Controlling Spending For Health Care And Long-Term Care: Japan's Experience With A Rapidly Aging Society

As the Japanese population has aged rapidly, Japan's experience has implications for other high-income countries, including the United States. The aging of Japan's population, coupled with the government's decision to implement a public long-term care insurance program in 2000, has increased the nation's expenditures. In acute care, costs have been relatively contained by biennially revising the fee schedule for all physician and hospital services and by lowering pharmaceutical prices. The fee schedule not only sets prices but also controls volume by setting the conditions of billing for each item. This fee schedule is applied to all social health insurance plans (which enroll all permanent residents of Japan) and to virtually all providers. In contrast, despite the use of a similar fee schedule, spending in long-term care insurance has increased more than spending in health care. This is both because long-term care became an entitlement and because aging has had a greater impact on long-term care insurance spending than on health insurance spending. In this article we analyze Japanese expenditure data to provide essential information to the US as the percentage of its population ages sixty-five and older continues to rise. A key lesson that the US can learn from Japan's experience is that as its population ages, the need for long-term care will increase, necessitating better control of acute care spending.