On the Future of Government Subsidies to Health and Long-term Care Insurance

Author Name IWAMOTO Yasushi  (Faculty Fellow, RIETI) /FUKUI Tadatoshi  (Kyoto Sangyo University)
Creation Date/NO. June 2010 10-J-035
Research Project Changes in the Socioeconomic Structure and Tax Reform
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This paper forecasts the long-term trends in government subsidies to health insurance and long-term care insurance with the latest version (September 2009) of our Health and Long-term Care Insurance Model (HLIM). Many economic settings match those of simulations conducted by the National Council on Social Security. This version considers the government burden of subsidies to National Health Insurance and Japan Health Insurance Association or Kyokai Health Insurance, by estimating the number of enrollees in these schemes.

The National Council on Social Security projects government subsidies to health care and long-term care costs will increase by 1.8 percent of GDP from 2007 to 2025. This paper estimates that, from 2025 to 2050, subsidies to health insurance will grow by 1.25 percent of GDP and subsidies to long-term care insurance by 1.05 percent. Additionally, overall expenditure will increase further during the two decades or so after 2050. Long-term tax reform should recognize this, thus employing appropriate measures to raise revenues.

Since government subsidies are allocated primarily to the latter-stage elderly, government expenditure will grow faster than social insurance premiums. Due to this, financing through taxation becomes more difficult. Therefore, the reform should reduce the ratio of government expenditure and rely more on social insurance premiums, which are more directly related to benefits.