China's 4th plenum & 2026-30 plan: what to expect (3)

Prof. Li Ling of Peking University says China's health-care cost remain high, one reason for elevated savings and subdued consumption. She also lauded the Sanming model of medical reform.

Editor's note: Ahead of the fourth plenum, this newsletter will run a special series mapping what to watch in the 15th Five-Year Plan and why it matters, to help stakeholders connect the dots on China's policy direction for the next five years.

The third issue in this series turned the spotlight on China's health-care reform, an issue of critical, if not paramount, importance, given its direct impact on the well-being of 1.4 billion Chinese people and the significant ground still left to cover.

Today's newsletter draws on a talk by Professor Li Ling 李玲, Mulan Chair Professor at Peking University's National School of Development and Director of the university's National School of Development, delivered on Taixue, a programme produced by the New Economist think tank.

Professor Li earned a BSc in Physics from Wuhan University (1982) and an MA (1990) and PhD (1994) in Economics from the University of Pittsburgh. She has served on the State Council's expert panel evaluating the pilot of the Urban Resident Basic Medical Insurance (URBMI) scheme and as an expert adviser to the World Bank on China's health-care reform. She is also among the earliest Chinese scholars to advocate a government-led public health and medical care system.

Professor Li begins her speech by surveying the broad, widely shared gains China has made in health reform since the start of reform and opening in 1978.

She then turns to what is still missing: it remains hard and expensive for the public to see a doctor, leaving many citizens with a weak sense of benefit. More importantly, she argues, this weighs on consumption, as households hoard savings to insure themselves against catastrophic illness.

Her core claim is that modern states establish government-led medical security systems because modern life brings higher risks that must be shared through organized pooling.

China's current pooling capacity, however, is too fragmented: a nation of 1.4 billion should be an ocean of shared risk, yet municipal — and previously county-level —pooling of medical insurance fund has chopped that ocean into many small ponds.

Moreover, an ageing population further threatens the sustainability of health-insurance funds.

Looking ahead, Professor Li points to Fujian's Sanming reforms as a template for the next stage: hospitals must return to their public-interest mission, and "health communities" should align the incentives of doctors and hospitals with the public's health needs.

New Economist has posted the full transcript and video of Professor Li's talk on its WeChat account. Please note the English text below is my translation of the second half only; I have omitted her opening review of China's health-care reform achievements.

李玲：中国式医改解决看病难和贵

Li Ling: China's health-care reform to tackle access and affordability

What hasn't healthcare reform changed?

At this point you may ask: if the path is so good, why keep reforming? The road is winding, but the future is bright. After reform and opening-up in 1978, China focused on economic development. By the mid-1980s, fiscal constraints pushed hospitals to "earn their own income." Behind hospital "profit-seeking" was insufficient government fiscal input, leaving hospitals to cover their own costs.

Chinese people are indeed highly creative. Around the world -- developed and developing alike -- hospitals generally do not make money. Health care is capital-intensive, technology-intensive, and high-risk. In most countries, hospitals run at thin margins or losses. Yet in China, despite severe under-investment by government, hospitals achieved leapfrog development.

Even today, public hospitals largely depend on self-generated revenue to sustain rapid growth. Thus the 2003 reform aimed to fix the revenue-driven model caused by inadequate public funding. The plan clearly stated that hospitals should return to public-interest missions. But the broader social context then was the dazzling success of market reforms in the economy, which led many to believe "marketization can solve everything."

Health care, however, is special. Both supply and demand are largely mediated by hospitals and physicians; patients have limited choice. When designing the reform, the government could have, just as with education, channeled fiscal funds directly to hospitals, thereby fixing investment, operations, and compensation mechanisms so that the public would benefit.

Instead, China took another path, one that has also worked well. China moved from almost no medical insurance to universal coverage. When the New Rural Cooperative Medical Scheme was promoted in 2003, government contributed 20 yuan per person; by this year, that figure has risen to 700 yuan, 35 times more.

Coverage has expanded and benefit levels have steadily improved. In recent years, government has invested heavily at the primary level, consistently strengthening county-township-village health systems. Over 90% of counties nationwide are advancing county-level medical communities, raising service capacity and quality.

A key milestone came in 2018 with the establishment of the National Healthcare Security Administration (NHSA). This was a major reform: functions once scattered across departments were integrated under one roof, overcoming the longstanding predicament of fragmented, multi-headed governance with no single entity accountable.

With a unified purchaser and a vast national market for medicines and consumables, NHSA launched centralized volume-based procurement.

The national centralized procurement of medicines is now normalized, with 10 rounds completed and the 11th underway. On average, each round has cut prices by about 50%. The NHSA also introduced dynamic adjustments to the reimbursement list and price negotiations to include more life-saving drugs. As a result, the public has tangibly benefited from lower costs for common and critical medicines.

To ensure quality, the NHSA built end-to-end traceability for pharmaceuticals so people can use safe, reliable drugs. Payment reforms such as diagnosis related group (DRG) and diagnosis-intervention package (DIP) have curbed unreasonable cost growth.

Even more importantly, the NHSA has launched a unified national information platform, essentially a nationwide insurance app, reaching every individual, hospital, and pharmacy. I see this as using big data and intelligent tools to enhance regulation and service quality—truly a great reform.

Public health–medical care integration and advances in traditional Chinese medicine have also progressed. The results are visible: by 2024, China's life expectancy reached 79 years -- on par with developed countries and higher than that of the United States. China once said "to reach 70 is rare," yet now the average Chinese person can expect to live to 79. The reform has achieved a great deal. Of course, shortcomings remain, and I believe the public's concerns are heard by government and scholars. So what still needs reform?

The crux lies in the ineffective coordination across medical insurance, medical services, and pharmaceuticals. Since its creation, NHSA has pushed bold reforms, but dilemmas persist. During the pandemic, for instance, doctors nationwide were on the front lines. People even avoided going in for colds, and outpatient and inpatient volumes plunged. As a result, hospitals across the country incurred losses — because without patients, there's no revenue, and without services delivered, insurance doesn't pay. This exposed weak coordination across medical insurance, medical services, and pharmaceuticals.

Another issue is that the public-interest role of public hospitals remains unfulfilled. Government funding accounts for less than 10% of their operating costs; over 90% still relies on their own-source revenue.

China also rescinded the longstanding policy of allowing hospitals to profit from higher priced medicine, but what people see is that solving one problem leads to several others. Even with the policy removed and massive centralized procurement, people do not necessarily feel drugs are cheaper, and overall medical expenses have not fallen. Why? Because hospitals must generate revenue, so testing and surgeries increase. Costs keep rising rapidly.

Let me share some data with you all. These figures will illustrate why, despite extensive healthcare reforms in this country, the public's sense of benefit remains limited -- costs are simply rising too rapidly.

Let me present some data for context. In 1978, China's total healthcare expenditure stood at 100 billion yuan. By 2002, just before the launch of the new round of the New Rural Cooperative Medical Scheme, national healthcare costs had risen to 579 billion yuan. Before the introduction of the new healthcare reform plan in 2008, the figure reached 1.45 trillion yuan.

Where are we today? We have now surpassed 9 trillion yuan and are likely to exceed 10 trillion yuan this year. Consequently, substantial government investments and healthcare insurance funds are being consumed by rising costs. With medical expenses growing so rapidly, ordinary people are effectively paying more for healthcare. How should we address this? This is precisely what the next phase of healthcare reform must tackle.

Healthcare reform must be deepened precisely because medical care remains prohibitively expensive and inaccessible for ordinary people, and this continues to be a pressing issue. In fact, a significant reason for insufficient domestic consumption is that citizens feel compelled to aggressively save money (for potential medical costs). Why do modern nations universally establish government-led healthcare systems? Because modernization brings heightened risks, and only collective mechanisms can effectively pool and mitigate these risks.

Whether through a National Health Service model or health insurance systems, the underlying principle is collective risk pooling -- transforming uncertainty into predictability by having everyone contribute modest amounts through taxes or insurance premiums. Disease-related risks are inherently unpredictable, yet China’s current capacity to mitigate these risks for citizens remains severely limited. China, with 1.4 billion people, should have immense risk-sharing capacity, but current medical insurance pooling is mostly at the municipal level -- and previously even at the county level -- fragmenting that 1.4 billion "ocean" into many small ponds.

As mentioned earlier, the actual reimbursement rate under basic health insurance schemes remains around 50%, meaning individuals bear half of all medical costs themselves. How do they cope? By saving compulsively. While the probability of catastrophic medical emergencies is statistically low, everyone prepares for this uncertainty by hoarding savings -- "just in case I get sick." This creates a massive misallocation of resources. Hence the need to deepen reform.

At the same time, the sustainability of insurance funds faces serious pressure: rapid aging raises costs because older people consume more care; medical spending is growing faster than revenue; and ongoing technological progress also pushes costs upward. Reform must therefore continue and deepen.

Direction of Healthcare Reform: The Sanming Model

Having participated throughout the entire healthcare reform process, I find my confidence growing stronger as reforms progress. Why? The healthcare reform for China's 1.4 billion population has genuinely evolved alongside the nation's development. While it's true that issues of expensive and inaccessible healthcare remain unresolved, I believe China's healthcare reform now serves as a pioneer in a new era of systemic changes.

The 1978 reform and opening-up emphasized decentralization and incentivization, advancing step by step through decentralized reforms. In contrast, the healthcare reform plan was the first reform of the new era carried out with a blueprint — i.e., top-level design. It pioneered the model of combining top-level design with local experimentation.

By now, there’s a growing consensus that fragmented reforms are inadequate to address current challenges. It is necessary to integrate medical services, insurance, and the pharmaceutical sector. Healthcare, however, is a massively complex system touching everyone's interests; every one of us interacts with it. It spans government-led functions and market-based production; it is high-tech and characterized by severe information asymmetry. That's why even developed countries struggle with healthcare reform. China’s achievements are still limited, but it is still moving forward. After 16 years of exploration, I think China has clarified the direction and found a workable model: the Sanming model from Fujian.

Sanming is a less developed city. Its health insurance fund ran into trouble early on because it's an old industrial base with many early retirees: fewer people paying in, more people drawing out. By 2011, Sanming's insurance pool had a deficit of 208 million yuan.

Acting on central government guidance to deepen health reform, Sanming put people first and launched a coordinated overhaul of medical services, medical insurance, and the pharmaceutical sector. It built a full top-level design, with system-wide reform, integrated governance, and institutional changes, and rolled out a package of measures to strengthen comprehensive management and comprehensive reform.

Across China in recent years, health-care reform has proceeded through waves of pilots. Many pilots, however, remained one-off precedents. Take the well-known case of free medical care in Shenmu city of Shaanxi Province: outstanding work was done there, but health care is a vast, interconnected system. If only a single county offers free care, it quickly becomes a magnet for patients and costs, and long-term sustainability becomes difficult.

By contrast, Sanming's reform has endured -- launched in 2012, it has continued for thirteen years. This achievement is remarkable: in an underdeveloped setting, Sanming effectively redesigned an entire system. What kind of system? Publicly run hospitals exist to meet people's health needs; hospitals must return to their public-interest mission. The key question then is: how did Sanming address today's challenge of insufficient government investment?

First, Sanming is a prefecture-level city with 12 counties and 22 public hospitals. The city brought all 22 hospitals under unified municipal management, introduced new rules and performance indicators, and pooled the funding streams, including health insurance, public health allocations, and fiscal appropriations, into government hands. Under this new design, those funds are packaged and paid directly to hospitals. This fixes the hospitals' investment mechanism, improves their operating mechanism, and, at the same time, reforms how doctors are paid.

Health workers in Sanming are on annual salaries calculated through a work-points system. The system quantifies a health worker's work by post and responsibility, turning it into measurable points so that high-performing physicians earn more for better work.

This is why Sanming's reform has lasted for 13 years and keeps iterating. After the National Health Conference in 2016, the country advanced the Healthy China strategy, shifting from "treating illness when it occurs" to comprehensive, life-cycle health protection. How did Sanming put this into practice?

Sanming now runs county, township, and village as one integrated network. At the start of each year, all health-insurance funds, public-health funds, and fiscal funds are bundled and allocated to the general hospital, which assumes responsibility for the health of several hundred thousand residents. The better it manages population health, the fewer illnesses and serious cases, the more money is saved, and the higher the doctors' incomes.

This model can be called a "health community," or, put another way, a high-standard, modern three-tier preventive care network. It aligns the interests of doctors and hospitals with the public’s health needs so that all move in the same direction.

During the pandemic, hospitals across China were in the red. Sanming was an exception because reform was already in place. Throughout that period, both medical staff's incomes and hospitals' revenues in Sanming continued to rise. Sanming has, in effect, built a new model of health security for the current era, one that can be replicated nationwide. Why? Because Sanming is a less developed area, yet it has managed to pay doctors well using existing resources.

After the reform, health workers' incomes in Sanming rose to five times what they were before. In Sanming, any doctor earns more than the municipal Party secretary, and any nurse earns more than a county Party secretary. This gives health workers a real sense of reward. They can focus on honing their skills and safeguarding people's health, without distractions. That is why, even as China has cracked down on corruption in the health sector in recent years, Sanming has not seen a single case -- clear rules have made their pay transparent and dignified.

There is another figure worth sharing. Some say Sanming's healthcare is "low level" and cannot be a model for the nation. In health security, there is no such thing as high or low level, only whether the system works. Had Sanming not reformed, and had costs followed national growth trends, total medical spending from 2013 to today might have reached about 7.5 billion yuan. In reality, it is just over 3 billion yuan. In other words, nearly half the costs have been saved. Imagine the benefits for the public if this approach were adopted nationwide.

The point is simple: if existing resources are used well, people in China can enjoy high-quality health protection.

This is why national policy is now promoting the Sanming approach. In August last year, the National Health Commission called for its experience to be scaled up nationwide, with the goal of full coverage within five years. The direction of reform is now clear: combine top-level design with primary-level experimentation. China has opened a path suited to its own conditions in health and healthcare. The task ahead is thorough implementation and deeper improvement, advancing a "health-first" development strategy and promoting coordinated development and governance across medical services, health insurance, and pharmaceuticals.

To conclude: health-care reform is still in progress. The ice has been broken, the channel is open, and the goal is clear. China is building a broad governance framework for health that weaves health into all policies. Building on years of practical experience, together with the strengths of traditional Chinese medicine and the power of artificial intelligence, China can pursue a high-quality, low-cost, and sustainable path to health.

Looking ahead, China aims to make contributions to humanity in the health sphere comparable to Britain’s role in the Industrial Revolution and the United States' impact through technological innovation and global governance. China can offer a new model of health security for the world.

Thank you.