensed physicians and assistant physicians (National Health and Family Planning Commission, 2014). Except for village doctors and health workers in the village clinics, GPs rarely practice solo or through partnership but instead work in a hospital with nurses and nonphysician clinicians. Village clinics in rural areas receive technical support from township hospitals.

Fee schedules for primary care are regulated by local health authorities and the Bureaus of Commodity Prices. Village doctors and health workers in the village clinics receive income through reimbursement of public health services (e.g., immunizations and chronic disease screening) and clinical services, as well as through markups of prescription drugs and government subsidies. Incomes vary substantially by region.

GPs at hospitals receive a base salary along with activity-based payments (e.g., patient registration fees, surgeries performed). With fee-for-service still the dominant payment mechanism for hospitals (see below), hospital-based physicians have strong financial incentives to induce demand. It is estimated that wages constitute only one-quarter of physician incomes; the rest is thought to be derived from practice activities. In 2013, 48 percent of outpatient revenues and 39 percent of inpatient revenues were from prescription drugs provided to patients in tertiary hospitals (National Health and Family Planning Commission, 2014). Care coordination is generally not incentivized.

Outpatient specialist care: Outpatient specialists are employed by and usually work in hospitals, through which they obtain their practice licenses. Although practicing in multiple settings is being introduced in China, most specialists practice in one hospital only. They receive compensation in the form of base salary and activity-based payments from hospitals. Patients can usually see outpatient specialists without GP referral.

Administrative mechanisms for direct patient payments to providers: Patients pay deductibles and copayment to hospitals at the point of service. Hospitals directly bill insurers the covered payment at the same time if the payment mechanism is fee-for-service or a diagnosis-related group (DRG) system. Hospitals receive annual lump-sum payments under global budgets or capitation.

After-hours care: Because village doctors and health workers often live in the same community as patients, they voluntarily provide some after-hours care when needed. Rural township hospitals and urban secondary and tertiary hospitals have emergency rooms or departments (EDs) where both primary care doctors and specialists are available, minimizing need for walk-in after-hours care centers. In EDs, nurse triage is not required and there are few other restrictions, so people can simply walk in and register for care at any time. (Urban community hospitals often do not provide after-hours care, given the availability of secondary and tertiary hospitals.) ED use is not substantially more expensive than usual care for patients. Information on patients’ emergency visits is not routinely sent to their primary care doctors.

Hospitals: Hospitals can be public or private, nonprofit or for-profit. Most township hospitals and community hospitals are public, but both public and private secondary and tertiary hospitals exist in urban areas. Rural township hospitals and urban community hospitals are often regarded as primary care facilities, similar to village clinics rather than ‘true’ hospitals. In 2013, there were 13,396 public hospitals and 11,313 private hospitals (excluding township hospitals and community hospitals), of which 17,269 were not-for-profit and 7,440 were for-profit (National Health and Family Planning Commission, 2014). In 2013, there were 487,802 public primary care facilities and 427,566 private village clinics (National Health and Family Planning Commission, 2014).

Hospitals are paid through a combination of out-of-pocket payments, health insurance compensation, and, in the case of public hospitals, government subsidies—the latter representing 13.5 percent of total revenue in 2013 (National Health and Family Planning Commission, 2014). A significant number of patients pay 100 percent out-of-pocket, because they receive out-of-network services. Although fee-for-service is dominant, DRGs, capitation, and global budgets are becoming more popular in selected areas. Local health authorities set fee schedules, and doctor salaries and other payments are included in hospital reimbursement.

Mental health care: Mental health care, including disease diagnosis, treatment, and rehabilitation services, is provided in special psychiatric hospitals and psychological departments of tertiary hospitals. Patients with mild illness are often treated at home or in the community; only severe mentally ill patients are treated in psychiatric hospitals. Both outpatient and inpatient mental health services are covered by insurance, with benefits subject to lower copayment rates. In 2013, there were 28 million mental health patient visits to special psychiatric hospitals, and on average one psychiatrist treated 4.6 patients per day (National Health and Family Planning Commission, 2014). Mental health is not integrated with primary care.

Long-term care and social supports: In accordance with Chinese tradition, long-term care is provided mainly by family members at home. There are very few formal long-term care providers. Family caregivers are not entitled to financial support or tax benefits, and long-term care insurance is virtually nonexistent; expenses for care in long-term care facilities are paid almost entirely out-of-pocket. Government may provide some subsidies to long-term care facilities. On average, conditions in long-term care facilities are poor, and there are long waiting lists for enrollment in high-end facilities. Formal long-term care facilities usually provide only housekeeping, meals, and basic services like transportation, but very few health care services. Some long-term care facilities may coordinate health care with local township or community hospitals, however. There were 4.94 million beds for aged and disabled people in 2013 (National Bureau of Statistics, 2014). Some hospice care is available, but it is normally not covered by health insurance (Chen, 2014).

What are the key entities for health system governance?

In 2013, the Ministry of Health and the National Population and Family Planning Commission were merged into the National Health and Family Planning Commission as the main agency for health controlled by the State Council (central government). The State Administration of Traditional Chinese Medicine is affiliated with the new Commission. The National People’s Congress is responsible for health legislation. However, major health policies and reforms may be initiated by the State Council and the Central Committee of the Communist Party as well, and these are also regarded as law.

The National Development and Reform Commission, which has been heavily involved in the recent health care system reform, oversees health infrastructure plans and competition among health care providers. The Ministry of Finance provides funding to government health subsidies, health insurance contributions, and health system infrastructure. The Ministry of Human Resource and Social Security runs urban employment-based basic insurance and urban resident basic insurance. The China Food and Drug Administration is responsible for drug approvals and licenses, but health technology assessment or cost-effectiveness have not played a significant role yet. The China Center for Disease Control and Prevention is administrated by the National Health and Family Commission, though it is not a government agency. The Chinese Academy of Medical Science, under the National Health and Family Planning Commission, is the national center for health research.

The National Health and Family Planning Commission directly owns some hospitals in Beijing, and national universities directly administrated by the Ministry of Education also own affiliated hospitals. Local government health agencies, usually the Bureau of Health or Health and Family Planning Commission in each province, may have a similar structure and often own provincial hospitals. Local governments (for prefectures, counties, and towns) may have departments of health and own hospitals directly. Centers for Disease Control and Prevention also exist in local areas and are administrated by the local bureaus or departments of health. At the national level, the China Center for Disease Control and Prevention only provides technical support to the local centers.

Both national and local Health and Family Planning Commissions have comprehensive responsibilities for health quality and safety, cost control, provider fee schedules, health information technology, and clinical guidelines.

What are the major strategies to ensure quality of care?

The Department of Health Care Quality within the Bureau of Health Politics and Hospital Administration and overseen by the National Health and Family Planning Commission is responsible for quality of care at the national level. The National Health Service Survey is conducted every five years (the latest in 2013), and a report is published after each survey highlighting data on selected quality indicators.

Hospitals must obtain licenses from local health authorities for hospital accreditation. Physicians get their practice licenses through hospitals, and they have to renew their licenses after a certain period. Several national hospital rankings are available from third parties to, but there are no financial incentives for hospitals to meet quality targets (Dong et al., 2015).

Following release of the “Temporary Directing Principles of Clinical Pathway Management” by the former Ministry of Health in 2009, clinical pathways are now regulated nationally and used in a similar manner as clinical guidelines are in Western countries. Previously, pathways were created at the hospital, rather than national, level.

What is being done to reduce disparities?

There are still severe disparities in accessibility and quality of health care, although China has made significant improvements in the last decade. Income-related disparities in health care access were serious before the reform of the health insurance system more than 10 years ago, as most people did not have any coverage at all. Today, publicly financed insurance coverage is now nearly universal and there are safety nets for the poor (see above); as a result, income-related disparities have been reduced substantially.

Remaining disparities in access are mainly due to variation in insurance benefit packages, urban and rural factors, and income inequality. Urban employment-based basic insurance offers broader benefit packages than the other two insurance schemes. To improve benefit packages and reduce disparities, central and local governments intend to consolidate insurance schemes, an effort that has already been piloted in selected areas, such as Dongying City in Shandong Province and Jinhua City in Zhejiang Province. In addition, central and local government subsidies to urban resident basic insurance and the rural newly cooperative medical scheme have increased in recent years.

Most good hospitals (particularly tertiary hospitals) are located in urban areas, where there are better-qualified health professionals. Village doctors are often under-trained. To help bridge the urban–rural health care divide, the central government and local governments sponsor training for rural doctors in urban hospitals and require new medical graduates to work as residents in rural health facilities. Nevertheless, the China Health and Family Planning Statistical Yearbooks show that substantial disparities remain.

What is being done to promote delivery system integration and care coordination?

Medical alliances are regional hospitals groups, often including one tertiary hospital and several secondary hospitals and primary care facilities, that provide access to primary care facilities for patients with minor health issues. The aim is to reduce the need for people to visit tertiary hospitals. At the same time, patients with serious health problems can be referred to tertiary hospitals easily and moved back to primary care facilities after their condition improves. It is hoped that this type of care coordination will meet demand for chronic disease care, improve health care quality, and contain rising costs. Hospitals in the same medical alliance use the same electronic health record system, and results of labs, images, and diagnoses can be shared easily within the alliance.

There are three main medical alliance models (Jiang et al., 2014). Hospitals in the Zhenjiang model have only one owner (usually the local bureau of health). Those in the Wuhan model do not belong to the same owner, but administration and finances are all handled by one tertiary hospital. Hospitals in the Shanghai model share management and technical skills only; ownership and financial responsibility are separate.

What is the status of electronic health records?

Nearly every health care provider has set up its own electronic health record (EHR) system. Within hospitals, EHRs are also linked to the health insurance systems for payment of claims with unique patient identifiers (citizenship ID). However, EHR systems vary significantly by hospital and are usually not integrated or interoperable. Patients often have to bring with them a printed health record if they would like to see doctors in different hospitals. Even if hospitals are owned by the same local bureau of health or universities in the same region, different EHR systems may be used. Patients generally do not use EHR systems for accessing information, appointment scheduling, secure messaging, prescription refills, or accessing doctors’ notes.

How are costs contained?

Health expenditures have risen significantly in recent decades as a result of health insurance reform, population aging, economic development, and health technology advances. Health expenditures increased from CNY510 (USD139) per capita in 2003 to CNY3,234 (USD884) in 2013 (China National Health and Family Planning Commission, 2014). The key cost-containment strategy is reform of provider payment. Prior to the recent introduction of DRGs, global budgets, and capitation in 2009, fee-for-service was the main provider payment mechanism and consumer- and physician-induced demand increased costs significantly. Global budgets in particular have been used in many regions, since these are relatively easy for authorities to implement. As noted above, government encourages use of community and township hospitals over more-expensive care provided in tertiary hospitals. Hospitals compete on the basis of quality, level of technology, and copayment rates.

In township, community, and county hospitals, a campaign of “zero markups” for prescription drugs was introduced in 2013 (see below).The National Development and Reform Commission places stringent supply constraints on new hospital buildings and hospital beds, and the National Health and Family Planning Commission controls the purchase of high-tech equipment such as MRI scanners.

What major innovations and reforms have been introduced?

Sales of prescription drugs have been a major revenue source for hospitals, which are allowed a 15 percent markup, and providers have strong financial incentives to induce demand for more and expensive drugs. Prices for services, on the other hand, are rather low, in accordance with traditional health practice in China. However, as of 2015, 3,077 public county hospitals and 446 public city hospitals were participating in a government-financed pilot program to eliminate markup of prescription drug prices. At the same time, 224 prefectures and cities in 21 provinces adjusted prices of health care services upward to reflect true costs. The zero-markup policy has been found to have significantly reduced total medical spending (Fu and Yang, 2013).

Another important health reform was the introduction in 2015 of special health insurance for severe diseases, such as cancers, kidney disease, and acute myocardial infarction (AMI), which supplements the regular publicly financed schemes. Severe-disease health insurance provides reimbursement beyond the rather low reimbursement ceilings. It is also mostly publicly financed, particularly for urban resident basic insurance and the rural new cooperative medical scheme, and administrated by local health authorities. However, private commercial health insurance companies, given their experience in providing complementary insurance, are heavily involved as well. By 2017, severe-disease insurance is expected to be available throughout China.


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