SOCIAL SECURITY IN AN AGING JAPAN

The new system of medical coverage for people 75 and older–"later-stage" seniors–that was introduced in April this year has created an uproar. The administration of Prime Minister Fukuda Yasuo has been denounced for heartlessly abandoning the nation’s eldest citizens, an image reinforced by the use of the "later-stage" label and the fact that premiums began being deducted from old-age pension benefits. The spate of name-calling has drawn attention from the fact that changes were introduced without first seriously addressing the fundamental issue of how the nation’s financially troubled healthcare system can be sustained, namely, whether the insurance format should be maintained (which means asking beneficiaries to bear a bigger burden in the form of premium payments) or whether the system should be funded primarily with tax revenues. Two articles in this section, written by Harada Yutaka, chief economist at Daiwa Institute of Research, and Tokyo Medical and Dental University Professor Kawabuchi Kôichi, summarize the historical factors that led to these reforms and weigh the arguments advanced by stakeholders from various viewpoints.

Universal health insurance coverage was introduced in Japan in 1961, based on a combination of workplace-based schemes for wage earners and the National Health Insurance scheme (administered by municipalities) for the self-employed and others, including retirees. All the schemes required participants to pay both premiums and a portion of the medical expenses they incurred. The idea of subsidizing the medical expenses of senior citizens across the board first emerged in the late 1960s and early 1970s. This was a time when the Japanese economy was still growing fast, and many local governments had tax revenues to spare. Reformist local government leaders like Tokyo’s Governor Minobe Ryôkichi (1967–79) were spearheading drives to improve welfare systems to help those left behind by the economic boom. Among Minobe’s initiatives was the introduction of free medical care for the elderly. And in 1973 a supplementary arrangement was introduced at the national level to provide medical care free of charge for seniors aged 70 and up. They continued to be enrolled in one of the public health insurance schemes, generally National Health Insurance, but public funds were used to cover the out-of-pocket co-payment charges for medical services received. The easy access to medical care caused expenses to soar, however, and the finances of the National Health Insurance plan, which covered most seniors, were hard hit.

This prompted the creation of a new system of financing public health services for those 70 and older in 1983, which essentially spread out the financial burden so that the National Health Insurance plan alone would not be saddled with huge bills. The other public health insurance schemes, mainly consisting of workplace-based plans for wage earners and their dependents, were asked to cover part of the costs of the national plan. Meanwhile, national and local governments continued to bear a substantial portion of the total expenses. But as public finances deteriorated in the 1990s, the heavy subsidization of senior health services came under question, and the issue of how to improve the finances of the National Health Insurance plan failed to be addressed. The changes introduced this year, particularly the creation of a stand-alone system for "later-stage" seniors, represent an attempt to rectify this situation.

A LACK OF CONSISTENCY IN DESIGN Earlier efforts to reform the public health insurance system, particularly the arrangements for senior medical coverage, had a critical defect in that they were based on outdated population estimates made in the 1970s. The Ministry of Finance, the Ministry of Health, Labor, and Welfare, local governments, the Japan Medical Association, and other stakeholders have been working at piecemeal improvements over the years as the process of population aging progressed, but such endeavors largely centered on protecting their own interests. The latest reforms are an extension of these patchwork initiatives to merely strike a balance among the interests of various stakeholders.

Most people aged 75 and over were enrolled in the National Health Insurance plan. But this plan is also administered at the municipal level, and over the years premiums came to vary considerably from place to place. They tended to be considerably higher in depopulated rural areas with high shares of elderly citizens and relatively low in urban areas where many working-age people were also enrolled in the plan. The difference between the lowest and highest contributions for the 75-and-over age group was as much as fivefold. The introduction of the new stand-alone scheme means that "later-stage" seniors are no longer part of the National Health Insurance system. The premium rates under the new scheme vary somewhat from place to place, but the difference between the highest and lowest rates is less than twofold, which is an improvement. But there are serious flaws in other areas. There is no clear expression of intent, for example, to ensure the sustainability of the scheme as a social insurance program. Making its survival in an insurance format more difficult is the lack of awareness among the public of the intrinsic connection between the amount of money paid into the system as premiums and the amount available to be paid out as benefits. And media coverage has only exacerbated people’s misperceptions.

PREMIUMS OR TAXES? The 75-and-over population in Japan is 13 million, which is approximately 10% of the total. But this age group accounted for nearly 30% of the ¥33 trillion in total medical expenditures in fiscal 2005 (April 2005 to March 2006). And on a per capita basis, the expenses for the average person in the 75-plus age group come to ¥843,000, more than four times the figure of ¥203,000 for the under-75 group. The new stand-alone system for the 75-plus seniors maintains the basic mutual-aid concept of an insurance scheme, but it bears noting that the premiums paid by elderly people enrolled in it will cover just a tenth of the total cost of their medical care.

There are two ways of rectifying the situation. The first is to abandon hope of ever being able to meet old-age medical costs with premiums—including those paid by working-age people—and finance such expenditures primarily through taxes. The other is to maintain the insurance format, which will require integrating the now-separate schemes for working-age people and seniors so that workers who retire will continue to participate in their workplace-based plans. In the latter case, we will face the question of how to set the premium rates for retirees.

This is a debate, though, that was actually carried out three years ago, the result of which was the "later-stage" elderly medical coverage scheme we have today. Evidently, the question of how best to balance revenues and expenditures will need to be more seriously addressed. Kawabuchi Kôichi, in his essay below, tackles this difficult issue and concludes that the situation could be substantially improved by integrating the new scheme for old-age medical care with the Long-Term Care Insurance system, which provides nursing and other nonmedical care primarily for seniors.

ARE SENIORS HARD UP? The article in this section by Harada Yutaka also focuses on seniors but looks mainly at the public pension system. Harada points out that Japan’s pension benefits are quite high by international standards and argues for a rethinking of the role of public pensions. Pensions should be regarded as just a basic security net, he asserts; those who wish to maintain their present standard of living even after retirement should pursue asset management options on their own or else make adjustments to their lifestyles. The proper role of the pension system is to offer a degree of assurance when people map out their life plans. Japan’s elderly are wealthier than their younger counterparts in terms of both income and financial assets. What is needed, Harada says, is a system that allows senior citizens to lead financially independent lives.

Our third article, by Yamada Masahiro, draws attention to the plight of seniors whose households fail to match the narrowly defined models on which the public pension system is premised. Many of them have a hard time living on their meager pensions, but they are not so hard up as to qualify for welfare. Yamada urges the government to build a system to help out such seniors.

AGING ASIA The final article, by Komine Takao, looks at the impact of older populations in other Asian countries on their economic growth and social insurance programs, based on long-term projections by the Japan Center for Economic Research. Japan is veritably at the head of a demographic "flying geese" formation. If it can deal successfully with the many challenging problems posed by a grayer population, it will be able to offer a twenty-first century growth model for other countries in the region. The debate in Japan thus far over the public healthcare system for seniors, though, does not inspire much confidence in its ability to establish a sustainable social insurance system from a longer-term perspective.

Chapter 3 of this year’s White Paper on the Economy and Public Finance, which analyzes how Japan’s aging and dwindling population will affect the country’s finances, notes that Japan is number 23 in a ranking of 28 countries in the Organization for Economic Cooperation and Development in the tax and social insurance burden as a share of gross domestic product. In the light of Japan’s burgeoning public debt and rapidly aging population, higher taxes are thus inevitable. A hike in the consumption tax would alleviate the need to ask working-age people to pay higher premiums for health insurance. But the Fukuda administration has not won the kind of popular support needed to raise taxes. The most pressing challenge facing the government is to make the public realize that maintaining social security benefits means bearing a commensurate burden. (Nariai Osamu, Professor, Reitaku University)

© 2008 Japan Echo Inc.