Cash-Out Puzzle and Long-Term Care Insurance: Welfare of the Elderly

Abstract

This study investigates the effects of diverse payment methods within long-term care insurance (LTCI) on the well-being of elderly individuals, encompassing both in-kind and cash payments. Utilizing panel data from the Chinese Longitudinal Healthy Longevity Survey (CLHLS), we leverage a generalized difference-in-differences (DID) approach and the LTCI pilots across various Chinese cities to identify the impacts of different LTCI payment methods. Our findings indicate that an in-kind LTCI policy significantly decreases the one-year mortality of older adults, with significant improvements on ADL-related care receipt as well as health status. Conversely, no significant impacts are observed under the framework of a cash LTCI policy. We term the weaker effects regarding older adults in cash LTCI policy versus in-kind LTCI policy as "the cash-out puzzle". Our findings emphasize the critical importance of developing right incentives of LTCI payment schemes thoughtfully worldwide.

Keywords: LTCI; cash payment; cash‐out puzzle; in‐kind payment.