From security to spending: how China's long-term care insurance pilot drives urban household consumption

As China confronts rapid population ageing and rising demand for older people's care, the establishment of a comprehensive long-term care insurance system has become an important institutional innovation. This study explores whether and how the implementation of the long-term care insurance pilot policy affects urban household consumption, a key component of domestic demand.

This study employs a Difference-in-Differences approach based on panel data from 232 prefecture-level and above cities in China between 2011 and 2018 to identify the causal effect of the long-term care insurance pilot. The analysis further investigates the underlying mechanisms, including the expansion of public healthcare services, the enhancement of urban innovation capacity, and the improvement of wage levels. It also examines heterogeneity across different city types and spatial spillover effects.

Empirical evidence suggests that the implementation of the long-term care insurance pilot has a statistically significant positive impact on urban residents' consumption, increasing it by 7.35 per cent, equivalent to approximately 206.14 yuan. This effect is primarily driven by the reduction in informal care burdens, the rise in labour market participation, improved accessibility of medical services, and the enhanced application of technology in the care industry. The impact is more pronounced in cities with net population inflows and broader pilot coverage. Specifically, the introduction of the long-term care insurance raises urban residents' consumption by 8.22 per cent and 8.44 per cent in these cities, corresponding to 240.82 yuan and 236.68 yuan respectively, whereas such effects are not evident in cities with population outflows or narrower pilot coverage. Furthermore, the policy exhibits a notable spatial spillover effect, increasing the consumption levels of neighbouring non-pilot cities by up to 9.86 per cent, approximately 275.16 yuan.

These findings highlight the economic significance of long-term care system reform. Beyond meeting the care needs of an ageing population, the long-term care insurance pilot serves as a policy tool to stimulate consumption, promote employment, and narrow regional disparities. The spatial spillover effects suggest that scaling up the program may generate broader regional benefits, providing valuable insights for the further development of China's care system and social security reform.