"Living with dignity and being cared for," what challenges will the long-term care insurance system face in the next three years?

Everyday Economic News Reporter | Tu Yinghao Yuan Yuan
Edited by | Wei Guanhong

On March 25th, the “Opinions on Accelerating the Establishment of a Long-term Care Insurance System” (hereinafter referred to as “Opinions”) was released, marking the official transition of China’s long-term care insurance system from pilot projects to full-scale implementation.

In about three years, a basic long-term care insurance system suited to China’s national conditions will be established. By the end of 2028, this system is expected to be broadly covered nationwide.

Industry insiders believe that over the next three years, the biggest challenges for local governments in promoting the long-term care insurance system include: Are there international experiences to learn from? Can commercial long-term care insurance exploration serve as a supplement or even replacement? To find answers, the “Daily Economic News” recently interviewed industry experts.

Resolving the Conflict Between “Having Services” and “Good Services”
Industry: Establish a Tiered and Classified Management System for Care Institutions

The China Aging Development Foundation’s “2024 Survey on the Current Status of Elderly Care Workers” shows a shortage of 5.5 million elderly care workers in China. Care workers with junior high school education account for 56.13%, while those with a bachelor’s degree or higher make up only 2.93%. Jin Li, member of the National Committee of the Chinese People’s Political Consultative Conference and Vice President of Southern University of Science and Technology, stated that with 323 million people aged 60 and above and over 45 million with disabilities or dementia, situations where “one person’s disability disrupts the whole family” are common. The shortage of professional care is a major challenge in establishing a comprehensive care system for disabled and demented elderly.

Huang Xinyu, Director of the Medical Service Management Department at the National Healthcare Security Administration, explained that long-term care professionals are a new occupation emerging alongside the development of the long-term care insurance system, and they are an important support for its steady development. By 2025, the number of certified long-term care professionals nationwide will exceed 10,000, with coverage across provinces, autonomous regions, and municipalities. Huang emphasized that building a professionalized service team can solve the problem of the long-term care insurance fund being unable to purchase quality services.

Professor Zhu Junsheng, a postdoctoral fellow in applied economics at Peking University, believes that the biggest challenge in promoting the long-term care insurance system locally over the next three years is balancing “sustainability and operability.” Specific issues include difficulties in implementing the funding mechanism, shortcomings in the service supply system, and challenges in disability assessment and refined management. Particularly in grassroots and rural areas, insufficient professional care institutions, shortages of care personnel, and inconsistent service standards will directly restrict the system’s actual coverage.

As the operator of policy-based long-term care insurance, a responsible person from Taibao Life Insurance said, “We are the first insurance company in the industry to establish a dedicated inclusive business department responsible for long-term care insurance. We have developed full-process operational standards covering disability assessment, audit supervision, and expense settlement. Key measures also include forming an independent actuarial team, developing a dedicated long-term care insurance model, and implementing rolling forecasts and dynamic management of the fund.”

To address the contradiction between “having services” and “good services,” the industry expert suggested reconstructing the incentive-compatible mechanism for service supply: establish a tiered and classified management system for care institutions, favor chain and branded institutions through policy support, and eliminate small, scattered, and informal workshops. Additionally, linking payments to caregiver salaries can improve the profession’s attractiveness, helping to solve the current issue where the average monthly salary for caregivers is around 4,000 yuan with a turnover rate exceeding 30%.

At the same time, a transparent system based on “Internet of Things + service supervision” is being built for regulatory purposes. It is understood that Taibao is piloting the integration of millimeter-wave radar, wearable devices, and other IoT data into the supervision platform. By analyzing elderly activity trajectories and vital signs, the authenticity and effectiveness of care services can be verified retrospectively.

Lessons from International Experience: The Need for Caution Within Sustainable Boundaries

Looking at overseas cases, Germany established its long-term care insurance system in 1995, adopting a dual-source payment system mainly based on social insurance supplemented by private insurance. Family out-of-pocket expenses are also significant in Germany’s care industry. In 2023, statutory long-term care insurance expenditure reached 34 billion euros, accounting for 41% of total industry expenditure. From 1995 to 2023, the compound annual growth rate (CAGR) was 13.3%, much higher than the overall industry growth rate of 5.7%. In specific sectors, statutory long-term care insurance accounted for 34% in home care and 47% in institutional/community care in 2023.

Japan established its independent long-term care insurance system in 2000, separate from the healthcare system, and it is the largest payer in Japan’s care industry. In 2021, fund expenditures accounted for 89.5% of total industry spending. From 2000 to 2021, Japan’s long-term care insurance fund income CAGR was 5.6%, and expenditures CAGR was 5.7%. The fund has maintained a positive balance each year, with an annual surplus rate of around 2-3%.

The United States has not established a separate long-term care insurance system. Medicaid, the largest safety net program for healthcare, is the main payer for care services. In 2022, Medicaid expenditures totaled $167.8 billion, accounting for 43% of the total industry spending.

朱俊生 pointed out that international lessons show that rapid expansion of long-term care insurance requires vigilance regarding financial sustainability. Many countries’ experiences indicate that long-term care features “high probability of occurrence + high ongoing costs + strong rigid demand.” Once coverage expands and benefit commitments are solidified without proper funding and expenditure control mechanisms, fund imbalances or forced system adjustments are likely.

On one hand, some countries initially overestimated disability rates, care costs, and longevity trends, leading to long-term expenditure growth outpacing funding increases. The proportion of long-term care expenditure relative to GDP continues to rise, forcing adjustments such as increasing contribution rates, reducing benefits, or tightening eligibility. This lesson underscores that long-term care insurance must adhere to “actuarial principles and dynamic adjustments” to avoid overpromising.

On the other hand, the development of commercial long-term care insurance also offers important lessons. In the U.S., traditional commercial long-term care insurance suffered widespread losses due to underpricing, declining interest rates, and rising claim ratios, leading to market contraction and a shift toward hybrid products combining life insurance and care responsibilities. This indicates that long-term care risks are highly uncertain and long-term, making it difficult for a single entity to bear the full burden. Risk sharing and mechanism design are necessary to hedge these risks.

朱俊生 believes that, considering China’s current system design, the “Opinions” already reflect a cautious approach, such as emphasizing “revenue-based expenditure and balance,” controlling premium rates around 0.3%, implementing differentiated benefits, and allowing for dynamic adjustments. These are lessons learned from international experience. However, he emphasizes three key points in practical implementation: first, maintain a diversified funding structure to avoid over-reliance on a single source; second, strengthen disability assessment and payment accuracy to prevent moral hazard and overuse; third, actively promote participation of commercial insurance to enhance system resilience through risk sharing and improved actuarial capacity.

Insurance Companies Actively Launch Commercial Long-term Care Insurance

Can commercial long-term care insurance serve as a supplement or even substitute for policy-based long-term care insurance? Taking Germany as an example, commercial long-term care insurance expenditures in 2023 reached 1.4 billion euros, accounting for 2% of total industry spending. From 1995 to 2023, the CAGR was 16.2%, much higher than the overall industry growth rate of 5.7%. In specific sectors, commercial insurance accounted for 1% in home care and 2% in institutional/community care in 2023.

朱俊生 believes that, overall, policy-based and commercial long-term care insurance are “layered and complementary” rather than directly competing. The “Opinions” clearly state that social long-term care insurance aims to “guarantee basic needs,” focusing on severely disabled populations and fundamental care, emphasizing fairness and inclusiveness; while commercial insurance caters to differentiated needs, offering higher coverage, broader services, or more flexible products.

Internationally, mature long-term care systems typically feature a “social insurance + commercial supplement” multi-layer structure. For insurance companies, a comprehensive system can open new opportunities: they can participate in managing and building service systems, and develop supplementary products to meet the needs of middle- and high-income groups or higher-quality care. Thus, the relationship is more like “basic protection + market supplement” working together.

Currently, some domestic insurers are actively exploring commercial long-term care insurance. Besides benefit payments, insurers also provide long-term care service rights, such as outpatient appointment booking, escort services, home care assessments, coordination, hardware support (including guidance), nutritional guidance, and coordination with care institutions.

A responsible person from Taibao Life Insurance said that policy-based long-term care insurance aims to “cover basic needs and broad coverage,” providing a safety net. However, as the demand for high-quality, personalized care increases among disabled elderly, there is significant space for commercial long-term care insurance to grow. Taibao has launched a series of commercial long-term care insurance products with higher coverage amounts and more flexible designs, effectively dispersing the risk of “one person’s disability causing family imbalance.”

Tax incentives are an effective way to stimulate demand for commercial long-term care insurance. In July 2023, the China Banking and Insurance Regulatory Commission issued a notice expanding the scope of tax benefits to include major health insurance types such as medical, long-term care, and critical illness insurance, giving consumers more options. Since then, leading insurers have developed corresponding tax-advantaged care insurance products.

Industry experts believe that, given the greater flexibility in service design, and as residents’ aging awareness and care needs increase, the development of commercial long-term care insurance will accelerate, with vast future potential.