Japan's Long-term Care Insurance after 15 Years: Shall we return to the welfare program system or keep pursuing market mechanisms?

Author Name SUZUKI Wataru (Gakushuin University)
Creation Date/NO. December 2016 16-P-014
Research Project A Socioeconomic Analysis of Households in Environments Characterized by Aging Population and Low Birth Rates
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Fifteen years have passed since Japan introduced the public long-term care insurance (LTCI) system in 2000. From an economics perspective, we review the experiences that Japan accumulated in running the LTCI system, evaluate the positive and negative aspects of the present system, and propose some feasible reforms to improve the system.

One of the major reasons for introducing the LTCI system in 2000 was to stimulate a jump in the supply of long-term services in Japan through reforming the system from a heavily regulated and tax-subsidized welfare program into a market-oriented program which permits for-profit private providers to enter the market. Initially, the LTCI system successfully met its goal of expanding care services and alleviating the excessive burden of family care givers. However, a series of "anti-market" fiscal control measures introduced afterward severely damaged the usability of the system. We suspect that the ongoing additional fiscal control measures will revert the LTCI system into the old welfare program, making the initial success of market reform futile.

Can Japan seek a way to overcome the negative spiral of fiscal control measures and worsening usability of the system? Full utilization of market mechanisms, as the initial reformers had pursued, could be the correct answer. Specific market-oriented reforms include constructing a full-funded system through a LTC version of the Medical Saving Account (MSA), permitting mixed usage of insurance covered and non-covered services to give service providers more freedom in price control, deregulating the barriers to entry, introducing cash payment for family care givers, and privatizing the insurance management.