The Major Overhaul of Medical Insurance: Where Does the Money Come From, and Where Does It Go? – An In-Depth Explanation for Everyone
Hello everyone, I’m your financial journalist. Recently, there have been some seemingly mundane but actually significant changes in the world of medical insurance that affect everyone’s wallet and healthcare experience. If you’ve noticed that some medical tests have become cheaper, while some advanced treatments have become more expensive, or if you’ve heard that flexible workers (such as delivery drivers or ride-hailing drivers) are being encouraged to pay for more expensive medical insurance, then this article is for you.
Today, we’re going to break down an article from “Village Folks’ Diary” that makes a very sharp point: there’s not enough money in the medical insurance fund, and relying on increasing fees alone is no longer sufficient to cover the costs of innovative drugs and new technologies. Therefore, we need to “adjust the structure” of how the money is spent and who pays for it.
In simple terms, the government is taking two main actions:
1. On the revenue side: They are trying to shift the population from the “Resident Medical Insurance” program, which requires less payment but provides more subsidies, to the “Employee Medical Insurance” program, which requires more payment and places a greater burden on individuals and employers.
2. On the expenditure side: They are cutting back on treatments for minor illnesses that consume fewer resources but are priced excessively, and using the saved money to support more expensive and challenging treatments and innovative technologies.
Let me break down this complex policy logic into five parts in plain language:
1. There’s Not Enough Money: Why Does Medical Insurance Need to Stop Relying on Government Finances and Start Self-Sustaining?
First, we need to understand the context: the growth of medical insurance funds has slowed down. In the past, medical insurance seemed like an endless pit, with the government providing substantial subsidies each year, and the total amount kept increasing due to contributions from everyone. However, now the growth rate of medical insurance revenue has dropped below 5%. It’s like a family where salaries are growing slowly, but prices (such as medical costs and the cost of innovative drugs) are rising. If we continue to spend as before, the fund will eventually run out.
The article argues that relying solely on additional revenue (i.e., more money collected) is not enough to cover the costs of expensive innovative drugs and technologies. Therefore, “adjusting the structure” has become the only realistic solution.
This leads to the first key action: encouraging people to switch from Resident Medical Insurance to Employee Medical Insurance.
- Resident Medical Insurance: Think of it as a “universal” option, with lower contributions (a few hundred yuan per year) and more government subsidies. It’s suitable for low-income groups, but it puts a heavy burden on the treasury because it relies on government funding.
- Employee Medical Insurance: Think of it as the “standard” option, with higher contributions (from both the individual and the employer) and better benefits. It relies more on personal and employer payments, reducing the financial pressure on the government.
The current trend is for the government to encourage more people, especially flexible workers, to enroll in Employee Medical Insurance. This helps reduce the financial burden on the government and makes the medical insurance fund more stable and sustainable. It’s like shifting from relying on parents for pocket money to earning your own income, which may be more challenging in the short term but more beneficial in the long run.
2. Who Is Being Involved in This Change? Flexible Workers Have Become the Main Force of Medical Insurance Reform
A crucial piece of data from the article is that the number of officially employed workers enrolled in medical insurance is hardly increasing, and the same is true for government and public institutions. The only group showing a significant rise is flexible workers.
Who are flexible workers? These include delivery drivers, ride-hailing drivers, freelancers, and self-employed individuals. They used to mostly participate in Resident Medical Insurance because it was cheaper. But now, the policy has changed.
On September 8, 2026 (note: the date may be incorrect; such policies are usually announced recently or planned for the future), the National Medical Insurance Administration issued a notice specifically targeting flexible workers, migrant workers, and those in new employment formats, launching a “quality improvement initiative.”
What does this mean?
- Lowered barriers and improved benefits: Previously, flexible workers might have had to contribute continuously for a certain period to qualify for Employee Medical Insurance. Now, contributions can be accumulated monthly over 12 months to count as one year. Even better, the years of Resident Medical Insurance they have paid can be converted into years of Employee Medical Insurance (for example, in Ningbo and Lianyungang, 4 years of Resident Medical Insurance count as 1 year of Employee Medical Insurance). This gives them a “transition period” to more easily meet the criteria for Employee Medical Insurance benefits upon retirement.
- Platforms Must Contribute: Previously, flexible workers had to pay all the costs of Employee Medical Insurance out of their own pockets, at a much higher rate than for Resident Medical Insurance. Now, policies encourage platforms (such as Meituan and Didi) to provide some subsidies, making the contribution more affordable for individuals.
In simple terms, the government wants to bring this large group, which previously relied on government subsidies, into a more sustainable Employee Medical Insurance system. This may increase the short-term contribution burden for individuals (unless the platforms provide sufficient subsidies), but in the long run, it ensures more stable medical insurance benefits and reduces dependence on government funding.
3. How Have Medical Expenses Become Cheaper? The Logic of DRG/DIP 3.0
Next, let’s look at how medical expenses are being managed. Many people think that controlling medical costs means “negotiating prices,” but the current approach is more about “precision and micro-management.” The key tools used are DRG/DIP (disease-based payment systems).
Think of DRG/DIP as “package prices.” In the past, medical insurance paid for each test and medication prescribed by the doctor, which could lead to over-treatment. Now, the medical insurance authority sets a fixed price for each disease. For example, for an appendectomy, the insurance will pay the same amount regardless of whether it’s performed in a large or small hospital. If the hospital spends more, it loses money; if it saves money, it makes a profit.
The latest version of DRG/DIP has done three things:
- Preventing Over-Treatment: In the past, some hospitals might categorize minor illnesses as severe ones to get higher insurance payments. Now, the classification is more detailed, making it much harder for minor illnesses to be misclassified as severe ones and receive higher payments.
- Equal Payment for Similar Illnesses: There are “basic disease categories” that apply regardless of whether you receive treatment in a top-tier hospital or a community hospital. For common diseases like hypertension and diabetes, the insurance payment standard is the same, with a bias towards community hospitals.
- Narrowing Price Gaps: For procedures like CT scans, MRIs, routine tests, and nursing services, the insurance requires the price difference between different-level hospitals to be reduced to within 10%-15%.
In summary, medical insurance is using algorithms to reduce the prices of treatments that consume fewer resources but are priced excessively. When you have a minor illness or need a routine check-up, you may find the prices are more transparent and cheaper, or hospitals may encourage you to go to community hospitals.
4. Where Is the Money Flowing? Top-Tier Hospitals Are Getting Stronger, While Community Hospitals Face a Tough Time
This is the most harsh but realistic aspect: medical insurance funds are being directed towards treatments that consume more resources.
The article mentions that for complex surgeries, pediatric surgeries, and technological innovations, the insurance allows for larger price differences between hospitals, with the difference sometimes reaching 30%-40%. This means that top-tier hospitals, which require more advanced resources and technologies, will have more revenue and can attract more doctors and patients, creating a positive cycle.
- Top-Tier Hospitals (Large Hospitals): These are the main battlegrounds for innovation because they need advanced resources for complex surgeries and new technologies. The insurance is willing to pay more for these “high-value” services, giving them more revenue and the ability to attract more doctors and patients.
- Community and Lower-Level Hospitals: The data shows a significant decline in hospital admissions in 2025, especially for first-tier hospitals, community hospitals, and non-public medical institutions. This is because the insurance payments for minor illnesses have been reduced, leaving these hospitals with thin profits or even losses if they rely solely on these minor treatments.
In simple terms, the future of healthcare will see a polarization: top-tier hospitals will become stronger, focusing on treating serious illnesses and advanced technologies, while community hospitals will face challenges if they can’t generate enough revenue from minor illnesses.
5. What’s the Impact on Us Ordinary People?
Let’s consider what this structural reform means for us:
- If you are a flexible worker: Pay attention to local policies that may convert your Resident Medical Insurance into Employee Medical Insurance, as this can help you qualify for Employee Medical Insurance benefits earlier in retirement. Also, check if your platform provides any subsidies, as they can reduce your contribution burden.
- If you are a regular employee enrolled in Employee Medical Insurance: Routine check-ups and minor illnesses may become cheaper, and hospitals may encourage you to use community medical institutions, which can save you money.
- If you are a patient (regardless of your insurance type): Over-treatment will be reduced as DRG/DIP reforms will discourage doctors from prescribing unnecessary tests and medications. The allocation of medical insurance funds will focus more on serious illnesses and innovative technologies, potentially leading to better reimbursement for cancer, rare diseases, and complex surgeries.
In summary, medical insurance is shifting from a universal approach to more targeted and structured adjustments. The money is being reallocated from less cost-effective treatments and government subsidies to more valuable and resource-intensive services. This is crucial for the sustainability of the healthcare system but also requires us to make more informed choices about our healthcare and consider changing our medical insurance types.
This reform won’t happen overnight, but it has already begun. Understanding this logic will help you better plan your health and financial arrangements.