"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 the “Opinions”) was released, marking the official transition of my country’s long-term care insurance system from pilot programs to a new stage of comprehensive implementation.

In about three years, a long-term care insurance system that adapts to the basic national conditions of our country will be basically established, and by the end of 2028, this system is expected to achieve comprehensive coverage nationwide.

Industry insiders believe that what are the biggest challenges for local promotion of the long-term care insurance system in the next three years? Are there international experiences that can be referenced for the long-term care insurance system? Can the exploration of commercial long-term care insurance play a supplementary or even substitutive role? In this regard, reporters from the “Daily Economic News” recently interviewed industry professionals to seek answers.

Resolving the contradiction between “having services” and “good services” Industry insiders: Establish a “graded and classified” management system for care institutions

The “2024 Survey Research Report on the Occupational Status of Nursing Workers” released by the China Aging Development Foundation shows that there is a supply gap of 5.5 million nursing workers in our country, with junior high school educated nursing workers accounting for 56.13%, while those with a bachelor’s degree or above 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 the number of elderly people with disabilities or dementia exceeding 45 million, “one person becomes disabled, the whole family becomes unbalanced” is not uncommon, and the shortage of professional nursing staff has become the biggest challenge in improving the care system for the elderly with disabilities or dementia.

Huang Xinyu, director of the Medical Service Management Department of the National Healthcare Security Administration, introduced that long-term care workers are a new profession that has emerged alongside the establishment of the long-term care insurance system and are an important support for the stable development of the system. By 2025, the number of long-term care workers in the country will exceed 10,000, basically ensuring that each province, autonomous region, and municipality has certified long-term care workers. Huang Xinyu pointed out that by promoting the establishment of a specialized and professional service team, the issue of the long-term care insurance fund being unable to purchase services or high-quality services can be addressed.

According to Zhu Junsheng, a postdoctoral researcher and professor in applied economics at Peking University, the biggest challenge for local promotion of the long-term care insurance system in the next three years still lies in balancing “sustainability and operability,” specifically reflected in the difficulty of implementing the financing mechanism, the existing shortcomings in the service supply system, and the prominent challenges of disability assessment and refined management. “Especially in grassroots and rural areas, the lack of professional nursing institutions, tight supply of nursing staff, and inconsistent service standards will directly restrict the actual coverage effect of the system.”

As an agency handling policy-based long-term care insurance, a relevant person in charge from Taiping Life Insurance said in an interview: “We are the first insurance company in the industry to establish a dedicated department responsible for long-term care insurance, and we have established a full-process operation specification covering disability assessment, supervision, and cost settlement. Core measures also include forming an independent actuarial team and developing a dedicated calculation model for long-term care insurance to achieve rolling prediction and dynamic management of fund operations.”

Regarding how to resolve the contradiction between “having services” and “good services,” the above-mentioned individual 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 inclinations for chain and branded institutions, and eliminate small, scattered, and chaotic workshop-like institutions. At the same time, link payment with nursing staff salaries to enhance professional attractiveness and solve the current dilemma of an average monthly salary of 4,000 yuan for nursing staff and a turnover rate exceeding 30%.

Additionally, a transparent system of “IoT + service supervision” should be constructed 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, verifying the authenticity and effectiveness of nursing services by analyzing the activity trajectories and vital signs data of the elderly.

Core insights from international experiences and lessons: Long-term care insurance must be cautiously advanced within sustainable boundaries

From overseas market cases, Germany established its long-term care insurance system in 1995, adopting a dual-source payment system with “social insurance as the mainstay and private insurance as a supplement,” while the proportion of out-of-pocket expenses by families is significantly high in Germany’s care industry. In 2023, the statutory long-term care insurance expenditure reached 34 billion euros, accounting for 41% of the industry’s total 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 in 2000, which is the largest payer in Japan’s care industry. By 2021, fund expenditure accounted for a staggering 89.5% of the industry’s total expenditure. From 2000 to 2021, the CAGR of revenue from Japan’s long-term care insurance fund was 5.6%, while the expenditure CAGR was 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 system, with Medicaid (the largest healthcare safety net program in the US) being the largest payer in the US care industry, with an expenditure scale of $167.8 billion in 2022, accounting for 43% of the industry’s total expenditure.

Zhu Junsheng stated that from international experiences and lessons, during the rapid expansion of long-term care insurance, there is a need for heightened vigilance regarding financial sustainability issues. Practices in multiple countries show that long-term care is characterized by “high occurrence probability + high ongoing expenditure + strong rigid demand.” Once the coverage of the system expands and the commitment to benefits solidifies, while the financing and expenditure constraint mechanisms are imperfect, it is easy to encounter fund imbalances or even passive adjustments of the system.

On one hand, some countries were overly optimistic in their early estimates of disability rates, nursing costs, and trends in life extension, leading to long-term expenditure growth outpacing financing growth. The proportion of long-term care expenditure to GDP continues 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 precedence and dynamic adjustment” to avoid over-commitment.

On the other hand, the development of commercial long-term care insurance also provides important lessons. In the US, traditional commercial long-term care insurance has suffered significant losses due to insufficient pricing, declining interest rates, and rising claims ratios, leading to a noticeable contraction in market size and ultimately shifting towards 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, necessitating diversified sharing and mechanism design to hedge risks.

In Zhu Junsheng’s view, considering the current system design in our country, the “Opinions” reflect a strong cautious orientation, such as clearly stating “spending based on income, balancing income and expenditure,” controlling the rate at around 0.3%, and implementing differentiated treatments and dynamic adjustment mechanisms, all of which are institutional constraints derived from international experiences and lessons. However, he emphasized that during actual promotion, three key points must be grasped: first, adhere to a diversified financing structure to avoid over-reliance on a single source of funds; second, strengthen the precision of disability assessments and payments to prevent moral hazards and overuse; third, actively promote the participation of commercial insurance to enhance the system’s resilience through risk sharing and actuarial capability improvement.

Insurance companies actively launch commercial long-term care insurance Policy-based “basic protection,” commercial “fill the gap”

Can commercial long-term care insurance play a supplementary or even substitutive role for policy-based 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 industry’s total expenditure, with a CAGR of 16.2% from 1995 to 2023, significantly higher than the overall industry growth rate (5.7%). In terms of segmented industries, in 2023, commercial insurance accounted for 1% and 2% of home care and institutional/community care, respectively.

Regarding policy-based long-term care insurance and commercial long-term care insurance, Zhu Junsheng believes that the two are generally “layered and complementary” rather than in direct conflict. The “Opinions” clearly state that social long-term care insurance is positioned to “guarantee the basics,” focusing on covering severely disabled individuals and basic care needs, emphasizing fairness and inclusiveness; while commercial insurance is more oriented toward differentiated needs, providing higher levels of protection, broader service scopes, or more flexible product designs.

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

The reporter noticed that some domestic insurance companies have actively begun to explore commercial long-term care insurance. In addition to insurance payouts, these companies also offer long-term care service benefits, such as outpatient appointments, accompaniment services, home care assessments, home care coordination, care hardware (including guidance), rehabilitation nutrition guidance, and coordination of care institutions for the disabled.

A relevant person in charge from Taiping Life Insurance stated in an interview that policy-based long-term care insurance is positioned to “guarantee the basics and achieve broad coverage,” fulfilling a safety net role, but the demand for high-quality, personalized care protection and care services for 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 amounts and more flexible designs, effectively dispersing the risk of “one person becoming disabled, the whole family becoming unbalanced.”

Tax incentives are an effective means to stimulate demand for commercial long-term care insurance. In July 2023, the National Financial Supervisory Administration issued a notice regarding the application of individual income tax preferential policies for commercial health insurance products, expanding the product range to include major types of commercial health insurance, including medical insurance, long-term care insurance, and disease insurance, providing more choices for the public. After the policy was announced, leading insurance companies quickly developed corresponding tax-preferred care insurance products.

Insurance professionals believe that given the greater flexibility in the service design of commercial long-term care insurance products, as residents’ concepts of aging improve and care needs are released, the development of commercial long-term care insurance will gradually accelerate, with huge potential in the future.

Cover image source: Daily Economic News Media Library