Health care financing for the elderly in Japan

This paper examines the financing of elderly health care in Japan for medical institutions, nursing homes, and at home. The analysis demonstrates that the conventional figures for elderly health expenditures in Japan systematically underestimate the real costs by excluding the costs of uninsured services, nursing homes, and home health care. The paper estimates these costs and shows that they add about 10% to the conventional figure for elderly health care costs in Japan. This inquiry also shows how government policy for health care financing shaped distinctive Japanese patterns of elderly care provision. The financing system provided a hidden subsidy--through national health insurance coverage of long-term hospitalization--that encouraged high institutionalization rates of elderly in medical facilities. Public financing for long-term elderly hospitalization, however, has not been matched by government attention to quality of care, resulting in serious quality problems and reflecting a social trade-off between cost and quality. Also, until recently the financing system rarely reimbursed home health care, thereby creating strong disincentives to the development of formal home health care services. This analysis has important implications for reforms now being considered by the Japanese government in the financing and provision of health care for the elderly, especially the limitations of relying on reimbursement price policy. The reforms could have unintended negative consequences for equity, efficiency, and quality of care.