Services and Cash: How Long-term Care Insurance Benefit Design Affects Household Behavior in China

Miao Guo (), Yang Li (), Minghao Wu () and Terence C. Cheng ()
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Miao Guo: Hunan University
Yang Li: University of Nottingham Ningbo China
Minghao Wu: China Life Insurance Company Ltd.
Terence C. Cheng: Harvard T.H. Chan School of Public Health & Monash University

No 2024-13, Working Papers from Centre for Health Economics, Monash University

Abstract: This study analyzes the effects of China’s long-term care insurance (LTCI) benefit design on household consumption and intergenerational support. The program provides two benefit options: in-kind benefits (or services) and cash allowances. We introduce a conceptual framework to analyze economic decision making under the two types of LTCI benefits. Using an empirical framework that exploits variations in LTCI benefit designs across China’s pilot cities, we find that both types of LTCI benefits increase household consumption and reduce medical expenditure. Specifically, ‘mixed’ benefits households – those with a choice between in-kind and cash benefits – significantly increase spending on food and housing, while households receiving services spend more on housing, transport, and clothing. Additionally, in-kind benefit recipients report receiving lower informal care from their children, implying a substitution with formal care. Households with mixed benefits experience a decline in financial support from children, suggesting a crowding-out of intergenerational transfers. Finally, we estimate income and sub-stitution effects that are implicit in recipients’ behavior to analyze welfare implications under China’s LTCI.

Keywords: Long-term Care Insurance; Benefit Design; In-kind Benefits; Cash Benefits; Household Consumption (search for similar items in EconPapers)
JEL-codes: D10 I11 I13 I18 (search for similar items in EconPapers)
Date: 2024-08
New Economics Papers: this item is included in nep-age, nep-cna and nep-hea
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