Labour Insurance Scheme (LIS)

The LIS was formally established after the Labour Insurance Regulations of the People’s Republic of China came into effect on 1 March 1951 (Government Administration Council 1951). It initially covered workers and staff in state-owned, private, joint public-private, or cooperative factories and mines employing 100 or more workers as well as those working in railway enterprises, shipping enterprises, post and telecommunications enterprises, and the subsidiary units of these enterprises (Government Administration Council 1951). In 1953, the LIS was extended to cover workers and staff in capital construction units of factories, mines, transportation enterprises, and state-owned construction companies (Luk 2017: 37). In 1955, there was nationalization of industry and private enterprises. Private enterprises were virtually extinguished, and private ownership was rooted out (Zhang 2008: 326). Public ownership became the sole ownership in the nation, including state and collective ownership (Zhang 2008: 326). The LIS was extended to cover workers in the state-owned forestry industry, aquaculture industry, petroleum industry, aviation industry, finance industry, and the foreign trade sector (Li 2009: 34) as well as workers in collective-owned enterprises (which were owned by local or district governments) (Hu et al. 1999: 309). The LIS also covered workers’ direct dependents and retired workers (Li 2009: 34). By 1956, the LIS had covered 23 million workers (Li 2009: 34-5). In 1989, the LIS covered about 127 million people (excluding direct dependents), accounting for 10.6 percent of China’s population (Liu and Hsiao 1995: 1095).

Although it was called an insurance scheme, the LIS was not a health insurance scheme in the real sense because there was no premium contribution and the scheme was not managed by any insurance institutions (Luk 2014a, 2017). The funding source of the LIS came from the labour insurance fund, which was contributed to by employers, according to The Labour Insurance Regulations. The Labour Insurance Regulations stipulated that employers were required to contribute 3 percent of their total payroll to the labour insurance fund every month (Government Administration Council 1951). In 1957, employers were required to contribute 4.5 to 5.5 percent of their total payroll to the labour insurance fund every month (Li 2009: 35), depending on the types of industries or enterprises. The labour insurance fund shall not be deducted from the wages of workers and staff. While 70 percent of the labour insurance fund was deposited into the account of the respective primary trade union committees of the enterprises concerned (Government Administration Council 1953), the rest of it was deposited into the account of the All-China Federation of'Trade Union (ACFTU) so that ‘a certain degree of redistribution could be effected between enterprises of varying financial commitments (Lee 2000: 140). The ACFTU, which was ‘the state-led body that governed all trade unions in China’ (Gu 2001b: 199) and ‘the highest leading organ for directing the labour insurance work throughout the country’ (Government Administration Council 1953: 28), entrusted the People’s Bank of China to take custody of the labour insurance fund (Government Administration Council 1953).

The labour insurance fund was used for the payment of relief benefits, invalid pensions or allowances, maternity benefits, death benefits, old-age pensions, and for funding the LIS. The LIS covered the fees for consultation, treatment, ordinary medicines, and hospitalization of workers and staff who sought medical treatment at the enterprise-run hospital or clinic, or in a specially designated hospital (Government Administration Council 1953: 13). Workers and staff had to pay the fees for expensive medicines, meals at the hospital, and travel expenses on their own (Government Administration Council 1953: 13). Most large enterprises with more than 1,000 employees organized their own hospitals (inside hospitals), while most medium-sized enterprises with 200 to 1,000 employees had their own clinics to provide outpatient services for their employees (Liu and Hsiao 1995: 1095-6). Small enterprises relied on contracted hospitals to provide all health services for their employees (Liu and Hsiao 1995: 1096). Contracted hospitals would clear the bill with the enterprises upon completion of treatment (Yu and Ren 1997: 437). The LIS also covered treatment fees and half the cost of ordinary medicines of direct dependents of workers and staff (Government Administration Council 1953: 15). Direct dependents of workers and staff had to pay inpatient fees, meals at the hospital, fees for expensive medicines, travel expenses, and all other expenses on their own (Government Administration Council 1953: 15).

In 1966, the Circular on Several Questions Concerning the Improvement of the Labour Health Insurance System was jointly issued by the Ministry of Labour (MOL) and the ACFTU to increase the amount of medical expenses borne by workers. According to the Circular, workers and staff had to pay the fees for registration, home visits, nutrients, and tonics on their own, while employers paid the fees for expensive medicines (Ministry of Labour and the All-China Federation of Trade Union 1966). Direct dependents of workers and staff had to pay the fees for registration, examination, laboratory tests, and half the cost of surgery and medicines (Ministry of Labour and the All-China Federation of Trade Union 1966). In January 1967, immediately after the beginning of the Cultural Revolution (1966-1976), the ACFTU was formally dissolved and virtually all enterprise unions ceased to function (Naughton 1997: 177). The enterprise management itself had to take over the administration of the benefits and social security system (Naughton 1997: 177). In February 1969, the Ministry of Finance (MOF) issued the Opinions on the Reform of Several Systems in the Financial Work of State-owned Enterprises, which in effect suspended the drawing of the labour insurance fund in state-owned enterprises (SOEs) and converted the amount of money originally contributed to the labour insurance fund to enterprises’ non-operating expenditures (Wang 2017: 5). From then on, enterprises became responsible for financing and administering the labour insurance (Lee 2000: 140). In November 1969, enterprises were required to draw 11 percent of their payroll to establish the employee welfare fund, with 5.5 percent of it used to pay the medical expenses of workers and staff (Li 2009: 35). In other words, the LIS became a work-unit-based welfare scheme (Gu 2001b: 200).