Universal Insurance with In-kind Transfers: The welfare effects of long-term care insurance in Japan

This study assesses the welfare implications of Japan’s public long-term care insurance (LTCI) system, focusing on the significance of a universal insurance system with in-kind benefits, in a rich overlapping generations model characterized by two-sided altruism. The welfare effects of the LTCI reform are influenced by caregiver labor productivity and generosity of the means-tested welfare program. When caregiver productivity is low, universal LTCI offering cash benefits can improve welfare more effectively than a system with in-kind benefits, despite the positive impact of the in-kind policy on caregiver labor supply. Cash benefits can maintain positive welfare effects while simultaneously reducing government spending on LTCI. Eliminating universal LTCI transfers the burden of care to families and increases reliance on welfare programs, partially offsetting reductions in government expenditure.