In April 2023, the paper “Public Long-term Care Insurance and Consumption of Elderly Households: Evidence from China” co-authored by Professor Liu Hong and Associate Professor Zhao Liqiu from the School of Labor and Human Resources as well as Professor Liu’s doctoral student Ma Jinqiu in Central University of Finance and Economics was accepted for publication in Journal of Health Economics, one of the top-notch international journals in the field of human health care and medicine. The paper could be retrieved online (https://doi.org/10.1016/j.jhealeco.2023 .102759). Professor Liu Hong was the first author of the paper and Associate Professor Zhao Liqiu the corresponding author.

Given the high rate of global population aging, the expected out-of-pocket LTC expenditure and non-health consumption expenditure of households has added up to the uncertainty of families with elders, posing substantial risks for elderly households. As a result, long-term care (LTC) needs have become an increasingly important policy concern. Because of the synergistic effect of population aging, dwindling family structure and urbanization, among other social changes, elderly households are increasing precautionary saving to guard against LTC risks. As a result, public LTCI coverage may affect the consumption and savings decisions of elderly households. First, LTCI can reduce the risk of unexpected LTC expenditure, and thus discourage precautionary savings and increase current consumption. Second, LTCI can increase the expected net income of elderly households since some pilot programs receive government subsidies. This potential income effect will increase both consumption and savings.

In this study, we exploit the rollout of the LTCI pilots across cities during 2014–2018 to identify the impacts of LTCI coverage on the consumption and saving behavior of elderly households in China. The result suggests that the implementation of LTCI decreases the need for precautionary savings, and thus, increases the household non-health consumption. This effect is greater for households without disabled older adults. The contributing role of the LTCI on non-health consumption is greater for elderly households with higher expected LTC risks, less wealth or family insurance, and covered by more generous LTCI programs. This provides supporting evidence for the precautionary savings hypothesis. In addition, this study indicates a positive association between LTCI coverage and the use of home- and community-based LTC services for the severely disabled older adults. Consistently, LTCI coverage increases the expectation of receiving formal LTC when disabled and the self-perceived probability of living another 11–15 years for nondisabled older adults.

Overall, this paper suggests that LTCI can reduce the need for precautionary savings against LTC risks, boost the consumption of elderly households and in turn contribute to China’s development in the new era. China’s LTCI pilot programs have improved the well-being of elderly households, including potential beneficiaries. Public LTCI ensures efficiency gains since social insurance is a more effective means of insuring LTC risks than precautionary savings. Of course, the sustainability of LTC insurance is also a great challenge, and there is still a long way to go in building a robust healthcare insurance system. These findings have important policy implications for the further expansion of LTCI in China and the development of public LTCI in middle-income and developing countries.

About the authors

Hong Liu is currently a professor and Ph.D supervisor at the School of Labor and Human Resources of Renmin University of China. She has been awarded the New Century Excellent Talent Support Program by the Ministry of Education. Her main research areas are medical insurance, pension insurance, health economics, labor economics, and applied microeconomics. By now, the professor has published over 40 academic papers in leading journals including Journal of Development Economics, Journal of Health Economics, Social Science & Medicine, Journal of Economics Behavior & Organization, Journal of Comparative Economics, Journal of Population Economics, Economic Research, Quarterly Journal of Economics, World Economy, China Rural Economy, Finance and Trade Economy, etc. 

Zhao Liqiu is currently an associate professor at the School of Labor and Human Resources of Renmin University of China. She is now head of the Department of Labor Economics, and a researcher at the National Academy of Development and Strategy, RUC. Her main research areas are human capital development, poverty and inequality, health economics, gender economics and labor migration, etc. In recent years, she has published more than 20 papers in leading journals at home and abroad, including Journal of Health Economics, Journal of Population Economics, Journal of Comparative Economics, Social Science & Medicine, Health Economics, World Economy, etc.