As technology evolves, people can use online medical insurance platforms in local drugstores. Photo: Lin Lin/PROVIDED TO CSST

The decision of the CPC Central Committee on issues concerning the establishment of a socialist market economic system, adopted in November, 1993, proposed to build a multi-tiered social security mechanism. In 2020, the Fifth Plenary Session of the 19th CPC Central Committee emphasized improving a multi-tiered social security system, which is of great value to the country as it seeks practical solutions.

Diverse demands

People often confront multiple risks. As social wealth increases, people increasingly hope to improve their quality of life after securing the present standard of living. Therefore, they need better risk protection, which brings about a demand for diverse protective measures. Different segments of society face different risks, so their demands for risk protection diverge.

Therefore, national risk-protection programs may not cover all of these needs. Since the government shoulders different responsibilities for social members’ risks, apart from a unified mechanism for risk protection, it is necessary to provide a risk protection project which people can choose from based on their needs. 

Risk protection falls into two categories, basic protection and supplemental protection, based on government responsibilities. Basic protection is social security in a narrow sense. In hopes of ensuring basic human survival, development, and dignity, this form of protection covers social members’ basic security needs and governments’ basic responsibilities. Legal procedures settle basic protection terms while governments at different levels implement them. These programs deal with risks that influence people’s fundamental interests, social harmony and stability, as well as fairness and justice, such as poverty, diseases, unemployment, and disability.

Regarding ordinary members of society, these basic social security programs reduce their basic risks to adversities such as poverty, disease, and aging. However, middle to high income groups are not prepared to rely solely on these programs. They expect a higher level of risk protection. In this sense, management plans should be made which target other forms of risks and aspects of basic risks that are presently uncovered by the basic program. Citizens can make their own decisions based on respective circumstances, participate in programs voluntarily, and pay for social security fees themselves. This approach is considered a supplemental form of social security. Obviously, for different members of society, supplementary social security measures can vary. 

Generally speaking, social security at basic level is a form of the governments’ basic public service. Government and its affiliated public institutions can act as direct providers. In more complex cases, the government would still play a major role, while related agencies would become supportive. Supplemental social security providers may include social organizations, which can either be for-profit or non-profit. For-profit providers include insurance companies, financial institutions, and so forth, while non-profit providers include primary-level autonomous organizations, sector associations, and so forth.

The frequently mentioned multi-tiered social security system refers to a complete risk protection system where basic social security serves as the basis, and supplemental social security also contributes. In this system, everyone in society enjoys basic protection and pursues social equity. The emphasis here is to ensure fair results in terms of basic social security. The middle and high income groups can pay for supplemental social security based on their needs. This allows differences to exist among different income groups. 

Development course

After the founding of the PRC in 1949, China established a brand-new social security system. In particular, the new labor insurance system universally covered wage earners in urban areas. However, in early days, this system mainly corresponded with the planned economy.

From the 1980s forward, China carried out a series of explorations within the social security domain, achieving institutional transformation and expanding the scope of benefits. A major outcome of this is the gradual clarification of basic social security rights and the establishment of pertinent institutions. In this way, citizens have institutional arrangements about basic social security, which created a solid basis for building a multi-tiered social security system. 

Over the past two decades, the state has gradually established a basic social security system which aims to serve social members from all walks of life. First, there is a basic endowment insurance, basic medical insurance, work-related injury insurance, maternity insurance, and unemployment insurance for wage earners, and these have gradually begun to apply to a much wider segment of the working population.

Second, the country established various social security mechanisms to secure rural and urban residents’ minimum standards of living respectively, their basic medical insurance, and basic endowment insurance. Meanwhile, mechanisms covering multiple forms of aid were available, touching upon people living in extreme poverty, natural disaster relief, healthcare, education, employment, housing, judicial conduct, and temporary relief. 

Third, there are also safeguard measures for special groups such as military personnel, women, children, seniors, and people with disabilities. Recently, China has been exploring a long-term care security system, which includes a regional trial for a long-term care insurance system and a care subsidy system to assist elderly with disabilities from impoverished households. These measures form a relatively comprehensive basic security system, and provide safeguards for ordinary members of society who may encounter risks. On this basis, middle and high income groups are likely to obtain suitable supplemental protection according to their own needs and payment abilities.

Currently, in our social security system, basic social security measures provided by the government are the first-tier. Social security measures provided by an employing unit form the second-tier. The third tier refers to the social security measures voluntarily taken by individuals, and these three tiers outline the hierarchy of China’s social security system. 

Necessary optimization

In fact, we should approach the social security system as a whole, as basic protection programs and supplemental security programs are correlated. Over the past two decades, the state has attached greater importance to basic social security in comparison to supplemental social security. But proper positioning of basic security measures greatly influences the development of supplemental security measures. Therefore, the key to establishing a multi-tiered social security system is to make sure the first tier functions well.

To achieve this goal, two aspects matter. First, the state must continually improve the current basic social security system, with a more accurate and clear positioning. Second, the state should allow members of society to have rational and stable expectations for basic social security, and to have inner motivations for obtaining supplemental forms of social security. 

Over recent years, China has made world-renowned progress in basic social security. However, some of the current systems are short of fairness and sustainability. Some systems function poorly. Regarding particular programs, insufficient protection and excessive protection coexist due to a lack of clear positioning.

The Fifth Plenary Session of the 19th CPC Central Committee proposed to optimize a sustainable multi-tiered social security system which shall cover the country’s entire population, coordinate the needs from urban and rural areas and be fair and unified. To this end, we need to clarify each program’s positioning and optimize mechanism design, especially when it comes to systems such as basic pension, basic medical insurance, occupational injury protection, long-term care protection, and so forth, so that they can fairly benefit all members of society. 

Take the pension system as an example. From the perspective of risk protection demands, seniors may face poverty, illness, disability, loneliness, and other risks. Accordingly, they need an income safeguard system, a basic medical security system, a preferential policy, a long-term care safeguard system, and a barrier-free environment, as well as spiritual comfort. From a horizontal organizational perspective, the basic pension system should have a clear division of roles different from the basic medical security system, and the long-term care system. Vertically, pensions should be divided into basic ones and supplemental services.

The basic pension system must observe the rules for building up a basic safety net, as it is the basic pension system’s responsibility to guarantee that the basic means of life are affordable into old age. Accordingly, we need to stabilize the basic pension payment standards for the retired, and raise the basic pension payment standards for elderly residents. These two standards should be under strict control and gradually become consistent. Only in this way will workers have the motivation to pay for supplemental pensions through occupational pensions, commercial endowment insurance, or other means. 

Once middle and high income members of society have the internal motivation to obtain supplemental social security, there will be an endless demand for occupational pensions, supplemental medical security, care security, and occupational injury security. Therefore, commercial insurance institutions, mutual insurance companies, and related financial institutions should develop appropriate supplemental protection products and provide high-quality services.

He Wenjiong is a professor and director of the Center of Social Welfare and Governance at Zhejiang University and vice president of the China Association of Social Security.