1. Introduction
The global population aging results in increasing long-term care needs, as well as medical expenses. In 2019, 1.5% of the gross domestic product (GDP) was allocated to long-term care across OECD countries (2021) [
1]. In China, the total health expenditure was 7.23 trillion Yuan (1.08 trillion USD) in 2020, accounting for 7.12% of the GDP [
2]. The median values of long-term care costs for mild, moderate, and severe disabilities were 39.46, 8.98, and 20.25 billion USD in 2019; these numbers are expected to reach 141.7, 32.28, and 72.78 billion USD by 2050 [
3]. Since families do not have sufficient time and professional technology to meet the long-term care needs for their families with a disability [
4] and there is a lack of quality nursing institutions, hospital care becomes the substitute for long-term care [
5]. The persons with a disability are likely to stay at hospitals as long as they can, because the expenses for long-term care in hospital can be partly covered by medical insurance. This put enormous pressure on scarce medical resources, resulting in a crowding of hospital resources and rising medical costs [
6].
A public long-term care insurance (LTCI) system is a key policy option of long-term care financing [
7] and would be an effective way to mitigate the pressure on hospital resources [
5,
6]. The implementation of the LTCI may affect the long-term care market through the demand side and the supply side. On the demand side, the LTCI could provide financial support for those in need of long-term care, and thus, the demand for long-term care would increase [
7]. On the supply side, the introduction of the LTCI could help to promote the local long-term care industry and increase the supply of social care service for elderly people. Therefore, more people seeking health care services in hospitals turn to the long-term care market instead. In this sense, the social care service works as a substitute for health care provided in hospitals.
In China, the LTCI pilot program was launched in 15 cities in 2016 and expanded to another 14 regions in 2020 [
8]. Several years have passed, and it is important to find out whether the implementation of the LTCI has an impact on the medical utilization and expenditures in the most populous developing country, which would be of great significance to many developing countries [
7] with a similar population aging problem.
Currently, many studies evaluate the policy effect of the LTCI in China from different perspectives, taking some pilot cities as a case study. Most studies took Shanghai [
6,
9,
10] and Qingdao as case studies [
11,
12,
13,
14], mainly because Qingdao was the first city in China to implement the LTCI, and Shanghai was the most aging city in China [
15]. Additionally, LTCI-related data of Shanghai and Qingdao are available, which has attracted the attention of researchers. Existing studies paid less attention to other cities. Given China’s sheer size and regional socioeconomic differences, it was clearly difficult to implement a one-size-fits-all approach for the LTCI [
16]. It was necessary to make an evaluation of the LTCI in the other pilot cities to find more evidence of the effect of the LTCI implementation.
The disparity between rural and urban areas should also be taken into consideration when evaluating the effect of the LTCI. China is a dual economy [
17], and there are great differences between the rural and urban areas in terms of the economic development level [
18], population aging trend, and medical care infrastructure, all of which are determinable factors of the effect of the LTCI. The ‘left behind’ elderly in rural areas [
19] are in great need of care services, because they receive less informal care support from their adult children [
17]. However, the lower income in rural areas [
20] and the soaring out-of-pocket expenses become a direct financial threat to rural residents and have created a barrier to health care access [
21].
This study aimed to provide more evidence of the LTCI’s effect on the medical utilization and expenditures by using a different case study and taking the urban–rural disparity into consideration at the same time. Specifically, the pilot city of Jingmen was selected as a representative of middle-income cities in Central China for the case study. The purpose of the LTCI pilot is to establish an LTCI system suitable for China’s economic development and population aging trend [
15,
18]. It was shown in the current literature that there are differences in the LTCI schemes between the pilot cities [
15]. LTCI participants in Jingmen City have reached 2.47 million [
22], covering all the residents in Jingmen (including the Urban Employee Basic Medical Insurance and Urban and Rural Residents Basic Medical Insurance participants) [
15]. There are two main reasons for us to choose Jingmen as a case study. First, Jingmen’s economic development is much closer to the national economic development as a whole. Unlike Shanghai and Qingdao, both of which are high-income eastern cities, the disposable income per capita of Jingmen was closer to the national level. In 2020, the disposable income per capita of Shanghai, Qingdao, and Jingmen was 76,437 Yuan (11,409 USD), 55,905 Yuan (8344 USD), and 35,958 Yuan (5367 USD) in urban areas and 34,911 Yuan (5211 USD), 23,656 Yuan (3531 USD), and 19,980 Yuan (2982 USD) in rural areas in 2020 [
23,
24,
25]. The national disposable income per capita was 43,834 Yuan (6542 USD) in urban areas and 17,131 Yuan (2557 USD) in rural areas [
26]. From the perspective of economic development in terms of the disposable income per capita, Jingmen was more suitable to be a representative of China. Second, Jingmen had the same level of aging as the national level. According to the data of the seventh national population census by the end of 2020, the proportion of aging population (over 65 years old) in Jingmen was 16.16%, which was close to the national level of 13.5%.
This paper contributes to the literature in the following ways. First, we evaluated the performance of the LTCI in the Central China, a relatively underdeveloped economy, which might have brought different outcomes from that of the current literature. Second, we took the disparity between rural and urban areas into consideration when making evaluations of the LTCI performance.
2. Literature Review
Previous studies have developed some theoretical framework to analyze the impacts of LTCI on hospital utilization in some developed countries. Forder (2009) [
27] constructed a theoretical framework to analyze the behavior of a utility-maximizing decision-maker under the condition of a budget constraint and came to the conclusion that the service decision in one sector (long-term care service) will be negatively related to service levels in the other sector (hospital service). Gaughan et al. (2015) [
5] developed a theoretical model that augmented stochastic queuing theory with an endogenous demand to explain social care market equilibria with positive waiting times for care home places. The different studies have come to a common conclusion that LTCI could help to reduce the bed blocking by fostering the social care market.
The implementation of the LTCI in China and its performance have attracted interest in the literature [
6,
12,
21,
28,
29]. One of the primary concerns associated with the performance of the LTCI pilot program is the impact on the medical utilization and expenditure. Lei et al. (2022) used the panel data from the Chinese Longitudinal Healthy Longevity Survey (CHARLS) to examine the impact of China’s public LTCI on the well-being of older adults and their families and found the LTCI reduced the amounts of activity of daily living (ADL)-related need for care expenditures and the out-of-pocket medical expenditures [
21]. Feng et al. (2020) used the medical insurance data to examine the effect of the LTCI in Shanghai and found that the implementation of the LTCI significantly reduced the inpatient expenditures and reimbursement expenditures in tertiary hospitals, indicating that the spending on the implementation of the LTCI will generate a decrease in inpatient expenditures and helped to improve the allocation of health insurance funds [
6]. Lu et al. (2017) found that the LTCI system will greatly relieve the pressure on hospitals caused by aging patients and systematically distribute medical resources in the long run. To sum it up, the implementation of LTCI led to a reduction in costs to all stakeholders, including the government-subsidized medical insurance and the individual [
11].
Another concern associated with the performance of the LTCI is the income disparity between urban and rural areas. Lei et al. (2022) showed that lower-income older adults benefited more from LTCI coverage, suggesting that LTCI helped reduce gaps in access to LTC between the non-rich and the rich. This provided evidence of the LTCI affecting the lower-income rural residents [
30]. In addition to the inequality of income, the uneven distribution of health resources, inadequate government investment in health care, weak government supervision and administration of the health care sector, and marketization of public medical institutions could lead to expensive and unevenly distributed care services [
20]. For example, it was found that elderly people in rural areas were less likely to obtain community-based care services [
29] and hospital admission than those in urban areas [
31]. In light of the great disparities between urban and rural areas, we researched into the heterogeneous effect of the LTCI in the two areas. Since the implementation of the LTCI could make greater improvement in catering for the caring need in rural areas, is it possible that the medical utility and expenditure was reduced more than those in urban areas? This study is an attempt to find the answer to this question through making comparisons of the LTCI effects between urban and rural areas. The marginal contribution of this study is to provide a basis for formulating different LTCI policies in rural areas, so as to narrow the gap between rural and urban areas in obtaining LTC [
30].
3. Theoretical Framework
To explain the effect of the LTCI on the medical utilization, we used the following model with reference to Forder (2009) to explain the substitution effect of the LTCI. Suppose a person in need of long-term care has the following utility:
where
h is the health care consumption, which is supplied by hospitals or social care services.
is the health care services in hospitals, and
is the social care services covered by the LTCI. δ is the other factors influencing the health care consumption, including the availability of informal care, economic prosperity, and so on.
is the non-care composite good that will also affect the utility.
We assume δ as an exogeneous variable. In a given long-term condition of δ, a decision-maker has the budget of
, and the constraints facing a decision-maker would be:
where
is the cost of activity
,
are prices. For every decision-maker to maximize the utility, the general conditions:
As
,
,
by assumption (with
and
). Similarly,
With Cournot–Nash equilibrium,
The degree of substitution between the health care in hospitals and the social care service covered by the LTCI could be reflected in the second differential:
If hospital service and social care services are technical substitutes at the margin, then we expect i.e., more social care provided by home service or institutional service would reduce the utilization of care services in hospitals. The relationship between the two provisions of care will depend on the conditions of decision-makers and the treatment regime of care services in hospitals and social care services covered by the LTCI. Hospitals have an advantage in treating disease but not in providing long-term care, which means that long-term care provided by other institutions could be a substitute.
, where
. The care services in one sector will be negatively related to service levels in the other sector. Therefore, we have the hypothesis that the implementation of the LTCI will reduce the visits in hospitals.
This analysis means that if the person increases the consumption in one sector, the consumption in the other sector would be reduced so that it can redirect its resources elsewhere. More specifically, the implementation of the LTCI will increase the supply of social care service, and thus, the hospital resources could be allocated elsewhere rather than be occupied by those in need of long-term care.
6. Discussions
This study found that the implementation of the LTCI significantly reduced the annual inpatient visits and expenses, which is consistent with the findings in previous studies [
6,
9,
11]. This implied that the LTCI played a role in reducing the medical care usage and expenses and the burden of the social medical facilities. First, the reduction in the inpatient service and expenses indicated that the LTCI helped to alleviate the pressure on the medical utilization. This effect would be explained by the fact that the disabled older adults substitute formal long-term care for hospitalization [
5,
6,
38]. If the LTCI solved the problem of insufficient demand for LTC, it can prevent the overuse of hospital resources. Second, more hospital resources could be devoted to the provision of high quality of primary health care in China, which helped to improve the health status in the end [
39]. Based on the local health insurance claim data, Feng et al. (2020) and Lu et al. (2022) showed that the inpatient expenditures in Shanghai and Qingdao were greatly reduced since the introduction of the LTCI. Lei et al. (2022) found the LTCI increased the likelihood of reporting good health and a lowered mortality risk. Those studies showed that the health status and well-being was improved.
This study also found for the first time that the implementation of the LTCI in China had a significant different effect between urban and rural area. The social welfare with the provision of LTCI in rural areas is greater than that in urban areas. The outpatient visits and expenditure decreased in rural areas but increased in urban areas. The possible explanation is that the prevalence rates of unmet LTC needs were higher among those in rural areas compared to those in urban areas [
16]. Covering LTC needs largely depends on family support, health insurance coverage, and private savings [
16]. Dong et al. (2010) pointed out that rural population reported markedly lower levels of quality of life and higher levels of psychosocial burden. All the above-mentioned sources are not highly available to rural residents [
18]. First, modernization, demographic shifts, and the massive outmigration of young people to cities for work have weakened the supportive functions of families [
12,
40]; second, the health insurance schemes are fragmented based on the Hukou status, which generates inequitable health care utilization [
19], and the current health insurance schemes have failed to reduce the inequality of income in elderly patients requiring LTC [
20]; third, the difference of the disposable income per capita between urban and rural areas is large [
26], which also reflects the disparity of the ability to afford long-term care from private savings. Compared with urban areas, the social pension resources and medical resources in rural areas are scarce, and the long-term care service system lags far behind urban areas [
17,
20,
31]. The implementation of the LTCI in rural areas increases the supply of the long-term care services in rural areas, which helps to reduce the urban–rural gap in the availability of community care service [
29].
The increase in the outpatient visits and expenditures in urban areas could be explained by the following facts. First, urban residents have a stronger awareness of insurance and health than rural residents [
40,
41]. Compared with rural residents, urban residents have higher incomes on average [
18,
40]. The access to a higher disposable income increases people’s capacity to pay and their predisposition to purchase insurance [
42]. Second, it is possible that the introduction of the LTCI made the awareness of health insurance improved, which further widened the gap in health insurance awareness between urban and rural areas, because urban residents have more information and knowledge of medical insurance. Third, the medical resources available to urban residents may make people be more inclined to go to outpatient clinics and hospitals for treatment. Fourth, although the implementation of the LTCI in this study showed that the medical expenses and frequency are reduced, there are many studies revealing that it may increase the medical expenses on the other hand [
43]. Just like medical insurance, LTCI can lead to excessive medical problems. Long-term care insurance provides a high proportion of compensation for elderly care services and reduces the burden of personal care [
7]. On the one hand, the previously unmet nursing care demand will be partially transformed into a demand for medical care, resulting in the rise of overall nursing expenses. On the other hand, it indirectly improves the income level by saving elderly nursing expenses, so as to increase the medical demand.
To sum it up, the effect of LTCI on medical expenses depends on the substitution effect and excessive medical effect. Although it is clear in this study that LTCI generally reduces the expenses of hospitalization, it is necessary to study the two effects of LTCI separately so that the cost and benefit of LTCI can be evaluated more precisely, which helps to formulate better LTCI policies. In addition, since rural residents are in greater shortage of financial support and LTC facilities than urban residents before the implementation of LTCI, the effect of implementing the LTCI in rural areas is greater than that in urban areas.
7. Policy Implications
The findings in this study have the following policy implications. First, it is recommended that the LTCI should be extended to cover more population in order to mitigate the pressure on hospital utilization. Generally speaking, the implementation of the LTCI helps to reduce the residents’ hospital expenditures and utilization. This implies that implementation of the LTCI is a great way to alleviate the shortage of hospital beds and the shortage of hospital utilities. The LTCI shall be promoted nationwide so that more people will benefit from it. China’s hospitals are under-resourced, and the bed-blocking problem will become more serious with the population aging, especially during the period of the pandemic. Up to 2020, the population in China is 1412 million, while the hospital beds are 9.10 million. According to the National Health Commission of the People’s Republic of China (2021), there were, on average, 6.46 hospital beds per 1000 people in 2020. In Jingmen (6.49 beds per 1000 people), the rate was close to the national level [
23]. China, including Jingmen, had fewer hospital beds per 1000 people than the other two northeast Asian countries, Japan (12.8 beds per 1000 people) and Korea (12.4 beds per 1000 people) [
1]. China’s population is aging rapidly, and the share of the population aged 65 and over will increase more rapidly than in OECD member countries—more than doubling from 11.5% in 2019 to 26.1% in 2050. At that time, it is beyond the hospital’s capability to provide sufficient beds to elderly people without a good arrangement for LTC. As a policy option to alleviate bed-blocking in hospitals, the LTCI should be promoted to more areas.
Second, in consideration of the heterogeneity between the rural areas and urban areas in China, the implementation of the policy should be adjusted to the local conditions. The policy makers need to promote community care and the LTCI to relieve the burden of families of disabled elderly people, and particular attention should be given to the rural elderly people. It is suggested that more community-based care center could be built up to cater for the need of medical demand in the rural areas as a measure to solve the problem of medical resources deficiency [
29].
Third, it is necessary to build up a long-term care service system so as to increase the supply of LTC and the expansion of the LTCI. The government should be committed to providing training for nurses and encouraging capital to enter the long-term care industry, since the LTCI could had a very limited effect without a growing number of beds in LTC institutions [
28]. The LTCI programs should be promoted by increasing reimbursement levels, developing a uniform standard of disability evaluation, relaxing the eligibility criteria, for example, to allow for the inclusion of people with dementia [
16]. These measures help to increase care services on the one hand and providing financing support for long-term care on the other, which benefit meeting the long-term care demand.