Can Private Insurers Stimulate the Function of Public Long-Term Care Insurance? Insights From China

In many countries, including China, private insurers are increasingly involved in public long-term care insurance (LTCI) to stimulate its functioning. Our article examines this novel approach from an economic perspective. We then use this framework to evaluate the risk differentiation and control practices of China's 15 LTCI pilots. Using these practical cases, we find that the private insurers' strategies for risk differentiation and control of adverse selection should be restricted, as they may contradict the public policy goals of solidarity and equal access to long-term care. Conversely, the strategies to address moral hazard, particularly in case of small risks and when carefully designed, could better reconcile the public policy goal with the economic goals of cost reduction and providing incentives to avoid overutilisation. Overall, a better strategy may enable private insurers to efficiently utilise their risk management capacity, without severely undermining the public aims of LTCI.