Origin and Development of the Quasi-Market System in Japan: From healthcare to welfare, and to education

Healthcare and welfare systems can be classified into three broad types: a public model in which services are provided and financed by the government through taxes; a social insurance model in which services are provided by multiple players including private-sector entities with the cost of services financed primarily by insurance premiums; and a free-choice model in which private-sector insurance firms and private-sector service providers fulfill the roles. Under the social insurance model, users are subsidized by public funds collected in the form of mandatory social insurance premiums and can choose from multiple service providers. Therefore, this model is often accompanied by a quasi-market where multiple service providers compete for users (it should be noted, however, that a quasi-market mechanism can also be combined with the tax-financed public model).

In Japan, a welfare system close to the public model was established immediately after World War II to provide publicly-funded services through private-sector providers. This system remained the pillar of Japan's welfare system for decades. However, in the course of the fundamental structural reform of the social and welfare system from the 1990s onward, Japan adopted the quasi-market system to introduce competition in various service areas including nursery schools (although they do not fit the exact definition of "quasi-market"), long-term care services for the elderly, and welfare services for the disabled. The Comprehensive Support System for Children and Child-rearing, which was enacted in April 2015, in effect introduced an integrated quasi-market for nursery schools and kindergartens.

In fact, however, Japan's prewar healthcare insurance system established under the National Health Insurance Act of 1922 had a de facto quasi-market mechanism.

This paper looks at how the quasi-market was adopted and took root as a prototype for Japan's public healthcare services from the historical perspective, and examines the factors and developments that led to the extensive adoption of the quasi-market mechanism in other areas of social and welfare services in the 1990s and thereafter.

Furthermore, this paper seeks to clarify the unique characteristics of the quasi-market system that have not been understood consciously so far, and reviews various cases of the quasi-market system that has now become fairly prevalent in Japan by comparing them in a cross-cutting manner, thereby pointing to the need for systematic work to propose measures to improve the institutional design of the current quasi-market system and address problems arising therefrom.