Niche Medical Insurance ‘Health Fund’ Cashed Out (AI Translation)

【周刊提前读】小众医保“健康金”被套现 灰产如何形成？

Summary:

"Health Funds" (健康金) represent a relatively niche component of China’s multi-layered medical insurance system. Officially termed as the "Health Security Entrusted Management Business", such funds are employer-offered supplemental health allowances, managed through agreements with insurance companies. Large enterprises, particularly those in monopoly sectors with high welfare standards, most commonly use these arrangements. For employees, health funds serve as an extra medical benefit in addition to basic medical insurance and supplementary health insurance, usable for expenses such as dental care, pharmaceuticals, and health supplements. For employers, these schemes help stabilize the workforce and offer tax avoidance opportunities. In 2024, the market size for these arrangements was estimated to be around 50 billion yuan [para. 1][para. 2][para. 3].

Despite their intention, the system contains significant grey areas. Employees often use health funds for non-medical purchases such as groceries, cosmetics, and electronics, both online and offline, extending far beyond the original medical purpose. Vendors and third-party suppliers sometimes exploit the system by reissuing or falsifying invoices, even employing shell companies to generate fake receipts that appear legitimate for reimbursement. Industry insiders confirm that model-based audits easily reveal widespread invoice fraud. Although some companies are moving away from health fund schemes due to stricter cost control and tax compliance requirements, the scope for misappropriation and abuse remains substantial [para. 3][para. 4].

These health funds function through contracts where insurance companies manage the medical expenditure accounts for groups such as government departments and corporations. Since 2008, a regulatory framework has governed this business, allowing companies to deduct up to 5% of wage bills for supplemental health guarantees from taxable income. The initial aim was both to create tax efficiency for companies and to offer employees beneficial health supplements. Over time, regulation has tightened: since 2020, the entrusted management system has excluded direct investment features, focusing only on disease review, claim payment, and health management to prevent misuse as an investment vehicle [para. 5][para. 6][para. 7]. By the end of 2018, 26 insurance companies ran these services for 66.7 million people, with managed funds totaling about 34 billion yuan and an average management fee of 2.1% [para. 8][para. 9][para. 10].

Nevertheless, as core healthcare needs are met through other insurance channels, employees often find surplus funds hard to use within legitimate healthcare parameters. This leads to creative methods for converting health funds into cash or goods. Employees may overpay for electronics or daily necessities on specialist platforms, rationalizing the premium because the funds are not out-of-pocket. Alternatively, some seek outright conversion of account balances to cash, often at a discount, facilitated through social media networks. Such practices are technically or explicitly illegal and stray from the intended welfare nature of the benefit [para. 11][para. 12][para. 13][para. 14].

A more systemic problem lies in third-party service platforms that provide fraudulent invoices to facilitate non-medical purchases appearing as legitimate health expenses. These vendors have evolved from simply offering convenient e-pharmacy services to constructing platforms that allow employees to buy high-margin non-medical items—including appliances and electronics—under the guise of healthcare transactions, with insurance companies reimbursing based on doctored invoices. Some suppliers even exploit regional tax differentials by registering small pharmaceutical companies as shell entities to further minimize tax exposure while issuing large quantities of fake invoices. Many such operations have since been blacklisted or investigated by tax authorities, highlighting persistent risks and regulatory challenges in this 50-billion-yuan industry [para. 15][para. 16][para. 17][para. 18][para. 19][para. 20].

In summary, while health fund management business was designed as a valuable employee welfare and tax-efficient tool, loose oversight and system loopholes have led to widespread abuse, prompting ongoing regulatory scrutiny and market adjustments [para. 3][para. 4][para. 7][para. 12][para. 15][para. 20].