Measuring financial risk protection in long-term care insurance among older adults: quasi-experimental evidence from China

Protecting households from financial risk is widely accepted as a desirable objective of health system, and the same goes for Long-Term Care Insurance (LTCI). However, LTCI’s potential effect on household financial risk protection, still remains unclear. This study aims to systematically evaluate the effects of LTCI and its different benefit compensation strategies on financial risk protection, examining the mechanisms. A quasi-experimental design was employed using nationally representative data from the China Health and Retirement Longitudinal Study in 2015 and 2018. Financial risk protection was measured by catastrophic health expenditure (CHE) among households aged 60 and above. A total of 3,733 households were included. A difference-in-differences (DID) analysis was performed to identify the LTCI effects, with robustness checked by coarsened exact matching. Bootstrap-based mediation analysis was conducted to test the mechanisms, including substitution effect (outpatient and inpatient service utilization) and the income effect (per capita household income). The CHE incidence decreased by 6.62% before and after LTCI implemented in the pilot group (18.82% vs. 12.20%), whereas it increased by 3.25% in the non-pilot group (15.16% vs. 18.41%). DID analysis found that a reduction in CHE incidence was statistically significant after LTCI was piloted (OR: 0.384, P < 0.01). The mixed benefit compensation (combining service and cash benefits) statistically reduced CHE incidence (OR: 0.402, P < 0.01), whereas the service-only benefit compensation did not (OR: 0.290, P > 0.05). Mediation analysis showed that the indirect effects were statistically significant in outpatient service utilization (− 0.026, P < 0.001), inpatient service utilization (0.031, P < 0.05), and per capita household income (− 0.011, P < 0.05), mediating the association between LTCI and CHE. LTCI enhanced financial risk protection for households with older adults in China through the dual pathways of substitution effect and income effect. Furthermore, its protective role was particularly significant in mixed benefit compensation strategy. The study suggests that universal coverage for LTCI should be prioritized on the agenda and policymakers should strive to adopt flexible benefit compensation strategy to enhance the role of LTCI in protecting households against financial risks.