Ge Yanfeng

I. There has been achievement in the reform of the social security system but glaring problems still exist

Reform and construction of the social security system has mainly concentrated in two areas for more than a decade. 1. Construction of the social security system for social members who have already encountered difficulties. This mainly includes the minimum living guarantee system for urban residents and basic life guarantee system for laid-off workers from state-owned enterprises. 2. The institutional restructuring that targets salary workers and is aimed at preventing future risks. It mainly covers retirement insurance, medical insurance and unemployment insurance as well as work injury insurance and reproductive health insurance and other social insurances.

The major progress in the reform of all social insurance systems is the restructuring of the security fund use. In the past, individual units were the targets of the security funds, and the funds were operated with the individual units. But now the funds are raised and used by overall social planning, the targets of the funds turn to the employees in all types of enterprises in urban areas. This ends the situation that different enterprises have different social burdens and helps create a fair competitive environment for businesses of various types. This also promotes reform of state-owned enterprises and development of other economic entities with different ownerships and facilitates labor mobility while playing a positive role in protecting workers’ rights and interests and maintaining social stability.

It should be noted that there are still serious problems in the social security system. They are mainly shown in retirement insurance, medical insurance and unemployment insurance.

1. The scopes of coverage of the current social security systems are still too narrow and are encountering increasing difficulties in further expansion. By the end of 2002, 110 million people subscribed retirement insurance in China. This is only less than half of the targeted 239.4 million people intended by the social security system. During the same period, about 90 million people bought medical insurance. Considering that the targeted people for the medical insurance also include nearly 40 million retirees from companies and government institutions, the gap is even wider. Unemployment insurance has the best coverage yet it hasn’t covered all the intended people.

A more glaring problem is that the insurance system is encountering increasing difficulties in expansion. There are many reasons for this but the core problem is that the insurance fee is too high. The retirement, medical care and unemployment insurances constitute about 30% of the staff’s salaries for the part submitted by employers in most places. The proportion paid by individuals for the three insurances in sum constitutes about 10% of their salaries. The ratio for the insurance fee is apparently higher than that of most other countries. An excessively high insurance fee has great impact on the labor cost and profitability of companies, forcing many companies to evade paying for insurances in various ways.

Because the scope of coverage is hard to expand smoothly, a high rate has to be maintained to achieve income expenditure balance for the smooth operation of the social security system. Sometimes a higher rate has to be charged to keep the insurance systems afloat. This gives rise to a vicious cycle of the more difficult to expand its coverage, the higher rate that has to be charged.

2. These major social insurance systems all face the problem of being financially unsustainable. Since the late 1990s, the revenues from retirement insurances in enterprises across the country haven’t enough to meet expenditures even when the accounts are empty, and the annual deficit has been expanding year by year. Now the deficit stands at around RMB30 billion and has to rely on fiscal subsidies of governments at various levels.

In the area of unemployment insurance, with the definition of being laid off and being unemployed becoming the same, its financial un-sustainability became manifest. In 2001, eight provinces saw their unemployment insurance revenues hover below their expenditures. Considering unemployment pressure will inevitably grow, and the insurance fees are impossibly further raised, to maintain the current social security standard will subject the unemployment insurance system to severe financial difficulties. To achieve income and expenditure balance, it has to lower levels of social security, which is undesirable for its social security target.

The medical insurance system that combines social insurance with individual accounts has only started in most places. To date, most places have managed to achieve income expenditure balance with its social insurance fund, but there exist also huge potential problems. First of all, the income expenditure balance is achieved at the expense of many people’s right of receiving social security. Almost in all places, only those who can afford the fees can subscribe to the insurance otherwise they are barred from the insurance or had the insurance suspended. Secondly, current income expenditure balance is only achieved in the fund raised from the society, and the scope of its beneficiaries is strictly restricted. The fund in individual accounts is seriously deficient, and it’s a universal phenomenon for individuals to have an excessive burden. Thirdly, insurance buyers and medical care service institutions are increasingly eroding the fund raised from the society. It is doubtful how long the income expenditure balance can be maintained for this fund.

Universally it is hard to implement effective management and there are too many loopholes in the system. In retirement insurance, apart from the issue of evading the insurance, the problems with premature retirement against rules and claim retirement fees in a false name have never been effectively solved. In unemployment insurance, the prominent issue is that it is hard to effectively distinguish the status of employment. The phenomenon of drawing on unemployment insurances after getting re-employed has always been hard to control. The problem is more serious in medical insurance. The system is far from being able to impose effective restrictions on individuals and institutions. It is not unusual for insurance subscribers, non-insurance subscribers and medical institutions to erode the medical fund in a wide variety of manners. To combat these problems, many localities have imposed a ceiling on the total amount of insurance expenses that medical institutions can draw from. Although this has lowered the risk of excessive expenditure, it has brought about intensifying disputes between hospitals and patients, among other issues. In all, the several major types of social insurances have all been mired into such a state: if management is loose, there will certainly appear lots of speculative activities leading to aggravated financial difficulties; if managed strictly, administrative cost will rise substantially or bring about other contradictions.

In addition to above problems, these major social insurance systems have a too low level of fund planning and for the same item of insurance, there are different systems co-existing (for instance, in retirement insurance, there is an institutional difference between companies and government institutions.), among other issues. Even without taking these issues into consideration, problems in the above-mentioned three areas are enough to describe its difficult situation.

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