Actuarial Evaluation On The Sustainability Of China’s Basic Health Insurance Fund

From 2013 onwards,the expenditure growth rate of the Urban Employee Basic Health Insurance(UEBHI)funds in China has been higher than the income growth and the changes will inevitably affect the sustainability of the funds.The payment crisis of the UEBHI funds occurred in 225 regions in 2013,accounting for 32% of the total regions all over China,22 regions of which strained the accumulated surplus of the funds.The phenomenon cause our attention on the sustainability of the UEBHI funds.In the past half-century,the Western countries generally experienced a rapid growth of health expenditure.According to the report of Fiscal Sustainability of Health Systems,OECD(2015),from 1990 to 2012,OECD countries,except Estonia,witnessed that the average annual growth rate of real health expenditures exceeded the annual growth rate of real GDP per capita,which means that spending on health has typically outpaced economic growth.From a fiscal sustainability perspective,the rapid growth of health expenses caused tremendous pressure on the national health insurance system and the health insurance funds of many countries faced deficits crisis.The long-term sustainability of health insurance system is the common concern of the system designers and the stakeholders.Since China is experiencing population aging and rapid growth of health costs,researches on the sustainability of the China’s Basic Health Insurance Funds(the Funds)are needed in order to clearly understand the risk factors affecting the funds in the future,and to ensure their fiscal robustness.A number of factors affect the running of the Funds,and they can be summarized into three main areas: factors in the development of population,economy and health expenditure.Therefore,we establish demographic,economic and health expenditure models respectively,which estimate the long-term development and evolution of these factors.Then we use them as input parameters to construct the income and expenditure models of the Funds,which estimate the long-term balance of the funds,and make a judgment about the future sustainability of the Funds.The results from demographic model show that the degree of population ageing will gradually deepen in China,and the size the aging population(over 60 years old)will continue to expand,greatly affecting the configuration and consumption of medical resources.Using the fertility,mortality and sex ratio of the newborn as important parameters,the cohort component method can be performed to project the population.For the fertility estimation,we adjust the expectation according to the implementation of the "second child" policy in 2016.For the mortality estimation,we use Lee-Carter stochastic mortality model to give a full consideration to the mortality projection trend over time.The population projection shows that,as of 2060,the total population size of China will present "first lift then descend" trends,with the total population peaking in 2032(1.4204 billion).The total population will reach 1.3253 billion by 2060,similar to the size in 2010(1.3328 billion).But in the process of population projection the structure of China’s population will change significantly.The proportion of the elderly population aged 60 and above gradually increase and the degree of the population ageing gradually deepen.The dependency ratio of population aged 16-59 to those aged 60 years old and above decline from 5.158 in 2010 to 1.134 in 2050,which means that the size of the elderly population(over 60 years old)and the size of the working population(16-59 years old)are getting close.The change will cause the economy,particularly the social security system in trouble.The results from economic model show that the growth rate of the overall economic development and income levels of workers will experience downward trend in the future.Economic projection serves as input for the calculation of expenditure and revenue of the scheme.We use VAR model to fit and forecast the main economic variables including GDP growth rates,CPI index and the average wage growth rates.Granger causality test shows that inflation index and average wage growth rates are directly affected by GDP growth rates and the CPI increase does not necessarily bring about the growth of the average wage,and vice versa.According to the model forecast,the growth rates of future GDP and average wages present fluctuating downward trends and the overall average wage growth rate is higher than the GDP growth rate.In 2015 to 2040,the GDP growth rate ranges between 4.5% and 7.5%,and the average wagegrowth rate maintains within the range of 7.2% and 11.6%.The GDP is expected to reach the scale of 288,695.5 billion and the urban average wage of workers is to reach 497,158 RMB by 2040.Over the past thirty years the world saw the rapid growth of health spending.On one hand,from the perspective of international comparison,health expenditure as a share of GDP in China is still at a low level and individuals and families still bear a heavy burden on health spending,therefore leaving great room for improvement in the future.On the other hand,comparison between the growth rates of the total urban employees’ wages and those of the total health expenditure indicates that,income growth may not support the growth of health spending.Once the revenue growth slow down,the sustainability or benefit level of China’s basic health insurance may be adversely affected.The results from health expenditure models show that population ageing and advances in medical technology will promote the growth of medical costs,while the limited resources of social transfers will constrain the growth rate of total health care costs.The demographic structure medical technology are prominent risk factors on health care costs.Referring to the health spending weights among different age groups in South Korea and ignoring the time trends and price inflation,we find that the annual growth rate of health expenditure ranges between 2% and 4% due to population ageing in China.Technology progress has a significant impact on the growth of health expenditure.However,the future health expenditure growth stimulated by advanced medical technologies will be limited by transfer payment.We find that without applying resource constraints,technological advances will make rapid growth of health expenditure,with expenditure on health as a share of GDP exceeding 10 per cent in 2030 and reaching 14.23% by 2040.Once maximum level of resources that the economy is willing to transfer from healthy people to the sick is exhausted,healthspending will stop continually growing.If we set the upper limit of transfer payments as 7% of the average wages,the aggregate health expenditure share peaks in 2024,after which stabilizing at around 8%.The growth rate of total health expenditure and health expenditure per capita gradually get close to the GDP growth.Based on the population,economic and health expenditure projection,we do analysis on the financial sustainability of China’s UEBHI pooling fund from 2015 to 2040.The results from income and expenditure models of the fund show that,thanks to the high wage growth and the growing number of contributors by people,the fund revenue increases stably.However,the influences of population aging and technological progress lead to the growth rate of the fund expenditure outpacing the growth of the fund revenue,causing the income less than the outcome in 2022 and the deficit for each year thereafter continuing to expand.By 2029 the accumulated assets have been exhausted and the deficiency accounts for 5.6% of the GDP in 2040,making the sustainable development of the fund severely affected.If it is to maintain the current balance,we need to adjust the payment level since 2022 and by 2040 the individual and enterprise contribution rate will reach 2.9% and 11.7%,respectively,which will increase the burden on individuals and enterprises.The basic scenario analysis shows sustainable challenges of the fund in the future.Under the current policy,increasing the transferring proportion to pooling accounts,reducing inpatient expenditure per capita,lowering health expenditure weights of those aged 60 and above and decreasing the compensation level of the health insurance will help to relief the operating pressure on UEBHI pooling fund.When considering future policy reform,transferring small fractions of the insured retirees’ pensions to the pooling accounts improves the financial situation of the fund more significantly than the plan of progressively delaying the legal retirement age of workers.As for the factors affecting the rapid growth of the fund expenditure,population aging in the insured contributes to the annual growth of the fund expenditure to a certain degree,while the dominant factor comes from sharp rise in hospital inpatientexpenditures per capita resulting from increase in the hospitalization rate and technological progress.With combined effects of changes in the population structure and increases in the inpatient spending per capita,the inpatient expenditure share of population aged over 60 increases from 73% in 2015 to 83% in 2040,wherein the share over 80 years old rises from 29% in 2015 to 42% in 2040.Facing the possible situation in the future,we should take active measures to improve the health status of an aging population from now on,to promote the sustainable development of the fund.Constructing "active aging" society and providing preventive health care in the national health system,both play a key role to improve the health of the aging population and improve the quality of life of the elderly,thus strengthening the balance of the fund..Based on actuarial assumptions and the best estimations of the parameters,we achieve some conclusions of the future sustainability of the pooling accounts of the UEBHI fund and discuss the possible policies and positive directions on improving the health status of old people.This paper has been innovative in the following aspects:1.The sustainable development of the Funds is a systematic project,affected by a large number of factors,this paper groups the important factors into three sections: the population development,the economic development and the health expenditure development.Dynamically consider the combined effects of the projection of these three sections on the sustainability of the Funds.Studies considering the impact of a single factor on the sustainability of the Funds are not comprehensive.2.The results from quantitative analysis show that,from the perspective of population,China will face more severe population ageing in the future;from the perspective of economic development,the economic development and income levels show a declining growth rate;on the contrary,affected by the aging population and technology progress,the future medical expenses will rise rapidly.In the context of these unfavorable development,we make a judgment on the future possible trends of the UEBHI fund,which will give a quantitative perspective to decision-makers and fund managers.Andwe provide some effective policies to improve the sustainability of the funds.3.In the specific study of the health expenditure,the paper focuses on the impacts of changes of demographic structure,technology progress and social resources transfer on the health expenditure increases.The results show that the aging population and advances in medical technology will promote the rapid growth of medical costs,while limited transfers of social resources will constrain the growth rate of total health expenditure,resulting that the ratio of health expenditure over GDP will not continue to improve.4.The models and parameter settings of the existing literatures on the studies of the health insurance fund are too general.This paper uses quantitative methods,including stochastic mortality model,time series analysis model,etc.,to model the future operation of the UEBI funds and to set the parameters in the model with a detailed scrutiny.The results can be as a valuable reference for the future development of the China’s basic medical insurance,while this framework also applies to the analysis of other types of insurance in social security.Limited by the author’s knowledge and data available,some shortcomings and future improvements of this paper are as follows:1.The projection of future medical expenses mainly focuses on the aggregated data and is lack of individual data support.In future research we may consider to establish detailed medical cost distribution model,and to provide the basis for long-term medical cost trends from the perspective of empirical analysis.2.In the analysis of the UEBHI funds,we do not consider the actual collection rate and the administration cost,which has a certain influence on the measurement results.In future research,we may select a representative area to investigate the actual management of the UEBHI funds.3.Measurement and analysis of the basic medical insurance fund herein are carried out in the scope of the whole country,we do not consider the differences in the different regions.In future studies we could consider the problem-oriented research on the health insurance development among various regions.