Marketizing China’s Elder Care Conundrum; Rising demand for nursing homes and other senior care services has forced policymakers to seek market solutions

09.20.2013 17:23

Marketizing China’s Elder Care Conundrum

Rising demand for nursing homes and other senior care services has forced policymakers to seek market solutions

By staff reporter Lan Fang

(Beijing) — Weaving market forces into the complex tapestry of health care services for China’s growing population of senior citizens – including the poor and feeble – has emerged as a definitive goal for government policymakers. “Marketization” was stressed by the State Council, China’s cabinet, in a policy document released in mid-September that focused on the need to “accelerate development of the senior care service industry.”In seeking to match words with action, the State Council delegated dozens of related tasks – with timetables for completion – to social service offices, tax bureaus, land management departments and health care organizations at various government levels nationwide.

Moreover, Beijing is encouraging local governments to create special enterprise zones for market-led senior citizen care services. The plan calls for working closely with private companies, testing services and encouraging service as well as financial innovation.

The country’s demographics underscore the enormous potential for senior care services. About 14.3 percent of the population, or some 193 million people, were aged 60 or over at the end of last year, according to census figures. That slice of the population pie is expected to expand to 34 percent by 2050. The Ministry of Civil Affairs estimates 36 million seniors nationwide are disabled or partially disabled, which means their health needs require special attention.

Beyond those very few wealthy enough to cover their own costs, most retirees are subject to a pension and health care system that allocates subsidies and services based on a person’s home residence and employer. Former government workers in Beijing, for example, generally receive more benefits than rice farmers too old to work in Jiangxi Province.

Since extended families provide the traditional safety net for elderly people, government social service subsidies have never been high. Yet governments in some parts of the country do indeed provide nursing homes and other care services, financed via tax receipts, on a limited basis. And the number of nursing homes has been rising since 2010, when the central government started pushing local governments to do more for their elderly neighbors.

What’s needed next, according to policymakers, is an expansion of the current elder-care program that brings entrepreneurs on board and builds a nationwide, market-style service sector catering to the special health needs of the aged.

Bureaucratic Hurdles

The State Council’s directive cleared a path for local governments, health insurers and enterprises with a possible stake in elder care to start exploring their options for participating in the initiative.

Central government agencies are looking closely as well, but not always from the same perspective.

The Ministry of Civil Affairs, for example, and the State Committee on Aging, which is supervised by the State Council, have taken the position that long-term nursing home care should be covered by the national social security system. Officials argue that broadening social security in this way would more evenly disperse health care risks, increase service capacities and take some of the pressure off the standard health insurance system.

In 1995, the German government added long-term nursing care insurance to the nation’s basic social security system. American health insurance providers offer long-term nursing care coverage, and governments in Japan and South Korea have heartily supported public and commercial nursing home insurance.

Diverging views about the value of nursing home insurance in China, however, have been expressed by the Ministry of Human Resources and Social Security (MHRSS) and the Ministry of Finance. Officials at these ministries contend that the five existing social benefits tied to nationwide social security, including pension payments and medical coverage, are already facing financial pressures due to limited resources. Adding long-term nursing home care to the social insurance mix, they say, would be unreasonable.

These and other issues were discussed at executive meetings of the State Council, including an August 16 meeting where the council voiced a determination to “deepen reforms and accelerate development of the senior care service industry.”

At a separate executive meeting on August 29, according to meeting minutes obtained by Caixin, officials discussed opening the door to market activity in social capital investments tied to the health sector, including pensions.

In May, at a forum in Beijing, Premier Li Keqiang called for “loosening restrictions” on “institutions and systems” that he blamed for stagnating service industry development.

Indeed, included in the central government’s five-year plan released in 2010 was a call for a safety net of basic health services for the elderly, with enterprises playing a leading role. Instead of subsidizing nursing homes, the plan said, the government should directly needy individuals who could then choose non-government service providers.

Marketization of senior care services was said to be the first step toward transforming other public service sectors including education and medical care.

But policymakers in general acknowledge that the country remains in the research and exploration phase that comes before nursing care insurance or health services for the elderly can be introduced nationwide.

Private Push

Existing nursing homes are public, government-subsidized facilities that care for about 7 million people nationwide. And the number has increased since the government’s 2010 directive, with local governments spearheading construction of new facilities to meet five-year plan goals. So far, nationwide elder care beds total to about 4 million.

These facilities in general have been criticized for inefficient management and poor services by, for example, the National Development and Reform Commission’s Social Development Institute, which issued a report on the state of nursing care.

The institute’s report cited a lack of competition among service providers and a need for performance-based salary structures covering employees at state-run nursing homes. Without these and other changes, the report said, nursing care would continue suffering from slipshod management, overstaffing and rigid operations.

Wang Hui, director of the Department of Social Welfare and Charity Promotion under the Ministry of Civil Affairs, told participants at the Sino-Japanese Symposium on Aging in September that China needs about 10 million nursing home beds.

To date, Wang and other officials say the government cannot afford the steep costs for nursing home construction projects, estimated at about 100,000 yuan per nursing home bed, or about 600 billion yuan nationwide to meet current demand. Staffing nursing homes would be expensive as well, since at least 10 million caretakers would be needed if enough beds open to meet current demand.

“We’re short on money, and we’re short on people,” said Wang.

To remedy the capital shortage, Wang has joined the ranks of government leaders advocating private investment. Government-run operations, he said, should be replaced with nursing homes built on cooperation between the government, social entities and the markets.

Wang sees two frames of reference for the reform path. The first is tied to the economic reform and opening up campaign, which began in 1978 and has fostered growth for the private economy while spearheading market-oriented reforms at state-owned enterprises.

A second reference frame can be found in the evolution of the hotel industry. Over the past 30 years, the industry has shifted from one based on state-run guesthouses to a vibrant sector with a wide variety of consumer-oriented hotels catering to every taste and budget.

Wang thus argues that the groundwork has been laid for nursing homes built with public funds but operated by private companies. Such a system, he said, could help the government meet its goals by providing good health care for more seniors.

But private enterprises will not invest without profit potential based on market demand. And the private sector has so far shown little interest due to the fact that seniors have limited financial resources; the MHRSS reported that company retirees received an average 1,900 yuan a year in pension payments last year.

A local government hands each area senior citizen an average 200 yuan a month as a pension, which is far from enough to cover the needs of an elderly person who is disabled or has serious health woes.

To make private investment more attractive, Wang said, the government is discussing changing the nursing home financing system.

Until now, the government has appropriated money with no strings attached. A more efficient method, however, would involve indirect government investing and attracting private capital attached to industry funds. The government is also exploring asset securitization and exit mechanisms for funds that would encourage such investments.

More private participation would simplify investment guarantees for the pension service industry. And tax receipts and fiscal positions could improve, as a government would reduce or in some cases eliminate administrative costs, while cutting out tax cuts on public utilities such as water and electricity.

The State Council’s latest document says nursing homes must be included whenever a new urban area is built. Existing urban and residential areas must add facilities through various means.

These requirements for nursing homes, Wang said, are not unlike government rules that stipulate construction of schools and kindergartens to accommodate the number of people living in any given neighborhood.

Among policymakers in Beijing, a consensus has been reached that says disabled seniors who cannot afford basic care should be subsidized by the government. In the past, the government covered such seniors via direct subsidies to public nursing facilities, which in turn provided housing and care to seniors who did not qualify due to their hukou, or social registration, status.

The government has also clearly expressed its intention to phase out blanket subsidies to focus on providing subsidies to those in need. Wang said all local governments have been asked to carefully explore pension service, long-term care and basic living subsidies for the elderly, with all payments going directly to seniors who need care.

In this way, then, marketization would not apply to the government’s push to support the nation’s neediest elderly citizens. But gradually these services could be absorbed into the facilities run by enterprises but built by the government.

Industry insiders say government institutions probably will be needed to make sure funds allocated to “subsidize the needy” will reach those seniors who are truly in need. Many who receive subsidies even today are in relatively good health, they say, which means expanding the eligibility range could spread the government’s capital unnecessarily thin.

In other major countries, government subsidies are based on factors such as a senior citizen’s income level and physical condition. For China, the civil affairs ministry August 1 adopted a similar stance by issuing guidelines that encourage local governments to collaborate with professional and social organizations to evaluate senior citizen needs in each community. The document is expected to provide the basis for all future subsidies and senior care programs.