LTC Bullet: Long-Term Care Insurance in China

Friday, November 6, 2020


LTC Comment: Explore a “Chinese menu” of LTC insurance approaches after the ***news.***

*** TODAY'S LTC BULLET is sponsored by Claude Thau, who provides many unique services to advisors as National Brokerage Director for USA-BGA and to other entities as a consultant, in the individual, worksite and affinity group markets.  For example, his revolutionary “Range of Exposure” tool projects clients’ likelihood (joint for a couple) of spending $100,000; $250K; $500K or over $1,000,000 on long-term care, based on their personal characteristics and estimates how much of their cost in each range would be covered by various traditional or linked insurance designs.  Claude is the lead author of Milliman’s annual Broker World LTCi Survey & a past Chair of the Center for Long-Term Care Financing. You can reach him at 913-707-8863 or ***

*** KUDOS to Bruce Stahl and Winona Berdine of Reinsurance Group of America (a corporate member of the Center for Long-Term Care Reform) for this creative idea highlighted in our recent LTC Clipping:

8/2020, “A Middle-Market Senior Care Solution,” by Bruce Stahl and Winona Berdine, Long-Term Care News
Quote: “Would you like to have an insurance product in your company’s lineup that provides all of the following? • Reaches the middle market, • provides security to generations of family members, • satisfies real customer financial needs and provides them with peace of mind, • minimizes risk in the morbidity tail, • reduces asset and interest rate risk, and • reduces concerns about pandemic risk in facilities.”
LTC Comment: Well, yeah! Click through to read this intriguing proposal.

We hope soon to publish a “Guest Bullet” by Bruce Stahl further developing and explaining this “caregiver insurance proposal. Your comments on the idea are welcome. ***

*** PREDICTING IS HARD, they say, especially about the future. Toward the end of the 2017 Intercompany Long-Term Care Conference in Jacksonville, Florida, which took place shortly after Donald Trump was inaugurated, attendees were invited to answer this question via electronic polling:

Q7. Do you think the next four years will bring an improved economic climate? Or will we see a continuation of low interest rates?
1. Improved economic climate/higher interest rates = 76%
2. Stay pretty much the same = 13%
3. Get worse = 11%

In “LTC Bullet: LTC Policy Poll Results,” on April 14, 2017, I offered my own answer to that question and suggested to readers: “Tickle your calendar to review this prediction on election day, November 3, 2020. I’ll do the same.” Here’s my answer then followed by my comment now.

Then:  “LTC Comment: I think these voters are vastly over-optimistic. I’d agree with the stay-the-same or get-worse minority. The current ‘economic recovery’ is long in the tooth; the ‘Trump trade’ is already petering out as health and tax reform languish; we may already be in a recession; the Federal Reserve’s tightening cycle has nearly run its course; after perhaps one more interest rate increase, the next step is down and most likely we’ll see more quantitative easing (QE4). That means more and more debt. The U.S. dollar is unsupported by real value and very vulnerable; foreign countries that give us real economic goods in exchange for paper (bonds that the U.S. cannot ever afford to redeem) could wise up any time, stop buying our debt, and start selling it; carrying costs on our $20 trillion debt [$27.2 trillion as of today (11/6/20)] will force a reversal of the Fed’s tightening soon, as the economy worsens. The credit bubble inflating for a decade will pop.  Sadly for the Trump Administration, the wages for the economic sins of its predecessors will come due in its first term. (Tickle your calendar to review this prediction on election day, November 3, 2020. I’ll do the same.)”

Now: LTC Comment: QE4 actually turned into QE Infinity. Modern Monetary Theory, as explained and critiqued in “LTC Bullet: Modern Monetary Theory and Long-Term Care,” is sweeping the land. The Federal Reserve has forced real interest rates (nominal rates minus inflation) into negative territory. It appears Trump has been swept out of office and the incoming Biden administration will likely double down on the same inflationary policies. Thus “the wages for the economic sins” of Trump and his predecessors will come due in the term of his successors. We are in for a rough economic ride, exacerbated by the pandemic, but inevitable regardless, because of the irresponsible fiscal and monetary policy of both political parties. ***

*** NOWADAYS, we need clear-eyed analysis of the prospects for long-term care services and financing more than ever. Don’t ingest the “soma” of social insurance purveyed by most of the LTC intelligentsia. If you haven’t already, join the Center for Long-Term Care Reform here. Encourage your company to support the Center as a corporate member. Share our “Membership Levels and Benefits Schedule” with any and all. Join the fight for rational long-term care financing policy. Thanks for your consideration. ***



LTC Comment: With Genworth long hanging on the cusp of sale to a Chinese company, what could be a more timely topic than LTCI in China?

On October 20, 2020 the Society of Actuaries LTCI Section sponsored a webinar titled “Long-Term Care Insurance in China.” Moderator Vincent L. Bodnar, ASA, MAAA, a Partner and Long-Term Care Practice Leader, at Oliver Wyman introduced the program and the panel of three experts, two of whom called in from Beijing at midnight local time. (Vince visited China some years ago, conducted a briefing on the U.S. experience with LTCI, found avid interest there and has followed China’s LTCI experience ever since.)

A recording of the “LTCI in China” webinar should be available to buy on the SOA website soon. Attendees who purchased the original webcast will be able to access the recording for free. But here’s a synopsis of the program for those of you who missed the original and may want to consider obtaining the recording:


Guangyao Liu, FSA
Executive Actuary
China Life Reinsurance Company

Xiaochen Sun
Product Actuary
China Life Reinsurance Co Ltd

Song-Song S. Liao
Song-Song & Associates

Guangyao Liu opened the session with an introduction to China’s “LTC Pilot Program.” He began by summarizing the uniquely challenging demographics his country faces. China has more “baby boomers,” 359 million, born between 1962 and 1975, than the USA has people (328 million). A second wave of Chinese boomers, 374 million, born between 1981 and 1997, is not far behind. With 176 million elderly (over age 65) people, 12.6% of the population as of 2019, China is looking at 28% and 380 million by 2050. In the meantime, China’s birth rate has been decreasing since the 1990s, due in large part to the country’s one-child policy, exacerbating the elderly dependency ratio and resulting in 120 million “empty nest elderly.”

Anticipating the inevitable challenges of providing and paying for the care of this burgeoning elderly population, the Ministry of Human Resources and Social Security/National Healthcare Security Administration implemented a four-year pilot project in 2016 which is expected to be extended this year. The pilot covers 15 cities and 88.5 million people (out of a total of 1.4 billion). It covers 426,000 insureds at an equivalent cost of 1,300 U.S. dollars per person per year. Care provided is 70% home care and 30% facility care.

Problems of the pilot include limited coverage as only seven pilot cities cover rural residents; an imbalance of funding structure, which is highly dependent on China’s government healthcare fund; inadequate professional care services, which cannot meet demand; lack of uniform standards for care service, ADL assessment, etc.; and large variation of program administration across pilot cities ‐ hard to copy to other cities.

But substantial benefits accrue to commercial LTC insurance including a start to educate residents about the concept of long‐term care and raise potential demand; improve care facility development and care service quality; and participating commercial life and health insurers gain experience data and operating expertise.

Xiaochen Sun next discussed commercial LTCI in China, the first example of which, with a “sum assured” benefit, emerged in 2005. In 2010 a product appeared with a benefit structure like “universal life” and 2017 saw a reimbursement or sum-assured benefit directly to care providers. As of 2020, the Chinese commercial LTCI market has 20 players and 40 products.

The big takeaways from this section of the program, as summarized by Vince Bodnar are:

  • China has both standalone and hybrid products, like the US
  • There are two big players in the market today: Taikang Life and Pingan Life
  • Taikang offers a high-end product that gives the policyholder access to its LTC facilities. It looks a little like a CCRC approach.
  • Pingan sells a “trauma-led” product, which is cheap. They sell 10,000 of these policies a month.

Song-Song S. Liao concluded the survey of LTCI in China with an excellent summary of the challenges and opportunities the country faces. For example, there is no clear distinction in China between nursing homes and other levels of care. There is inconsistency in defining and monitoring activities of daily living and benefit triggers. Cultural differences often complicate the business. Admission to a long-term care facility, for example, could be considered a disgrace because of the traditional Chinese belief in the responsibility of the younger generation for the older generation. The potentially unrealistic goal is to have 90% age at home with only 3% depending on institutional care.

Further difficulties include insufficient infrastructure and a commercial insurance industry that is very small compared to China’s dominant social insurance structure. Chinese actuaries are exploring all the approaches tried in U.S. It is not a lack of product ideas limiting product development; it’s that the Chinese infrastructure does not support U.S. LTC products. It may be China requires a product more like what we call “critical illness” insurance. Or a product that only provides cash; not care services. Shanghai pushed out a product like the US model, but can’t sell it. The current infrastructure is the biggest obstacle to design a product for China, but “we all know the need is there.”

Song Song summarized the “Contextual Differences” thus:

• LTC business could mean handling government pilots, not commercial LTC

• Commercial LTC is supplemental to social insurance

• Differentiation between medical/acute care vs residential care vs nursing

homes/SNF settings is not distinct in China

• Regulation and standards may exist but not in full compliance

• Much narrower coverage, more restrictive benefit triggers, and more carve outs in China

• ADL 2/6 vs 3/6 or even 4/6

• E.g. restrict to 12 types of diseases, not including cancer, diabetes.

• Age limits and long elimination period

LTC Comment: Congratulations to the Society of Actuaries and Vince Bodnar for conducting this review of nascent LTC insurance in China. We’ll be hearing much more about this topic over time.