Supply expansion of Long-Term Services & Supports: Evidence from China's long-term care insurance pilot

This study investigates how public long-term care insurance (LTCI) fosters market expansion in the Long-Term Services and Supports (LTSS) industry. Using a Difference-in-Differences regression approach and leveraging China's business administrative data, we observe an increase of 10 firms entering markets where the LTCI pilot policy is implemented. We develop a structural model of an entry game incorporating discrete location choices to analyze entrants’ strategic behaviors. Our structural estimates indicate a high barrier to entry in the LTSS industry. However, China's LTCI pilot program offers substantial profitability incentives, equivalent to approximately 41% of the entry costs, effectively motivating market entry. Our robustness checks confirm LTCI's consistent positive effect on market entry and highlight high entry costs as a key barrier. Counterfactual simulations show that nationwide LTCI implementation and a lower entry barrier would significantly expand the LTSS market, with geographically targeted policies – especially income equalization and localized incentives – being effective in enhancing regional development. These findings highlight the critical role of public policy in stimulating the development of the LTSS sector as global demand increases.