China will expand medical insurance to cover all critical illnesses for its population of nearly 1.4 billion by the end of the year, the government has announced.

The decision is the latest step in a plan to remedy a healthcare system that has sparked public discontent.

The state council said half of the medical costs will be covered by insurance in a bid to “more effectively reduce the burden of medical expenses”, according to a statement on the government’s website.

President Xi Jinping’s government has touted access to affordable healthcare as a key platform of his administration, underscoring the importance of meeting its population’s needs. Many people have often complained of significant expenses due to low levels of insurance coverage.

Many people say the cost of serious illnesses such as cancer and diabetes can bankrupt households under the current system.

The aim of expanding health insurance was to “effectively alleviate poverty caused by illness” and to build a strong universal healthcare system, the state council said.

Since 2009, China has spent 3tn yuan (£307bn) on healthcare reform, but the system still struggles with a scarcity of doctors, attacks by patients on medical staff and a fragmented drug distribution and retail market.

Economists say it is crucial for China to improve the quality of its healthcare if it wishes to remake its economy and boost domestic consumption. They say a stronger safety net will encourage Chinese to spend more and save less.

China’s healthcare spending is set to hit $1tn by 2020, up from $357bn in 2011, according to McKinsey & Co, attracting a rapid inflow of money from private insurers, hospital operators and other investors.