Since 1980, Chinese enterprises have been undergoing reforms in employment practice, taxation, and workers’ health/welfare benefits coverage. In particular, Chinese businesses have been facing a major challenge with respect to the financial burden of providing medical benefits to their workers. The purpose of this paper is to analyse the impact of enterprise reform on workers’ health care benefits and their financial burden due to medical expenses.

This study is based on a 1992 survey conducted in 22 cities, and included 406 enterprises and 5920 workers. It was found that there were wide variations of coverage for health care benefits among urban Chinese workers. It was also found that workers with partial coverage were as likely to incur out‐of‐pocket medical expenditures as workers without coverage. These out‐of‐pocket medical expenditures could reach as high as 25% of a worker's annual income. Policy recommendations are discussed at the end of the paper. Copyright © 1999 John Wiley & Sons, Ltd.