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Social Insurance: The Five Insurance Types
Within social insurance there are five categories – pension, medical, unemployment, work injury, and maternity, with some being subcategorized. They are all funded through social pooling, formed from payments made by the state, employer and employee, to varying degrees. Entitlements are then acquired through contribution.
Pension insurance can be broken into three subcategories – basic pension for urban enterprise employees, other urban residents, and rural residents. Basic pension cover for enterprise employees is obligatory and is run through social pooling and personal accounts. Both the employer and the employee pay for this insurance, with the former collecting the latter’s contribution. The employee’s part goes into a personal account, which, while it cannot be withdrawn until retirement, is personal property, meaning it is inheritable wealth. Rates are variable, depending upon wage level, demographic factors and indexing rules. Pensions are payable after a minimum of fifteen years of contribution.
The basic pension is available to other urban residents, such as migrant workers and the self-employed. However, they must make all contributions themselves.
Characteristic of social security in China, pension policies for rural residents are far behind those of urban residents. The basic pension for rural residents is structured in a similar way to that of urban residents, with the main difference being the employer contribution is replaced by government and collective subsidy. The pension return rests at a lower level than its urban equivalent.
Medical insurance can also be broken into the same subcategories – basic cover for urban enterprise employees, basic cover for other urban residents, and rural cooperative medical insurance for the farming population. The former is an obligatory insurance paid by the employer and employee. The self-employed can also avail of this insurance but must make all contributions. Although contributions vary, they are usually 6 per cent of the salary cost for the employer and 2 per cent of the salary for the employee.
For non-enterprise residents, health insurance is paid for by themselves and the state. For the unemployed or those on social assistance, insurance is subsidized by the state.
It is important to note that dependents are not covered by basic medical insurance. Moreover, it does not cover all expenses or all treatments. Instead, coverage is settled between the social insurance agency and the providing facility.
The rural cooperative medical insurance covers 97 per cent of the farming population. A voluntary practice, the reimbursement level is very low when compared to the insurance of urban enterprise employees. Contributions are made from the participant, rural collectives and local governments. The insurance is meant only for serious disease and does not cover the loss of wages.
Unemployment Insurance, Work Injury and Maternity Insurance
An obligatory insurance, unemployment insurance is funded by employer and employee contributions. This insurance highlights the urban/rural divide that persists within Chinese social welfare policy, as it does not cover non-employee residents, such as farmers who have lost their farms. Rather, it covers urban workers, and can cover the urban self-employed, for up to 24 months.
Expats should be aware that unemployment insurance coverage for migrant workers remains under consideration in urban areas.
Work injury is an obligatory insurance, fully funded by the employer. Rates vary depending on sector, region, work injury incidence, etc. It covers medical and nursing allowances, disability allowances, and work related death allowances. Wages are also covered during the treatment period, generally for up to twelve months.
Maternity insurance, like work injury insurance, is completely funded by the employer. Although rates are variable, it will exceed no more than 1 per cent of the employer’s salary cost. It covers the loss of earnings and medical expenses during child birth or abortion and is supplied for no less than 90 days.
- Newness: Although the government has place a large amount of funds into developing the system, the relative newness means that no reserves have been built up. This results in a ‘pay-as-you-go’ basis, meaning todays contributions pay for today’s benefits. Thus, any major problems or catastrophes to strike the system could cripple it.
- Local government and the law: Due to the fact that local authorities are largely in charge of the system, they have a large amount of autonomous power. The legislative framework governing the system is extremely rigid and is open to interpretation. This accounts for the wide variances throughout China in its running but it also means that the plan can be sabotaged and ignored at the will of those in power. Moreover, it also facilitates the corruption of local authorities and the exploitation of the poor, benefiting officials rather than those in need.
- Size of China: China is an extremely large and complex country. (Learn more from our facts and figures on China.) Local government, population, diversity and the organization of the country itself means that it is extraordinarily difficult to reach those in need.
- Not enough information: In conjunction with regional differences and opaque legislation, one of the main problems restricting people from signing up for social security in China is the lack of tangible information.
- ‘Near Universal’: The fact is that the Chinese social system which actively favors those living in the urban rather than rural area. The average minimum subsistence payment paid to those in the rural area stands at just 111 CNY, barely enough to cover basic food stuffs and less than half of what is paid to those in the urban area. Although the government has made some gestures toward equalizing the balance, the reality is that it will be a very long time before any equality is seen in legislation.
- Transference: When someone leaves one job or location for another in China, the question becomes ‘what happens to my social security contributions?’ Although the law does state that contributions are transferable, no system was created to facilitate this transference. Recommendations have been made by the government, and different localities have their own practices, but actually transferring your contributions from one place, or employer, to another can prove incredibly hard.
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