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Japan's Long-Term Care Insurance System Faces Overhaul: Straining to Meet Demand, Lawmakers Set to Make Changes

Andrew M. Saidel President
Dynamic Strategies Asia, LC

Japan’s long-term care insurance (LTCI) system, launched in April 2000, is under strain and facing significant changes. The law that created the LTCI system mandated a set of revisions in five years, 2005. Japanese lawmakers and ministry officials are beginning that process, and the end result may well look more like an overhaul than incremental reform. The Ministry of Health, Labour and Welfare (MHLW) opened a new policy “headquarters” in January to coordinate the deliberations. A senior ministry advisory group will issue formal recommendations before the fall of this year, and then the ministry will draft legislation for passage in the Diet during the spring 2005 session. If all goes well, the revamped LTCI system would take effect in April 2006. However, many observers anticipate a very heated political debate.

LTCI in Japan is currently financed in several ways. Citizens pay ten percent out of pocket for most services, with taxes and insurance respectively covering half of the remaining 90 percent. There are two stages of participation. Citizens aged 65 or older pay on average $30 per month, depending on where they rank on a five-tiered personal income scale. This fee also varies based on the local area and service type. Citizens aged 40 to 64 pay on average $31 per month through employers’ payment of their health insurance premiums. The employer pays half of the amount.

Japanese leaders are grappling with stark budget numbers. In Japan fiscal year (JFY) 2001, the nation’s annual social welfare expenditures, including pension, health insurance and LTCI, topped $800 billion for the first time. This figure also set a record as a percentage of national household income, reaching 22 percent.(1) According to MHLW documents, 3.74 million citizens were enrolled in the LTCI system as of November 2003.(2) LTCI outlays in JFY 2004 will reach over $50 billion, an increase of 1.7 times over the first four years of the program. By 2025, based on current projections, the cost will increase to just under $200 billion per year.(3)

Against this backdrop, policy makers are now considering various options for changing the LTCI system. The choices span three major alternatives:

  • cutting or re-orienting benefits,
  • raising premiums, or
  • increasing the number of citizens paying into the system, either through insurance or taxes.

All of these measures carry potential political risk for the ruling coalition, and it is too early to tell which course the government will take.

MHLW is now focusing on changing benefits as one of the pillars of its reform package. According to media reports, the largest cause of rapidly rising cost is the heavy usage of the LTCI system by citizens with relatively low levels of care needs. For the system, this creates a very expensive, indeed an unsustainable, dynamic. The LTCI system currently divides care levels into six categories, beginning at a very low level of need and ranging to near total dependency. Of the roughly 3.4 million citizens enrolled in the LTCI system in March 2003, approximately 45 percent are in the lowest two categories of this six-tier framework. The system will reimburse 90 percent of cost, including food and board, if an LTCI user is living in a registered long term care facility. However, if that same user is residing at home and receiving home care services, the system will only reimburse for the cost of the care itself.(4) It is cheaper for the user to check in to a facility, even if there is only a low level of care needed.

Raising premiums is also an option, but many politicians are opposed to this step, particularly for older users. With parliamentary elections scheduled for this summer, increasing the financial burden on older voters will probably be the least discussed of the three alternatives. As mentioned above, the national average for LTCI premiums is just over $30 per month, but many citizens are now paying closer to $50 per month. In some prefectures with lower populations, for example, the number of long term care facility users has already outpaced the local government’s ability to pay its share of the cost.(5) Therefore, premiums rise at a faster rate than in other prefectures, causing local politicians to stridently oppose further increases.

MHLW is now studying ways to expand the system, but the ministry is meeting stiff resistance. If, for example, a new layer of payers in the 20 to 39-year age bracket was introduced in the system, the LTCI premiums for older citizens could be significantly reduced. This step would, in all probability, necessitate adding disability benefits to the system for these younger users. Not surprisingly, the business community is voicing strong disagreement over this option. Corporate employers would be forced to pay more as their share of premiums, on top of increases in pension outlays that are sure to be mandated by ongoing pension reform measures. Furthermore, hiking the burden on consumers between the ages of 20 and 39 would almost surely dampen domestic consumption - this age group contains millions of young, unmarried spenders - just at a time when the economy is attempting to defeat deflation.

Public opinion on expanding the number of LTCI premium payers appears to be mixed at best. According to a poll conducted in 2003 by Yomiuri Shimbun, Japan’s largest daily newspaper, only 21 percent of respondents favored including citizens in their 20s in the system. On the other hand, 58 percent of respondents favored maintaining the current age groups. Significantly, 72 percent supported covering additional costs by raising taxes, whereas only 38 percent favored expanding the number of users.(6)

The debate over which course, or combination of options, to select is already causing powerful stakeholders, including the business community, to call for a comprehensive approach to social welfare reform. In fact, the ruling coalition and individual political parties have repeatedly examined how to systematically approach pension, health, and LTCI changes. Due to the significant political sensitivities in each area, and the ongoing fragility of the Liberal Democratic Party, politicians have been unable to reach substantive conclusions. The LTCI challenge may prove to be a harbinger of even more difficult choices to come for politicians. Given the structural challenges facing the Japanese economy, and consequent ongoing fiscal constraints, these choices are sure to grow even starker for the Koizumi Administration over the next 12 months.

The views expressed in this article do not necessarily represent the views or policies of AARP

(1)NikkeiNet, December 2, 2003
(2)NikkeiNet, February 25, 2004
(3)Nikkei Shimbun, January 8, 2004, p.3.
(4)NikkeiNet, January 4, 2004
(5)Nikkei Shimbun, February 24, 2004, p. 18.
(6)Yomiuri Shimbun, October 7, 2003, p. 18.

Additional Resources

For additional resources and information on the LTCI system in Japan, please refer to the following links:

  1. Ministry of Health, Labour and Welfare (Japan)
    Background Information - Long-Term Care Insurance System
  2. Japan Kaigo Research
    (non-governmental organization)
  3. International Journal of Integrated Care (The Netherlands)
    “Long term care insurance and integrated care for the aged in Japan”
  4. AARP International Forum on Long-Term Care,
    October 22, 2003

Andrew M. Saidel is President of Dynamic Strategies Asia, LC (www.dsasiagroup.com), a corporate affairs consultancy working with US industry in Japan.

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