China’s public healthcare and foreigners

China adopted its Social insurance system law on 2010, July 11th, and it entered into effect on the 2011, October 15th.

This law has been a spectacular change compared with anterior flawed systems un-adapted to the modern Chinese economy. Even if it is still a “work in progress”, since the whole system implementation is planned to be achieved in 2020, it is now possible to learn a bit about how this system actually works and its interests.

 

A system completely new in China

China adopted this new set of rules in order to modernize the Chinese economy and to enter in compliance with international conventions. A quick insight of the anterior system enables to understand how dramatic the changes are and how unsatisfactory the previous situation was.

Before 2011, everything was under the responsibility of the municipalities, with consequences that the system was completely local, only city dwellers could benefit from it, the benefits were very different depending on the status of the employee, the company where the employee was working, and, worst of all, it was impossible to transfer benefit rights from one place to another.

The new 2010 law has changed all that, and most important of all, at least for us foreigners in China, it includes an article 97 that specifically indicates that foreign employees are subject to the law.

The article 97 can be translated as this:

“ Foreigners employed within the territory of the People’s Republic of China shall participate in social insurance analogically in accordance with this Law.”

 

 

Basic characteristics of the new system

The new Chinese social insurance system is handled at the national level, by a dedicated ministry.

It covers five fields:

–          Basic retirement insurance

–          Basic medical insurance

–          Employment injury insurance

–          Unemployment insurance

–          Maternity insurance

The other big change is that the rights are transferable, which means you can move in China (and even in some cases abroad, we’ll see that later) with your social insurance rights. This new set of rules  is more adapted for the people that move from one city to another and especially to the Chinese migrant workers who were left aside from the old system.

 

A “work in progress”

The system first entered into application in 2011, and is still being implemented with a completion expected in 2020. The professionals who have to deal with social insurance in China are still expecting many administrative and government texts to precise many points about the application of the law. In particular, the decree regarding foreigners is still not published, although a temporary decree has been issued in October 2011, but it doesn’t deal with all the possible issues.

The implementation is doing rather well, for example, the objective is that by 2020, 100% of the population actually benefits from the basic public medical insurance, in 2013, 95% of the Chinese population, rural and urban, already benefits from it. Many things are yet to be successfully achieved to make the whole system fully operational, such as a very large database fully accessible from any place around China, which is quite a challenge with 8.000 agencies some of them at a national, regional, municipal, district, and hundreds of thousands of agents.

 

Who are the foreigners eligible to the Chinese social insurance system?

As quoted, the article 97 of the Law specifies that the law applies to foreigners in China.

More precisely, who are those foreigners? They must have a work permit or a document that is regarded as such by Chinese authorities (for example foreign journalists or other professions with specific status), which means that people working illegally are not included.  The numerous foreigners working when they only have a F Business visa cannot benefit from it.

Basically, this means that as a working foreigner in China, you need to have a Z Working Visa and a permanent residence permit.

The insurance is individual, this means your family and children cannot benefit from it. In China large cities, children and elderly people can benefit from a specific insurance, reserved to non-active city dwellers.

 

Is it compulsory or optional?

If there is no convention with the specific country, the foreigners working in China have to take part to the social insurance system.

The information about expatiates and the social insurance system are featured in the temporary application decree of September 6th 2011, applied from October 11th 2011.

These decrees refer to International Law principles such as reciprocity and National treatment.

Practically, the situation still differs from one city to another.  In Beijing and Shanghai, it is optional so that the foreigners can choose to take part or not. In Guangdong it seems compulsory.

In case of departure from China, the “individual account” to which the employee contributed can be refunded. At last this is the case in most cities, like Beijing.

 

Situation depending on the nationalities – China and international treaties

China is bound by treaties with Germany, Russia and South Korea regarding social protection.

–          Germany and Russia:  German and Russian citizens expatriated in China are not concerned by Chinese social insurance for 48 months (duration that can be extended to 96 months if required by professional reasons);

If they are eligible, the German citizens will have to contribute to basic retirement insurance and retirement insurance;

 

–          South Korea: South Koreans do not have to contribute to the Chinese retirement system, except if the criteria of the treaty are not fulfilled, in which case they’ll have to contribute;

 

Treaties with other countries are currently undergoing negotiation. Anyone should check with its own country, the principle Beijing that in case of no Treaty, one has to contribute to the system and can benefit from it, practically the situation varies depending on thelocal administration.

Now let’s have a look on the five chapters of this social insurance law and its possible implications for foreigners: the basic medical insurance, the retirement insurance, maternity insurance, unemployment insurance, work accidents insurance.

 

Basic Medical Insurance

This is an ambitious part of the program. It is financed partly by the employers and the employees but an increasing part is financed thanks to government funding.

The insurance covers from 70% to 100% of the sums patients have to pay in a Chinese public hospital, depending on the length of affiliation, the fees you paid to the social insurance and the type of disease.

This one is compulsory for employers and employees.  Individual entrepreneurs, part time workers and flexible time working employees can chose to voluntarily apply.

 

Retirement Insurance

End of 2012, China had more than 74 million retired people covered by the system and 230 million people working that are insured. That’s a beginning but a lot still has to be done. The rhythm of progression is impressive, regarding the payment fees,  there is an increase of around 20% every year  since 2010.

Some characteristics of this retirement system:

–          Having been affiliated to the retirement insurance 15 years and paid your fees,

–          The insured person retirement pension is calculated depending on the average monthly salary,

–          The retirement rights are transferable from one location to another,

–          In case of death of the insured beneficiary, in some cases, the retirement pension can be transferred to another person, but the conditions are unclear.

There is two main different funds, the employers contribute to a common fund while the employees contribute to personal funds.

In China, the retirement age is 60 years old for men. For women, it depends on if you are a worker or an executive.  Executive women retire when they are 55, retired men when they are 50.

If you reach retirement age, you have options. You might loose your rights if you don’t have the 15 years of contributions, but you can chose to keep on paying until you reach the 15 years, or pay at once the whole compensatory sum.

Foreigners can be interested in some specific rules:

–          The pension can be perceived outside of China, but in this occurrence, the insured person will have to provide proof of existence and an address,

–          When a foreigners leaves China before the 15 years of contributions necessary to have the right to a retirement pension, the file will be kept by Chinese authorities and will resume in the occurrence the foreigners comes back to China and works again,

–          Cancellation of the insurance is possible if the foreign insured wishes it, in this occurrence, the cumulated fees can be paid back by the Chinese administration.

 

Maternity insurance

This one is more limited, and reserved to the urban population.

Migrant workers, independent workers and individual entrepreneurs can benefit from it, but on a voluntary basis.

To be able to benefit from the insurance, a minimum of 6 months of contributions is required.  Maternity leave should be 3 months with an optional fourth month in case of breast feeding.

This one is financed by employer’s contributions.

The covered expenses are the following:

–          The medical expenses liked with maternity,

–          A maternity indemnity proportional to the average salary perceived the previous working year.

 

Unemployment insurance

A person is eligible to receive unemployment insurance in case employer and employee paid contributions for at least one year.

The employee lost his job against its will and duly registered to the social security agency and is in in the process of searching for a new job.

Practically, the former employer has to establish some documents for the unemployed person and communicate them to the administration, the employee has to register.

Once this is done, the unemployment compensation is calculated from the date the work contract ended and is paid monthly.

The compensation sum depends on the location and is determined by the municipal or local authorities. It is inferior to minimum local salary and superior to life minimum standard.

There is a termination of the rights if a new job is found or in case of retirement.

The duration of the insurance pension varies depending on how long you paid the insurance fee.

–          Less than one year: nothing.

–          From one to five years: 12 months of insurance.

–          From five to ten years: 18 months

–          More than ten years: 24 months.

In case of a new period of unemployment, there is a new calculation regarding how long you have been paying fees.

While you are unemployed, Basic Medical Insurance’s fees will be paid upon Unemployment fund and not Basic Medical Fund.

The pension terminates as well if the insured person goes abroad, gets retirement or refuses a reasonable job offer through governmental agencies.

 

Employment injury insurance

The special fund for employment injury pays for hospital fees, food, housing, reeducation, special equipment (prosthesis, chairs…), with some conditions in public establishments. Once the work contract is terminated, there is a special indemnity paid once.

During treatment, the employer has to pay the employee’s salary until the injury is evaluated and the accident classification (there is 10 categories) is established. Afterwards, the special fund takes the relay.

In cases of loss of autonomy, the employer might have to pay a life allocation ranging from 30% to 50% of the employee’s salary.

At the termination of the work contract, there is a special invalidity indemnity paid once.

The employee does have to contribute to this insurance; everything is supported by the employer. The contribution rate varies depending on the activity of the company and is calculated on the salary.

One will benefit from this insurance in case of injury related to the professional activity or a professional disease.  The accident or event that caused the disease or injury shall be recognized as having a professional origin by the relevant professional authorities.

 

 

 

Contribution Rate

The law itself is silent about the respective contribution rates of the employers and the employees.

In Beijing in 2012, the rates have been the following:

–          Retirement: employer 20%, employee 8%

–          Medical Insurance: employer 10%, employee 2%

–          Unemployment : employer 1%, employee 0.2%

–          Maternity: employer 0.8% employee : –

–          Professional Accidents:  employer from 0.2% to 3%, employee –

The rates varies in other cities, but it seems that it remains within comparable boundaries, maximum variations appear to be 2-3% for some rates, Shanghai is a bit more expansive for the employer, around 2 % higher for some rates.

The rate varies but there is a maximum rate that applies, calculated on the employee’s average salary and three times the maximum salary within a locality.

In 2012 in Beijing and Shanghai, the maximum contributions have been a little bit above 14,000 RMB.

 

Practical Issues:

The work contract has to be registered by the employer within 30 days of the hiring of the new employee. The employer is responsible for the declaration and payment of the social insurance contribution and of the employee’s contribution payment.

In case the payment are not done diligently within the required delays, the Chinese administration has extensive powers in order to check the employer’s bank accounts, make special direct debits from the employer’s bank account in order to have the contribution paid, ask for guarantees or ask a court to retain specific assets as a guarantee.

Special fines can be established, in case there is no declaration, the basis established by the administration and should be 110% of the previous month declared amount.

The payment of a special fine of 0.05% per day of interest rate shall be required.

A fine amounting to 3 time the required payment is possible.

Fiscal treatment:

In China:

Income Tax: employer’s and employee’s contribution are exempted.

Company Taxation: employer’s and employee’s contribution can be deduced.

 

Abroad:

If the benefits are paid abroad (possible under certain conditions as explained above), then the situation is totally different.

Income tax: employer’s and employee’s contribution are subject to taxation.

Company Taxation:  employer’s and employee’s contribution can be deduced.

Is Chinese social Insurance interesting or sufficient?  the practical situation for foreigners;

The question is: should foreigners take private insurances if they are covered by the Chinese insurance system;

The answer is clearly yes, depending on your financial means. Actually there is still major flaws in the Chinese system. It is better than nothing but can prove to be only a little better than nothing.

For example, regarding the medical insurance, many diseases, including major ones such as cancer are not covered.  In any case, you won’t have a large choice of hospitals, only public Chinese hospitals will take 100% assistance rate. Since foreigners tend to avoid most of Chinese public hospitals, some private hospitals can do it as well, but in that case the sums refunded will be ridiculous compared with the actual price of the treatment, and can give the feeling that there is actually no real insurance.

To give an idea, the maximum sum available per year for a patient for all its treatments shall be 12,000 RMB, which proves to be totally insufficient in case of any serious illness or injury.

Whatever is your situation with Chinese social insurance, it is highly advisable to have a special additional insurance. Some countries have special systems for their citizens abroad, get in touch with your national consulate or embassy for details, or private insurances are available.

Have you some experience to share about these topics?

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