Insuring Long-Term Care in Developing Countries: The Interaction between Formal and Informal Insurance

TL;DR

This study examines how public long-term care insurance in China affects workers' labor supply, revealing limited impact when informal insurance is prevalent but highlighting its growing significance.

Contribution

It provides empirical evidence on the interaction between formal and informal LTC insurance in developing countries, focusing on labor supply effects in China.

Findings

Public LTC insurance reduces labor supply among eligible workers.

Impacts are insignificant for those with strong informal insurance.

Formal care use increases with insurance rollout.

Abstract

Does public insurance reduce uninsured long-term care (LTC) risks in developing countries, where informal insurance predominates? This paper exploits the rollout of LTC insurance in China around 2016 to examine the impact of public LTC insurance on healthy workers' labor supply, a critical self-insurance channel. We find that workers eligible for public LTC insurance were less likely to engage in labor work and worked fewer weeks annually following the policy change, suggesting a mitigation of uninsured risks. However, these impacts were insignificant among those with strong informal insurance coverage. Parallel changes in anticipated formal care use corroborate these findings. While our results reveal that public LTC insurance provides limited additional risk-sharing when informal insurance predominates, they also underscore its growing importance.