"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 phase of comprehensive implementation.

In about three years, a long-term care insurance system that is suitable for China’s basic national conditions will be basically established, with the goal of nationwide coverage by the end of 2028.

In the industry’s view, what are the biggest challenges for local promotion of the long-term care insurance system in the next three years? Is there any international experience that can be referenced for the long-term care insurance system? Can the exploration of commercial long-term care insurance serve as a supplement or even replacement? In this regard, a reporter from the “Daily Economic News” recently interviewed industry insiders for answers.

**Resolving the Contradiction Between “Having Services” and “Good Services” Industry: Establish a “Graded and Classified” Management System for Care Institutions

A report released by the China Aging Development Foundation, titled “2024 Survey Research Report on the Current Situation of Elderly Care Workers,” indicates that there is a supply gap of 5.5 million elderly care workers in China, with those holding a junior high school education accounting for 56.13%, while those with a bachelor’s degree or higher only make up 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 with disabilities or dementia, the situation of “one person disabled, the entire family unbalanced” is not uncommon, and the shortage of professional care has become the biggest challenge in improving the care system for elderly people with disabilities or dementia.

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

According to Zhu Junsheng, a postdoctoral fellow in applied economics at Peking University and a professor, the biggest challenge in promoting the long-term care insurance system at the local level over the next three years will still focus on balancing “sustainability and operability,” specifically reflected in the significant difficulty of 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 inconsistent service standards will directly restrict the actual coverage effect of the system.”

As the operating agency for policy-oriented long-term care insurance, the relevant person in charge of Taiping Life Insurance stated during an interview: “We are the first insurance company in the industry to set up a dedicated department responsible for long-term care insurance business, establishing a full-process operational specification covering disability assessment, auditing and supervision, and cost settlement. Core measures also include forming an independent actuarial team, developing a dedicated actuarial model for long-term care insurance, and achieving rolling forecasts and dynamic management of fund operations.”

To resolve the contradiction between “having services” and “good services,” the aforementioned person stated that it is necessary to reconstruct the incentive compatibility 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 chaotic workshop-type institutions. At the same time, link payment to caregiver salaries to enhance the attractiveness of the profession and solve 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” should be built on the regulatory side. 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 validate the authenticity and effectiveness of care services.

**Core Insights from International Experiences and Lessons: Long-term Care Insurance Must Be Prudently Advanced 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 from families in Germany’s care industry is significantly high. In 2023, the statutory long-term care insurance expenditure scale was 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 sector breakdown, in 2023, statutory long-term care insurance accounted for 34% and 47% of home care and institutional/community care, respectively.

Japan established a long-term care insurance system independent of the medical insurance system in 2000, which is the largest payer in Japan’s care industry, with fund expenditures accounting for as much as 89.5% of total industry expenditures in 2021. From 2000 to 2021, the CAGR of Japan’s long-term care insurance fund income was 5.6%, and the expenditure CAGR was 5.7%. In terms of surplus, the long-term care insurance fund 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 system; Medicaid (the largest medical safety net program in the U.S.) is the largest payer in the U.S. care industry, with an expenditure scale of $167.8 billion in 2022, accounting for 43% of overall industry expenditures.

Zhu Junsheng stated that, based on international experiences and lessons, long-term care insurance needs to be highly vigilant about financial sustainability issues during rapid expansion. Practices in multiple countries indicate that long-term care is characterized by “high incidence probability + high sustained expenditure + strong rigid demand,” and once the system’s coverage expands and benefit commitments become solidified, while the financing and expenditure constraint mechanisms are inadequate, it is easy to encounter fund imbalances and even a passive situation of system adjustments.

On one hand, some countries were overly optimistic in estimating disability rates, care costs, and trends in life extension during the early stages of their systems, resulting in expenditure growth consistently outpacing revenue growth. The proportion of long-term care expenditure in GDP continues to rise, necessitating rebalancing through higher contribution rates, reduced benefits, or strengthened qualification reviews. This lesson suggests that long-term care insurance must adhere to the principle of “actuarial first, dynamic adjustment” to avoid overcommitting.

On the other hand, the development of commercial long-term care insurance also provides important lessons. In the case of the United States, traditional commercial long-term care insurance experienced widespread losses due to insufficient pricing, declining interest rates, and rising claims ratios, leading to a significant contraction in market size and eventually shifting to hybrid products combining “life insurance + care liability.” This indicates that long-term care risks have significant uncertainty and long-term nature, making it difficult for a single entity to fully bear them, and requires diversified sharing and mechanism design to hedge against risks.

In Zhu Junsheng’s view, considering the current system design in China, the “Opinions” reflect a strong cautious orientation, such as clarifying “expenditure determined by revenue, balancing income and expenditure,” controlling rates at around 0.3%, and implementing differentiated treatment and dynamic adjustment mechanisms, all of which are institutional constraints arranged after absorbing international experiences and lessons. However, he emphasized that in practical advancement, three points still need to be focused on: first, adhere to a diversified funding structure, avoiding excessive reliance on a single funding source; second, strengthen disability assessment and payment accuracy to prevent moral hazards and overuse; third, actively promote participation from commercial insurance to enhance the system’s resilience through risk sharing and improvement in actuarial capabilities.

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

Can commercial long-term care insurance serve a supplementary or even substitute role for policy-oriented long-term care insurance? Taking the German market as an example, commercial long-term care insurance had an expenditure scale of 1.4 billion euros in 2023, 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 terms of sector breakdown, 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 they are generally “layered and complementary” rather than in direct conflict. The “Opinions” clearly position social long-term care insurance as “basic protection,” focusing on covering severely disabled individuals and basic care needs, emphasizing fairness and inclusiveness; meanwhile, commercial insurance is more aimed at differentiated demands, providing higher levels of coverage, a broader range of services, or more flexible product designs.

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

The reporter noted that some domestic insurance companies have actively attempted commercial long-term care insurance, providing not only insurance payouts but also long-term care service rights, such as outpatient appointments, accompanying visits, home care assessments, home care coordination, care hardware (including guidance), rehabilitation nutrition guidance, and coordination with disability care institutions.

A relevant person in charge of Taiping Life Insurance stated during an interview that policy-oriented long-term care insurance is positioned to “provide basic coverage and wide coverage,” achieving a safety net function, but there is an increasing demand from disabled elderly individuals for high-quality, personalized care protection and support, which is precisely the opportunity for commercial long-term care insurance. Taiping Life Insurance 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 disabled, the entire family unbalanced.”

Tax preferential policies are an effective means to stimulate the demand for commercial long-term care insurance. In July 2023, the National Financial Supervision and Administration Bureau issued a notice on “Matters Related to the Application of Personal Income Tax Preferential Policies for Commercial Health Insurance Products,” expanding the product range to major types of commercial health insurance, including medical insurance, long-term care insurance, and disease insurance, giving the public more choices. After the policy was released, leading insurance companies quickly developed corresponding tax-preferred care insurance products.

In the view of insurance practitioners, given the greater flexibility in the service design of commercial long-term care insurance products, as residents’ concepts of retirement improve and care demands are released, the development of commercial long-term care insurance will gradually accelerate, with significant potential in the future.

Cover image source: Every Daily Media Library