Research design
MEL Fund stands for three funds: Medical, Education and Life (pensions). This page sets out the research question, how success is judged, and every rule of the fund. The Chinese version is the original; this is a translation.
Research question
A county fund starts with a single government seed injection, grows while residents join voluntarily, and then becomes mandatory for everyone. Each fund has personal accounts and a shared pool, and the three shared pools may lend to one another. The study asks:
- After the seed injection, can the fund run without outside money and keep solvency at or above 100%?
- How much better does it do when the three pools lend to one another than when they are kept apart?
- What are the critical conditions: seed capital, participation, age structure, investment return?
The question can be tested and can be falsified. The aim is to find the conditions under which the fund works, not to prove that it does.
Success criteria
- A simulation period of 30–50 years.
- After the seed injection, no subsidies and no further injections.
- Solvency (assets / liabilities) at or above 100% every year; default probability at or below 5%.
- A positive balance at the end.
Phases
| Phase | Source of money | Membership |
|---|---|---|
| Seed | One government injection | — |
| Growth | Member contributions | Voluntary |
| Maturity | Member contributions | Mandatory for every legal resident of the region or country |
The switch to mandatory membership happens either on a condition (participation ≥ 30% and solvency ≥ 110% for 5 years in a row) or in a year set by policy (year 10 in the base case).
Members
- Contributing members have an income. They pay into education, medical and pension funds every month, whether they need them now or not.
- Beneficiaries pay nothing and receive education and medical benefits. In the growth phase these are the children of contributing members; in the mature phase every legal resident is a beneficiary from birth.
- A beneficiary who starts earning becomes a contributing member. Individuals join in the base case; household membership is a comparison scenario.
- People who are already old when the fund starts receive pensions only from their own contributions and share in the medical pool only. This avoids a transition cost.
Contributions
- Eight tiers, chosen by income; the mature phase has a minimum tier.
- Study-county tiers (yuan a year): 530, 800, 1,200, 1,600 (median), 2,400, 3,200, 4,800, 6,400.
- Each tier is split in fixed shares: education 27%, medical 38%, pensions 35%.
- Tiers are set so the average contributor pays the break-even cost plus a 10% margin: 2,463 yuan a year on average, about 5.4% of earned income.
- A member who loses their income stops paying without penalty and keeps access to the shared pools for 2 years.
Accounts
| Fund | Personal account | Shared pool | Role of the shared pool |
|---|---|---|---|
| Education | 50% | 50% | Pays half of every tuition bill |
| Medical | 30% | 70% | Carries the random medical risk |
| Life | 80% | 20% | Carries longevity risk and pays a top-up per contribution year |
- When a member dies, all personal balances move to the shared pools. They are not inherited and not refunded.
- Surpluses of the shared pools are not paid back to members.
- Accounts are credited with the actual investment return; there is no guaranteed rate.
Benefits
Medical pays only what remains for the patient after the existing resident medical insurance, against receipts. The shared pool pays 60% of the amount above a 1,000-yuan deductible, up to 50,000 yuan per claim and 100,000 yuan a year; the member's own medical account pays the rest. New members in the growth phase wait 1 year.
Education pays tuition and training fees outside compulsory schooling, never living costs: the first two years of pre-school (the last year is already free), academic high school, university and adult vocational training. The shared pool pays 50%; the student's own education account pays next, then a parent's.
Life (pensions) pays monthly from age 60. The personal balance is turned into an annuity with the local life table. When it runs out, the shared pool keeps paying for life. After 15 years of contributions the shared pool adds 16 yuan a year per contribution year. The target is 200 yuan a month.
Lending between pools
Separate versus pooled is the central comparison of the study. With pooling:
- A pool that runs short borrows first from the education and medical pools, and from the pension pool last.
- Every loan is booked and bears interest; no pool lends more than 25% of its assets.
- The pension pool keeps at least 50% of its own liabilities before it lends, and is repaid first.
Leaving
- In the growth phase members may leave at any time, taking their personal balances; the shared part stays.
- In the mature phase members leave only when they move out of the county or emigrate.
- When solvency is below 100%, departing members are paid over 3 years.
Investment, costs and governance
- Government bonds and fixed deposits only; base real return 2.5%.
- Administration costs 2% of contributions, with a cap written into the charter.
- A third-party custodian holds the money; an external audit runs every year; pool flows and solvency are published.
- All amounts are real values (base-year prices).