China Galaxy Securities has released a research report stating that the accelerated implementation of provincial-level health insurance fund pooling is expected to improve the efficiency of medical insurance fund utilization and may serve as a new starting point for healthcare investments. From a total healthcare expenditure perspective, if health insurance spending accelerates, it will benefit the recovery of hospital-based services and positively impact the overall pharmaceutical industry. Recommended sectors for attention include medical services, hospital drugs and medical devices (such as large-volume intravenous solutions, specialized narcotics and psychotropic drugs, blood products, medical imaging, and high-value consumables), in vitro diagnostics and independent clinical laboratories, as well as innovative drugs (leaders with best-in-class and first-in-class pipelines). The main views of China Galaxy Securities are as follows:
The acceleration of provincial-level health insurance fund pooling is expected to enhance the efficiency of medical insurance fund usage and may become a new starting point for healthcare investments. Recent policy deployments for provincial-level health insurance pooling have been intensive: in November 2025, the State Council executive meeting discussed and subsequently issued the "Guiding Opinions on Promoting Provincial-Level Pooling of Basic Medical Insurance," requiring each province to formulate implementation plans. In mid-December, the National Healthcare Security Work Conference listed it as a key task for 2026. On January 6, 2026, the General Office of the Zhejiang Provincial Government issued the implementation opinions for provincial-level health insurance pooling in Zhejiang. On March 5, the State Council Government Work Report delivered at the National People's Congress again emphasized steadily advancing the provincial-level pooling of basic medical insurance.
As the core component of China's healthcare payment system, the health insurance fund is a central payment force guiding market demand. The growth rates of China's total health expenditure and the revenue of large-scale pharmaceutical manufacturing enterprises are highly correlated with the growth of health insurance fund income and expenditure. If health insurance expenditure accelerates, it will play a positive role in restoring growth in the healthcare industry.
Provincial-level pooling is expected to address structural contradictions in the health insurance fund, revitalize existing funds, and promote a recovery in expenditure. Currently, China's health insurance fund faces structural issues: on one hand, there are substantial annual surpluses, with a cumulative health insurance fund balance of 5.31 trillion yuan by the end of 2024 and a current surplus of 531.3 billion yuan in the pooled fund from January to December 2025. On the other hand, many regions experience declining health insurance expenditures and insufficient coverage. The provincial-level pooling system breaks down administrative barriers between cities, allowing the abundant health insurance surpluses generated by economically developed cities with younger populations to be directed through provincial adjustment mechanisms to support cities within the province that have weaker economic foundations, severe aging populations, or face fund depletion risks. This achieves the goal of "using abundance to compensate for scarcity and sharing risks." By advancing provincial-level pooling and cross-provincial mutual aid for individual accounts, it is possible to revitalize the accumulated health insurance surplus funds, effectively resolve structural contradictions in health insurance revenue and expenditure, and reverse the trend of slowing expenditure growth.
Progressing from the "adjustment fund" model to the "unified revenue and expenditure" model is expected to restore expenditure growth to double digits. Currently, more than 20 provinces across the country are accelerating their efforts, with 6 provinces and municipalities having achieved "unified revenue and expenditure," 8 provinces adopting the "provincial adjustment fund" model, and 7 provinces actively planning, forming a tiered advancement pattern. According to simulations using non-life insurance actuarial techniques in Yuan Tao's article "The Scientific Connotation and Path Optimization of Basic Medical Insurance Provincial-Level Pooling," which models the policy implementation of basic medical insurance provincial-level pooling in Province G, the results project that the province's health insurance pooled fund revenue will have a compound annual growth rate (CAGR) of 10.4% from 2021 to 2035, while the health insurance pooled fund expenditure will have a CAGR of 13.4%.
The advancement of provincial-level health insurance pooling is beneficial for the recovery of the domestic healthcare industry. Sectors such as medical services, hospital drugs and devices, diagnostics, and innovative drugs are worthy of attention. Medical services and hospital drugs and devices are most directly related; accelerated health insurance expenditure will benefit the recovery of overall medical volume. The demand elasticity for medical services related to hospital business services is significant, and repayment capabilities are improving, directly boosting valuations in financial statements. Hospital drugs, devices, and diagnostics will also see positive recovery as medical volumes increase. Although innovative drugs account for a small proportion of health insurance spending, they have substantial growth potential and rapid growth rates. The volume-based procurement of generic drugs and the negotiation of innovative drugs "make room for new birds by clearing the cage" in terms of health insurance quotas. Accelerated health insurance expenditure will significantly enhance the support of health insurance funds for innovative drugs and devices.
Risk warnings include the risk of policy implementation progress falling short of expectations; the risk of insufficient promotion of downstream demand after policy implementation; and the risk of health insurance fund operational revenue being insufficient to cover expenditures.
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