The impact of long-term care insurance on the utilization of inpatient service: Evidence and mechanisms in China

Abstract

This paper empirically investigates the impact of public long-term care insurance (LTCI) on the utilization of inpatient services and associated expenditures among disabled Chinese individuals, using data from the China Health and Retirement Longitudinal Study from 2011 to 2018. Employing a staggered difference-in-difference approach within a propensity score matching framework (PSM-DID), the study finds that the introduction of LTCI significantly reduces the likelihood of inpatient service usage by 4.2%, the annual number of inpatient admissions by 10.2%, the annual inpatient cost by 16.2%, the out-of-pocket expenses by 20.7%, and the reimbursement expenditure by the public medical insurer by 9.9%. The study further explores the mechanisms underlying these effects and identifies that the Substitution Effect, where care services in community healthcare centers and nursing homes replace hospitalizations, outweighs the Income Effect generated by LTCI benefits. By leveraging the quasi-natural experimental setting of diverse LTCI policies across cities, the study also examines the heterogeneous impacts of LTCI based on household income, eligibility criteria, and reimbursement methods. The findings underscore the positive role of LTCI in controlling medical expenses and alleviating congestion in urban hospitals, offering valuable insights for promoting “Healthy Aging”.