China's push to establish a national long-term care insurance system within three years marks a critical shift in addressing its aging population, yet the policy's success hinges on resolving fundamental questions about funding, service delivery models, and regional disparities, according to a leading academic.
Fudan University distinguished professor and director of its Institute of Aging Economics, Feng Jin, said the move to expand the insurance scheme nationwide is supported by evidence from nearly a decade of pilot programs showing that fund expenditures remain broadly controllable and that the policy has successfully stimulated private capital investment into the eldercare sector.
However, Feng cautioned that a one-size-fits-all approach to service provision will not work across China's diverse geographic and demographic landscape, stressing that the design of care delivery must be tailored to population density, service radius, and local resources.
Where the journey begins
The central government's March policy document set a three-year timeline to basically establish the long-term care insurance system nationwide, a development Feng says addresses several key issues that emerged from pilots launched in 2016. The new framework clarifies funding channels, mandates a unified disability assessment standard, and signals a preference for home-based care, she noted.
Feng explained that long-term care insurance functions as a social insurance mechanism to pool the risks of disability in old age, with intergenerational transfer features where younger, non-disabled workers contribute to fund care for the elderly disabled population. The scheme also includes some degree of intra-generational redistribution, spreading risk across people with different probabilities of becoming disabled.
The timing of the nationwide rollout is supported by two key outcomes from pilot programs, according to Feng. First, overall fund expenditures have not risen too quickly, with some years even seeing declines, demonstrating that improved disability assessment standards and service supply management can effectively control costs. Second, pilots have clearly promoted the entry of private capital into the eldercare industry, as the insurance scheme subsidizes residents' care consumption and boosts overall demand.
Why only a decade of pilots?
The nearly ten-year pilot phase was necessary because long-term care insurance is an entirely new type of insurance, unlike pension insurance which had a stronger foundation and was rolled out nationally within a couple of years, Feng said. The complexity of establishing accurate disability assessment tools, determining sustainable funding mechanisms, and building a qualified caregiver workforce all required extensive testing and refinement.
One of the most difficult challenges has been setting the threshold for disability assessment, which directly impacts fund balance, Feng said. The evaluation standards themselves were initially fragmented across cities, with local governments adopting different approaches until discussions about unifying standards began around 2020. Shanghai, for instance, drew heavily from Japanese assessment indicators during early pilots.
Funding mechanisms have also varied significantly across regions. Eastern coastal areas like Shanghai with large numbers of insured workers can raise more funds, while western regions with higher rural populations depend more on government subsidies. The new policy direction of independent fundraising, with contributions from employers, employees, and government subsidies, aligns with approaches in Japan and Germany, Feng noted.
Unanswered questions remain
While the new policy document provides clearer direction on funding and assessment standards, Feng highlighted that the service catalog remains insufficiently detailed. She advocates for a national basic list that local governments can supplement or adjust based on their specific disabled elderly populations.
Another area needing strengthening is the payment for assistive device rentals. Although the policy document mentions supporting assistive devices in the payment scope, many regions lack implementation details. Feng argues that enabling rental payments would not only ease caregiver burdens but also improve elderly quality of life, sending positive signals to the smart eldercare product market.
Feng emphasized that long-term care insurance should primarily fund services rather than cash benefits, citing three reasons: cash is difficult to monitor for actual use on elder care, creates moral hazard by incentivizing people to overstate their disability levels, and may not guarantee access to qualified services since families often lack professional judgment.
She acknowledged that Germany provides cash allowances to family caregivers due to caregiver shortages and the benefits of familiar home environments, but stressed that such arrangements come with management requirements including mandatory training and restrictions on other employment.
Home care versus institutional care varies by region
Feng said the choice between home-based, community-based, or institutional care must be determined by local conditions. In densely populated cities like Shanghai and Nantong, home-based care dominates, reflecting both cultural preferences and economic efficiency, as caregivers can serve multiple elderly people within a small area.
However, in mountainous regions and low population density areas, door-to-door care models are basically not viable, Feng said, because a caregiver might only serve one or two households per day, making costs unsustainable. For many rural elderly, institutional care may be the more practical path, enabling economies of scale and more efficient use of limited caregiver resources.
The transition need not be forced, Feng said, but can be encouraged through economic incentives and gradual changes in attitudes across generations. Some provinces already favor institutional care models, which is appropriate for areas with lower urbanization and population density.
Reducing medical insurance burden
Using Shanghai data, Feng noted that medical insurance expenditures have declined following the introduction of long-term care insurance, indicating a substitution effect between the two systems. Previously, some patients delayed hospital discharge due to concerns about post-surgery care at home, consuming expensive medical resources. With long-term care insurance, these individuals can transition to rehabilitation hospitals, nursing homes, or home care, saving hospital resources and medical insurance spending.
The two systems serve fundamentally different purposes, Feng explained. Medical insurance covers treatment for illnesses, while long-term care insurance addresses long-term daily living support and basic nursing care for those with disabilities. Many disabilities cannot be fully rehabilitated, only managed to alleviate symptoms and improve quality of life over an extended period.
Commercial insurance opportunities and challenges
Feng expressed optimism about the future of commercial long-term care insurance, despite significant challenges from adverse selection. Since commercial products are voluntary without government subsidies, people who anticipate living longer or having chronic conditions are more likely to purchase them, making the risk pool unsustainable for insurers.
International insurers have explored product innovations to mitigate adverse selection, including bundling products with opposite risk profiles, such as life insurance with long-term care insurance, and using big data to better predict future risks. Feng noted that some healthy, health-conscious individuals also purchase long-term care insurance primarily out of risk aversion, worried about being alone in old age or wanting access to higher-end care facilities.
The future development of commercial long-term care insurance may integrate with the social insurance system, Feng said. Social insurance assessments of disability levels could serve as a foundation for commercial products, and commercial insurers could tap into the trained caregiver workforce already established within the social system, while offering higher-quality services and better compensation to attract talent.
Feng concluded that government-led long-term care insurance provides basic protections, but as elderly care needs become increasingly diverse, some families will demand higher quality and richer care services, creating natural space for commercial nursing insurance to complement the social system.