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formal employment status, with coverage of other family members not provided. Previous government and state-owned enterprise insurance programs have been subsumed by the Basic Medical Insurance program in urban areas, which is funded by employer and employee contributions (6-10% and 2% of wages, respectively) split between individual medical savings accounts and socially pooled accounts. Growing informalization of the urban labor market caused by the closing of many State Owned Enterprises starting in the late 1980s led to falling health insurance coverage rates in urban areas. In 2005, only 47% of those living in cities and 33% of those living in towns were covered by health insurance (World Bank, 2009). The problem of low health insurance coverage was exacerbated by rising healthcare costs (which were then not covered) caused in part because doctors had a strong incentive to overprescribe treatments and medicines to generate income (World Bank, 2009).

Recent reforms have aimed to increase health insurance coverage of the population. In urban areas, coverage has been extended to the non-employed (e.g., students, children, elderly, those unemployed or out of the labor force) by a new voluntary Urban Resident Basic Medical Insurance Scheme, which was introduced in September 2007 in 79 cities. It enrolled 43 million people by year-end 2007, with plans to expand to 229 cities in 2008 (Lin, Liu, and Chen, 2009; World Bank, 2009).

The New Cooperative Medical Scheme (NCMS), a new rural health insurance program, was established on a pilot basis in 2003 and expanded nationally over time. When the program began, the health insurance coverage rate in rural China was about 20%, but by the end of 2007, the NCMS had grown to reach 2,451 counties (86% of all counties nationwide) (World Bank, 2009). The program is underwritten by both the central and provincial governments, but the county-unit governments have the responsibility for setting parameters of the program, such as user fees and premiums and reimbursement rates. Many counties have fixed the fees at 10 Yuan per person per year, supplemented with a local government contribution of at least 20 Yuan per person, plus a central government contribution also typically of 20 Yuan per person (Brown and Theoharides, 2009).2 However, a number of concerns have also been


2 For the premiums, the central government contributes a certain amount and also has a minimum requirement of how much the local government should pay. The amount has increased over time: From 2003-2004, the central government paid 10 Yuan/person/year and required the local government to pay at least 10; in 2005-2007, these numbers were 20; in 2008-2009, they were raised to 40, and in 2010, to 60. The actual contributions of the local governments differ depending on their economic capability, but they must satisfy the minimum requirement. The minimum individual contribution was 10 Yuan in 2003-2007; it was raised to 20 in 2008, and then to 30, in 2010. It was waived for very poor households such as those receiving Wubao, a welfare program.

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