Against the backdrop of rapid population ageing and the rising demand for long-term care services, establishing a stable and sustainable long-term care system has become an important component of actively responding to population ageing. As an institutional arrangement designed to provide social risk-sharing protection for individuals with long-term care needs, long-term care insurance (LTCI) may not only alleviate households' financial constraints in obtaining care services but also influence the development of formal care supply. However, whether and how LTCI expansion generates supply-side responses in the elderly care service sector remains insufficiently understood. This study examines the impact of LTCI expansion on the supply of elderly care institution beds and explores the conditions under which such effects emerge.

Using an unbalanced city-level panel dataset covering 2012-2016 and 2021-2023, this study regards the nationwide expansion of LTCI pilot programs in 2020 as a quasi-natural experiment and employs a difference-in-differences model to identify the causal effect of LTCI expansion on elderly care institution bed supply. The main sample excludes cities that had implemented LTCI before 2020 and compares cities newly included in the 2020 expansion with cities that had not introduced LTCI by 2023.

The results show that LTCI expansion is associated with a statistically significant increase in the absolute number of elderly care institution beds. In the fully controlled specification, newly added pilot cities had, on average, about 3535 more beds during 2021-2023 relative to non-pilot cities. The results remain robust after the robustness tests including sample restrictions, inverse-probability weighting, placebo timing tests, and random reassignment of treatment status. Further analysis shows that the number of elderly care institutions increased, whereas average beds per institution did not change significantly. The expansion therefore mainly took the form of an increase in the number of institutions rather than the enlargement of existing institutions. Heterogeneity analyses show that the positive bed response is concentrated in cities with stronger pre-policy elderly care service foundations and greater fiscal capacity. Cities with higher levels of population ageing do not display a stronger response, indicating that demographic demand alone does not necessarily translate into additional institutional capacity.

This study contributes to the literature in several ways. First, it shifts the analysis of LTCI to city-level provider capacity, providing evidence on the supply-side consequences of a demand-side social insurance program. Second, by distinguishing between increases in the number of institutions and enlargement of existing institutions, the study identifies the main form through which elderly care bed capacity expands following policy implementation. Third, the study places demographic demand and local supply-side conditions within a unified analytical framework and shows that stronger ageing pressure does not automatically translate into a larger supply response. The effectiveness of LTCI in promoting elderly care supply depends on whether local governments and service systems possess sufficient institutional foundations and fiscal capacity to absorb the increased demand generated by insurance coverage. Finally, the findings provide empirical evidence for understanding the broader supply-side effects of LTCI and offer policy implications for improving long-term care systems in the context of population ageing.