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

Every reporter | Tu Yinghao Yuan Yuan Every editor | Wei Guanhong

On March 25, the “Opinions on Accelerating the Establishment of a Long-term Care Insurance System” (hereinafter referred to as “Opinions”) was released, indicating that China’s long-term care insurance system has officially transitioned from partial pilot programs to a new stage of comprehensive implementation.

In about three years, a long-term care insurance system adapted to China’s basic national conditions will be basically established, aiming for comprehensive coverage nationwide by the end of 2028.

From an industry perspective, what are the biggest challenges for localities in promoting the long-term care insurance system in the next three years? Are there international experiences to draw upon for the long-term care insurance system? Can the exploration of commercial long-term care insurance play a supplementary or even substitutive role? To this end, a reporter from “Daily Economic News” recently interviewed industry insiders for answers.

**Resolving the Conflict Between “Available Services” and “Quality Services” Industry: Establishing a “Graded and Classified” Management System for Care Institutions

The “2024 Survey Research Report on the Current Situation of Elderly Care Workers” released by the China Aging Development Foundation shows that there is a supply gap of 5.5 million elderly care workers in China, with junior high school graduates accounting for 56.13%, while those with a bachelor’s degree or higher only account for 2.93%. Jin Li, a 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 the population aged 60 and above reaching 323 million and over 45 million elderly people suffering from disabilities or dementia, the situation of “one person disabled, the whole family unbalanced” is not uncommon. The shortage of professional caregivers has become the biggest challenge to improving the care system for disabled and demented elderly people.

Huang Xinyu, Director of the Medical Service Management Department of the National Healthcare Security Administration, introduced that long-term care professionals are a new profession that has grown alongside the establishment of the long-term care insurance system and is an important support for the stable development of this system. By 2025, the number of long-term care professionals nationwide is expected to exceed 10,000, with certified professionals in every province, autonomous region, and municipality. Huang Xinyu pointed out that by promoting the establishment of a professional and vocational service team, the issues of the long-term care insurance fund being unable to purchase services or quality services can be resolved.

According to Zhu Junsheng, a postdoctoral researcher and professor in applied economics at Peking University, the biggest challenge in promoting the long-term care insurance system in local areas over the next three years will remain focused on balancing “sustainability and operability.” This is specifically reflected in the significant difficulty in implementing the financing mechanism, the existing shortcomings in the service supply system, and the prominent challenges in disability assessment and refined management. “Especially in grassroots and rural areas, issues such as insufficient professional care institutions, tight supply of caregivers, and lack of unified service standards will directly restrict the actual coverage effect of the system.”

As an agency responsible for the policy-oriented long-term care insurance, a relevant person in charge of Taiping Life Insurance stated in an interview: “We are the first insurance company in the industry to establish a dedicated department responsible for long-term care insurance business, creating comprehensive operational standards covering disability assessment, audit supervision, and expense settlement. Core measures also include forming an independent actuarial team, developing exclusive calculation models for long-term care insurance, and achieving rolling forecasts and dynamic management of fund operations.”

Regarding resolving the conflict between “available services” and “quality services,” the aforementioned individual stated that it is necessary to reconstruct the incentive-compatible mechanism for service supply: establish a “graded and classified” management system for care institutions, provide policy preferences for chain and branded institutions, and eliminate small, scattered, and disordered workshops. At the same time, link payments to caregiver salaries to enhance professional attractiveness and resolve the current dilemma of an average monthly salary of 4,000 yuan for caregivers and a turnover rate exceeding 30%.

Additionally, a transparent system of “Internet of Things + service supervision” needs to be constructed on the regulatory front. It is understood that Taiping is piloting the integration of IoT data such as millimeter-wave radar and wearable devices into the regulatory platform, analyzing the activity trajectories and vital signs data of the elderly to verify the authenticity and effectiveness of care services.

**Core Lessons from International Experience: Long-term Care Insurance Must Be Cautiously Promoted Within Sustainable Boundaries

From overseas market cases, Germany established its long-term care insurance system in 1995, adopting a dual-source payment system of “social insurance as the mainstay, private insurance as a supplement,” while the proportion of out-of-pocket expenses by families in the German care industry is significantly high. In 2023, statutory long-term care insurance expenditures amounted to 34 billion euros, accounting for 41% of the overall industry expenditure, with a CAGR of 13.3% from 1995 to 2023, significantly higher than the overall industry growth rate (5.7%). In terms of segmented industries, in 2023, statutory long-term care insurance accounted for 34% and 47% of home care and institutional/community care, respectively.

Japan established an independent long-term care insurance system outside of its medical insurance system in 2000, becoming the largest payer in the Japanese care industry. In 2021, fund expenditures accounted for a staggering 89.5% of total industry expenditures. From 2000 to 2021, the CAGR of the Japanese long-term care insurance fund revenue was 5.6%, with expenditures at 5.7%. In terms of surplus, the long-term care insurance fund has achieved a positive surplus every year, with an annual surplus rate maintained at 2% to 3%.

The United States has not established a separate long-term care insurance, with Medicaid (the largest medical safety net program in the U.S.) being the biggest payer in the American care industry. In 2022, expenditures amounted to 167.8 billion dollars, accounting for 43% of the overall industry expenditures.

Zhu Junsheng noted that, based on international experiences and lessons, long-term care insurance must be highly vigilant about financial sustainability issues during rapid expansion. Practices in many countries indicate that long-term care has characteristics of “high incidence probability + high sustained expenditure + strong rigid demand.” Once the coverage of the system expands and entitlement commitments solidify, while the financing and expenditure constraint mechanisms are not perfect, it is easy to encounter fund imbalances or even passive adjustments to the system.

On one hand, some countries initially estimated disability rates, care costs, and trends in life extension too optimistically, leading to expenditures growing faster than financing over the long term. The proportion of long-term care expenditures to GDP has continued to rise, necessitating rebalancing through increasing contribution rates, reducing benefits, or strengthening eligibility reviews. This lesson suggests that long-term care insurance must adhere to the principle of “actuarial first, dynamic adjustment” to avoid over-commitment.

On the other hand, the development of commercial long-term care insurance also provides important lessons. For example, in the U.S., traditional commercial long-term care insurance experienced significant losses due to inadequate pricing, declining interest rates, and rising claims ratios, leading to a noticeable contraction of the market size and ultimately shifting towards hybrid products of “life insurance + care liability.” This indicates that long-term care risks have significant uncertainty and longevity, making it difficult for a single entity to fully bear them, necessitating diversified sharing and mechanism design to hedge risks.

In Zhu Junsheng’s view, combined with the current design of China’s system, this “Opinions” has reflected a strong cautious orientation, such as clarifying “expenditures determined by revenues, balancing revenues and expenditures,” controlling rates at around 0.3%, and implementing differentiated treatments and dynamic adjustment mechanisms. These are institutional constraints arranged after absorbing international experiences. However, he emphasized that in practical promotion, three key points still need to be grasped: first, adhere to a diversified financing structure to avoid over-reliance on a single funding source; second, strengthen disability assessment and payment accuracy to prevent moral hazards and overuse; third, actively promote the participation of commercial insurance, enhancing the system’s resilience through risk-sharing and actuarial capacity improvement.

**Insurance Companies Actively Launch Commercial Long-term Care Insurance Policy-oriented “Basic Protection,” Commercial “Filling the Gaps”

Can commercial long-term care insurance play a supplementary or even substitutive role for policy-oriented long-term care insurance? Taking the German market as an example, the expenditure scale of commercial long-term care insurance in 2023 was 1.4 billion euros, accounting for 2% of the overall industry expenditure, with a CAGR of 16.2% from 1995 to 2023, significantly higher than the overall industry growth rate (5.7%). In segmented industries, in 2023, commercial insurance accounted for 1% and 2% of home care and institutional/community care, respectively.

Regarding policy-oriented long-term care insurance and commercial long-term care insurance, Zhu Junsheng believes that the two are generally “layered and complementary” rather than directly conflicting. This “Opinions” clearly define social long-term care insurance as “basic protection,” focusing on covering severely disabled populations and basic care needs, emphasizing fairness and inclusiveness; while commercial insurance is more aimed at differentiated demands, providing higher levels of coverage, broader service scope, or more flexible product designs.

From international experience, mature long-term care insurance systems typically present a multi-layered structure of “social insurance + commercial supplements.” For insurance companies, the comprehensive rollout of the system may actually bring new development space: on one hand, they can participate in the establishment of operational and service systems, and on the other hand, they can develop supplementary products to meet the demands of middle- and high-income groups or higher-quality care needs. Therefore, the relationship between the two is more akin to a collaborative pattern of “basic protection + market supplementation.”

The reporter noted that some domestic insurance companies are currently actively trying commercial long-term care insurance. In addition to benefit payouts, insurance companies also provide long-term care service rights, such as outpatient appointment, accompanying medical consultations, home health assessments, home health coordination, health hardware (including guidance), rehabilitation nutritional guidance, and coordination with disability care institutions, among various services.

A relevant person in charge of Taiping Life Insurance stated in an interview that policy-oriented long-term care insurance aims for “basic protection and broad coverage,” achieving a safety net role. However, the demand for high-quality, personalized care protection and care needs among disabled elderly individuals is growing, which is precisely the space for commercial long-term care insurance to thrive. Taiping Life Insurance has launched a series of commercial long-term care insurance products with higher coverage and more flexible designs, effectively diversifying the risk of “one person disabled, the whole family unbalanced.”

Tax incentive policies are an effective means to stimulate demand for commercial long-term care insurance. In July 2023, the National Financial Supervision and Administration issued a notice on the application of individual income tax preferential policies for commercial health insurance products, expanding the product scope to include major types of commercial health insurance, such as medical insurance, long-term care insurance, and disease insurance, allowing the public more choices. After the policy was released, leading insurance companies quickly developed corresponding tax-incentivized care insurance products.

Insurance professionals believe that given the greater flexibility in service design of commercial long-term care insurance products, as residents’ concepts of elderly care improve and care demands are released, the development of commercial long-term care insurance will gradually accelerate, and there will be vast future potential.

Cover image source: Daily Economic News Media Library