This is a study of cooperative medical schemes (CMSs) operating in rural China from the perspective of institutional embeddedness. As a kind of community based health micro insurance scheme,CMSs often suffer from financial vulnerability due to its small scale of risk pooling. CMSs operated relatively successfully during the pre reform era as the institutional environment in which they were embedded were favorable. Under the planned economy and tough social control,adverse selection and provider induced over provision of healthcare were non existent. During the market transition,CMSs encounter with so severe problem of adverse selection that they lose attractiveness to most of rural residents,and they are further sabotaged by bad governance. At the same time,healthcare providers,driven by marketization,have no longer had incentive to curtail cost increase. Chinese CMSs are at a crossroad,either developing towards a state-run voluntary health insurance scheme or maintaining its community-based nature but receiving strong support from the government.
