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A Comparative Analysis of Elderly Care
Quasi-markets in Japan and Korea

LEE, Sun-Young(Ph.D. Student, Doshisha University, Kyoto, Japan)

Chung-Ang University

June 25, 20111

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Ⅰ. Introduction
Recently, reforms responding to the aging society in particular, a number ofreforms surrounding supply system of long-term care for the elderly arebeing carried out around the world. For instance, a reform attempts tointroduce a market principle into service supply system to provide efficientand high-quality service through competition among suppliers.
In Japan, as part of “Social Welfare Basic Structure Reform”, Long-term
Care Insurance Act was legislated in 1997 (enforced in April, 2000) and it
became an moment for expanding market principle into welfare. The
expansion of market principle into Long-term Care service made it possible
for various service suppliers to enter the market and for users to choose
services. In addition, the role of the government was reduced from thepredominant supplier to the body of paying expense.
In the meantime, the final responsibility to provide the social welfare service
should be generally borne by the government. Accordingly, while service is
supplied in market principle, but perfect competition could not be expected
because of strong intervention by the government. As this shows, the system
where there exist competition in service supply and the government places
various limitation with laws for guaranteeing rights of users is called“Quasi-Market”.
Great Britain first introduced Quasi-Market mechanism into welfare service
supply system. The representative study of the Great Britain on
Quasi-Market is the one by J. Le Grand and W. Bartlett. They started thestudy on Quasi-Market in 1989 and “Quasi-Market theory” advocated bythem has significantly affected the study on Quasi-Market not only in the
Great Britain but also in Japan.
Meanwhile, Korea also introduced Long-term Care Insurance for the elderly
in 2008 and Quasi-Market mechanism begins to function in welfare service
supply system. It is well known that it was formulated based on Japan’sLong-term Care Insurance Schemes, and it has very similar structure to2This manuscript is an incomplete draft for just discussion, so please do not cite.

Japan’s Quasi-Market of care service. However, in the case of Korea, thestudy on Quasi-Market has not been done vigorously in welfare field yet.
Therefore, regarding definition and factors of Quasi-Market, Japan’sLong-term Care Insurance Schemes was referred.
The purpose of this study is to compare Japan’s Long-term Care Insurance
Schemes with Korea’s counterpart in the framework of Quasi-Market.
Chapter Ⅱ introduces definition of Quasi-Market by J. Le Grand, andexplains factors of Quasi-Market of Long-term Care Insurance Schemes ofJapan and Korea. Chapter Ⅲ compares structures of Quasi-Market of Japanand Korea centering on two factors of “Quasi” and “Market”.

Ⅱ. What is Quasi-Market?
What is defined as Quasi-Market among welfare service provision
mechanism? In the Great Britain what is definition of Quasi-Market andhow the definition is evaluated in Japan?

1. Definition of “Quasi-Market” by J. Le Grand
Definition of “Quasi-Market” was first formulated by J. Le Grand. According
to his definition, “Market” suggests that the system was changed from theone where the government exclusively provides service to the competitiveand independent supply system and “Quasi” suggests that there exist
non-profit organizations which competed against profit organizations forusers and purchasing power is in the form of needs or vouchers rather thanmoney. Service is bought by purchasing agent and then distributed to users(Le Grand 1993:10).
Koyama (2004), a Japanese researcher pointed out several problems about
the definition by J. Le Grand. First, regarding the reason that Quasi-Market
is a “market”, he argued as the following.
(1)
As there is an expression of “monopolistic market”, market is notalways competitive. (2) If the word of “independent” is used as the opposite
concept of “the government”, national (public) suppliers could be excluded
from the concept of suppliers in Quasi-Market. (3) That users are able to3This manuscript is an incomplete draft for just discussion, so please do not cite.

make a choice is excluded from the reasons, which Le Grand mentions, why
Quasi-Market is a market.
Next, among the reasons why Quasi-Market is “quasi”, regarding the pointthat “there exist non-profit organizations which compete against profit
organizations”, Koyama argued that in economics, whether suppliers pursue
profits or not is dealt with as an issue of motivation of economic units(Koyama 2004:134).
Koyama is the only researcher who criticizes the definition by J. Le Grand,
and I make my comments to his opinion. First, regarding whether it isprofit-making or non-profit or not, in the study of social welfare, the meaningof pursuing profits with the introduction of Quasi-Market is significant.
Usually, supply side is a non-profit organization and users don’t pay for theservice in cash, which has been regarded as a common sense. Considering
that, including mixed existence of “profit organizations and non-profit
organizations” is very important. In particular, it is inevitable for thedefinition that distinguishes Quasi-Market from the standpoint of social
welfare study.
Next we examine Koyama’s previous notice that “service expense is borne by
the government, not by users” is omitted in the definition by J. Le Grand. For
instance of Long-term Care Insurance Schemes, considering that ten percentof costs is borne by the persons concerned for service, strictly speaking, it ismore proper to express “joint burden sharing of users and the government”.
The definition by J. Le Grand, criticism by Koyama about the definition, andthe author’ opinions were explained respectively. Next, Le Grand madedefinitions of Quasi-Market from the perspective of public service reform infields such as education, medical care, and community care of the GreatBritain. Therefore, it is hard to say that it can fully reflect the situation ofJapan, as it is suitable for the situation of the Great Britain. For example,
among the definition by J. Le Grand, the expression that “service is boughtby purchase agent and then distributed to users” applies to NHS of the GreatBritain but no to Long-term Care Insurance Schemes of Japan. In Japan,
users have the right to buy service, and users, who are assessed as the one
worthy of care, choose which service should be bought and conclude a4

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contract directly with service supplier.
As the above description shows, even though there are limits to apply thedefinition of Quasi-Market of the Great Britain to Japan’s Quasi-Market
situation, regarding that it offers a kind of basis or reference for related
studies, the theory of J. Le Grand is very useful.

2. Factors of “Quasi-Market” in long-term care service
The discussion that which parts should be regarded as “scope of
Quasi-Market” under the situation, where market principle and public
regulation co-exist in welfare supply system for the elderly, has differences of
opinion which would depend on academic discipline. When the scope of
Quasi-Market is defined in social welfare study, public sector, which is
supposed to takes the final responsibility, is placed in the center, the areathat is free from public regulations, or “free competition, and users’
responsibility” part are focused . This is because of the difference between
economic activity and social welfare services, and because of differences inbasic idea regarding which comes first among public or individuals’ interest.
Then, first, what is the “Quasi” part when it comes to care service
Quasi-Market from the perspective of social welfare study, and second, themeaning of “Market” part would be examined in this section.

1）Factor of “Quasi” in Quasi-Market

First, regarding “Quasi” part of Japan’s Long-term Care Insurance system, itconsists of the part where the administration participate or “public
regulation” exists (Figure 1).
Figure 1. Factor of “Quasi” in Quasi-Market in Japan’s Long-term Care Schemes
Regulation of
the suppliers’
entry to theelderlycaremarketProviderPublic administrator
Evaluation

Setting the official
price table by5
Provider long-term Care
Remuneration

Administrative measures,
Canceled

ProviderAssessment offrailty grade,
Entitlement ofServices,
Maximum amountService user

Quasi
facto

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If examined from the supply sidea. Market entrance of various private organizations is encouraged andservice that can be provided is confined depending on kinds of service
or characteristics of organizations 1 . In the case of Long-term Care
Insurance, the service that can be provided by profit organizations is
confined to institutional care service.
b. In addition, even in organization that can provide service, there arecertain standard for facility and personnel.
c. Even after being permitted as an organization offering service,information should be released to public institutions and there is
obligation to respond to evaluation.
d. In the case of illegal behavior, there are cases where administrative
measures are taken or designation cancel is taken.
e. Depending on characteristics of facility and institution, there are cases
were expenses for operation is subsidized by the administration.
Second, from the demand sidea. For use of care service, users need to be assessed as those who needcare from the administration.
b. When using service after being graded, because there are maximum
limit of service usage expressed by money-term in each grade,insurance can be applied to the part used usually within this limit.
c. Service institution can be chosen, and by the contract between
institution and users, service are provided. As the service price isfixed in the form of care remuneration, service is used based on priceand the needs.
The government allows supply of welfare service, in particular, operation ofcare insurance service, to be conducted by market principle, but sets theaforementioned restriction to maintain the characteristic of public featuresin the supply side of service.
For instance, in the case of institutional care service, service can be provided by profit
seeking bodies and non-profit seeking bodies. But in the case of residential care service,provision by profit seeking bodies is prohibited, and establishment only by thegovernment, local autonomous organizations and social welfare corporation is approved.
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2) Factor of “Market” in Quasi-Market
Factors of “Market” in Quasi-Market are as follows(Figure 2).
Figure 2. Factor of “Market” in Quasi-Market in Japan’s Long-term Care Schemes

Providerfees

Provider

ChoiceService user
Service user
Service user

ProviderCompetition
among suppliers
for securing
Providerusers
Profit making

MarketService user
Service usera. First, there is a point regarding “profit making”. Before Long-term
Care Insurance Schemes was established, when it comes to social
welfare, profit-making was impossible in principle2, but profit-making
became universal with Quasi-Market of care service.
b. Second, there was “competition among suppliers for securing users”.
As care service provision became a business area, securing users
became a task directly related to profit pursuing.
c. Third, “users are able to choose service provider” cane be pointed out.
Users are able to choose service supplier, and make service plans
based on payment limit amount by degree of care. However, while
freedom of users is guaranteed, and the responsibility should be taken
by users. It is the basic way of thinking based on market-problem.
d. Lastly, there is a point regarding “payment of used fee”. Users have an
obligation to pay for the fee for the provided service. Regarding mostservices, 10%of share to pay is specified, and for other services, there
are cases where individuals have to take the full responsibility
regarding the amount.

Before care insurance system was introduced, as the bodies which establish social
welfare facility, mainly prefectures, municipalities and social welfare corporation were
specified. At that time, the services where profit organizations are allowed toparticipate includes paid-caring and silver service.
2

7

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As this shows, when it comes to Long-term Care Insurance Schemes, as
there exist factors of “public regulations”, with existence of “Quasi” and“Market” principle, and it can be called “Market”.

Ⅲ. Comparative study of quasi-market of elderly careservices in Japan and Korea
Here the structure of quasi-market of the long-term care in Japan and Korea
is explored with paying attention to two factors of “quasi” and “market”. The
relationship between public administrator and providers in the 1st section,
those between public administrator and service users in the 2nd section,
those between suppliers and service users are examined respectively.
1. The relationship between public administrator and providers
The relationship is explored from the three perspective, namely, 1)
regulation of the suppliers’ entry to the elderly care market, 2) regulation /restraint of price competition by setting the official price table, 3)supervisionand evaluation by the public administrator.
1) Regulation of the suppliers’ entry to the elderly care market
With the introduction of Long-term Care Insurance Schemes in Japan and
Korea, varieties of service delivers, such as social welfare corporations,NPOs, medical corporations, profit-seeking bodies, cooperatives, could enter
into the service market to compete each other.
However, all areas of services are not open to varieties of bodies. For example,
in Japan, profit-seeking bodies are not allowed to participate in the area of“institutional” care services, resulting that almost all services are exclusively
delivered by the social welfare corporations. On the other hand, in the area ofresidential care, profit-seeking bodies are allowed and in fact over half of theservices are delivered by such bodies. We could say that quasi-market of longterm care in Japan is featured by the dual structure of “monopoly by the8This manuscript is an incomplete draft for just discussion, so please do not cite.

non-profit bodies in the area of institutional welfare delivery” and “major
occupation by the profit-seeking bodies in the area of residential careservices”.
In contrast with schemes in Japan, all area of services are open to any ofbodies including profit-seeking bodies in Korea. In particular, though only
corporate bodies are permitted to embark to the long-term care services inJapan, “individuals without juridical (legal) person” could be approved asdeliverers. In fact, 60.4 per cent of the welfare institutions in Korea and 88.1
per cent of firms providing residential care services are run are byindividuals without juridical person (Seok Jae-Eun 2010). This is a big
difference between Japan and Korea.
The above implies that, by the dual structure of “monopoly by the non-profit
bodies in the area of institutional welfare delivery” and “major occupation by
the profit-seeking bodies in the area of residential care services”, Japan has
maintained the public nature of care services (=quasi aspect of quasi market)
and sought to improve the quality of care by introducing the principle ofcompetition (=market aspect of quasi market). On the other hand, Korea has
allowed all types of providers including individuals without juridical person
to embark on the service delivery, which is guessed to supplement thequantitative insufficiency of services.
2) Regulation/restraint of price competition by setting the official price table
The prices/fees of care services are officially set (named care remuneration)by the Long-term Care Insurance Act, both in Japan and Korea. It meansthat “price competition” among service providers is prohibited by theregulation, leading to service quality competition in order to acquire theservice users. These schemes prohibiting the price competition in Japan and
Korea are very different from the quasi-market of NHS in Great Britain,
which allowed the price competition among providers.
“Care remuneration” in Japan (one unit is 10 Yen), which is the exclusive
source of providers’ earning, is supposed to be revised every three years.
Until now there occurred these revisions three times : In the years of 2003
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and 2006, diminution revisions had occurred and in 2009 increment revisionby three per cent. The main reason of increment revision in 2009 is shortageof care workers which is caused by the sense of “low pay for the hard work”.
The growing number of turnover and the difficulty to recruit new staffs
pushed government to upward revision.
There also exists the same kind of official price setting named Long-term
Care Remuneration in Korea. In the case of Korea, the insurer is notmunicipality but the National Health Insurance Corporation andadministered nationwide, that leads no price differences of care services
among localities.
Table 1 shows differences of remuneration unit between Japan and Korea for
two kinds of elderly care (visiting care services and visiting nursing
services).
Table 1. differences of remuneration unit between Japan and Korea for two kinds ofelderly care (visiting care services and visiting nursing services)(unit: yen)
The time of required

Japan

Korea

in case of

In case ofbody’s carehouseholdless than 30minutes

2,540

‐

‐

30minutes~59minutes

4,020

2,290

748

visiting

60minutes~89minutes

5,840

2,910

1,128

care

90minutes~119minutes

6,670

‐

1,495

service

120minutes~149minutes

7,500

‐

1,869

150minutes~179minutes

8,330

‐

2,114

180minutes~209minutes

9,160

‐

2,345

210minutes~239minutes

9,990

‐

2,562

more than 240minutes

10,820‐2,765

visiting
nursing
serviceless than 20minutes

2,850

‐

20minutes~29minutes

4,250

1,915

30minutes~59minutes

8,300

2,472

60minutes~90minutes

11,9803,028

The level of remuneration in Korea stays about 20-25 per cent of those in10

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Japan. Lim (2010) explains the background of it, saying “it is inevitable inorder to mitigate the government’s financial burden and to restrain thepremiums which insured people must pay”.
Due to the low level of remuneration, providers may be tempted to pick up
the certain category of clients for whom they can expect to acquire relatively
high earnings with the same effort, which is a “cream skimming”, or to do
fraud/misconduct to request illegally extended bill for services. At the sametime it might end up with low pay for the care workers and consequently low
quality of services. These are problems and challenges not only for Japan but
also Korea.
3) Supervision and assessment by the public administrator
Supervision and assessment by the public administrator is provided by thelaw both in Japan and Korea. But it is not long since the implementation in
Korea, so full-supervision and evaluation are supposed to start in the year of
2011, since then all firms/ institutions will be due to have compulsory
assessments once in two years. On top of that, it is planned to give somefinancial incentives to service-providing firms according to the result of theirassessment.
In Japan, there exist “Public research and release system” and “Assessmentby the (external) third party” on the service information. The former isprescribed in the 115th article of the Act and the result of those is released
yearly on the internet. On the other hand, the latter is not obligatory but justexecuted to the firms which applied for assessment. The aim of two systems
above mentioned is to let clients to make decisions about choosing services
easier by informing the contents and quality of care services are which is
expected to dissolve “the asymmetry of information” and to correct “themarket failure”.
2. The relationship between public administrator and service

users1) Entitlement of Services based on the Assessment of frail-grade11This manuscript is an incomplete draft for just discussion, so please do not cite.

Clients must be approved of the entitlement in order to get care services
under the Long-term Care Insurance Schemes in Japan and Korea, which isissued based on the assessment of frail-grade. Though some differences canbe found, the basic procedure, from application to approval, is similar in bothcountries as shown below.
Application (to the municipality in Japan, to the National Health
Insurance Corporation in Korea) → First step assessment by the computer→ Second step assessment based on the medical doctor’ opinion → Seven
frail- grades in Japan, three grades in Korea
But the difference of approval ratio between two countries must be noticed,
16.5% of the elderly is assessed as being frail in Japan (in the year of 2010)
and 5% in Korea (2009).
2) Maximum amount (ceiling) of care service and co-payment
In both countries the maximum amount (ceiling or upper limit) of careservices which clients can use is set for each of frail-grade as shown in Table
2．

Table 2. comparison Japan and Korea on ceiling of care service and co-payment byfrail-grade(unit: yen)frail-grade
Supportceiling of care service

co-payment(a monthly amount)(a monthly amount)

Japan

Korea

Japan(10%)

49,7004,970

104,000

10,400Care level 1

165,800

16,580Care level 2

194,800

19,480Care level 3

267,500

required 1
Supportrequired 2

57,02912

26,750

Korea(15%)

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Care level 4

306,000

67,98430,60010,198Care level 5

358,300

79,84235,83011,976This table demonstrates that the maximum amount in Korea is about 20 %of those in Japan. However when we take into consideration lower level ofcare remuneration unit in Korea, which is shown in Table 1, so muchdifference of the service quantity in the real term does not exist.
Users, who are approved as frail, can use services within these limits, but it
is not free. They must pay certain amount when using the services in Japan
10 % for all kinds of services and in Korea 15% for residential services and
20 % for institutional services. If they use services beyond upper limits, theymust pay 100 % fees for services by themselves. This co-payment system, inparticular 100 % co-payment, was introduced to avoid the abuse or overuse ofservices, which is a kind of moral hazard, and consequently not to damage
the government budget or to lessen the insured’s premiums.
3. The relationship between providers and service users: right ofchoice of service and the care manager
Koyama (2004) defines quasi-market of elderly care services in the GreatBritain as “purchase-by-government type” or “purchase-by-care managers
type”, whereas those of Japan as “choice-by-users type” which means thatusers are delegated the right of making decision to purchase services.
In Great Britain, a care manager, as a professional agent of service users, isdelegated to make decisions about service usage on behalf of clients. How
about care manager in Japan? Care manager in Japan plays an importantrole, as they help clients to make a care plan, which is a package of various
care services. But purchasing of service itself is not carried out by caremanager. This contrasts with a role of care manager in Great Britain. In
Japan care more than one managers are supposed to be in the elderly
services’ firm. Their jobs are as follows.
a. Grasping of the client’s physical/mental and financial condition
b. Making care planc. Supporting clients to take procedures of service usage
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d. Check and control of service usage according to the care plan
How about care manager in Korea? When applying Koyama’s typology which
is above mentioned, quasi-market of elderly care in Korea is classified as“choice-by-users type”. However, in Korea, the post of care manager is notprovided in the Schemes. Instead the role of care manager is held by the staffof the National Health Insurance Corporation and furthermore the detailed
job description on the work of care management does not exist. Before theimplementation of the Long term care schemes, the introduction of the caremanager system had been examined. But in the end, this new type of thecertified profession was not introduced. The main reasons of it are as follows:
1) To lessen the complexity of procedure and to increase the accessibility to
the service2) To restrain the administrative costs
On top of that, the fact that residential care services in Korea is not so varied
as in Japan promoted this substitute of care manager by the staff.

Ⅳ. Concluding remarks
We examined the structure of elderly care quasi-market in Japan and Korea
with noticing aspects of both “quasi” and “market”.
To sum up the factor of “Quasi”, it consists of “regulation by administration”.
For instance, there are restriction of service supply depending on
characteristic of supply organization, price setting, and evaluation andsupervision. This is the mechanism to maintain public aspect, which ispeculiar in welfare service, and to control supply and demand.
Market factor consists of “aspects of market principle” such as encouraging
participation by various private organizations and guaranteeing the right ofchoice to users. The reason that market factor is introduced in supply systemof welfare service is that there is an intention to save administration cost by
utilizing private resources.
Quasi-Market structures in Japan and Korea were compared in this paper.
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This Quasi-Market factor does not always remain the same level. In otherwords, depending on policy situations of each country, factor of “quasi”
becomes strong or factor of “market” becomes strong. For example, in Korea,
without sufficient establishment of infrastructure, long-term care insurance
system for the elderly was implemented. Consequently, for establishingsupply-side infrastructure, active participation by private sectors was
encouraged by emphasizing the “market” principle. However, two years later
since the implementation of the system, problems of excessive supply
occurred. Accordingly, for reducing supply, standard for establishment wasrevised to be stricter and evaluation system was also strengthened leading toemphasis of the “quasi” factor.
Therefore, in terms of operation of care service, there is a need forrecognizing that the degree of relax regulation and the degree of thegovernment’s intervention are flexible.
Concrete differences of features between Japan and Korea, each of which
focuses the relationship 1) between public administrator and suppliers, 2)
between public administrator and service users, 3) between providers andservice, are summarized in Table 3.
Table 3. Structures of Quasi-Market of Japan and Korea
Japan
Regulation
1-(1)

of

the

suppliers’

entry

to

elderlythecaremarket

Korea

Residential care service: open to varieties of bodies
Institutional care service:monopoly by the non-profit
bodiesonly corporate bodies

Institutional care service:
open to varieties of bodies
possible individuals without
juridical(legal) person

setting the official price table
Regulationof- leading to “service quality competition”

price
1-(2)

- be prohibited “price competition”

competitionbyregional

settingtheexistent

official

price

table

differences:(0.3~0.5% premiums)

regional differences:non-existentofficial price’s disparity of visiting care service and visiting
nursing service: existence
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1-(3)Supervision and- Public research and releaseassessment

systemthebypublicadministrator
Entitlement

party
Application (to the municipality in Japan, to the National

based

Health Insurance Corporation in Korea) → First step

on

the

assessment by the computer → Second step assessment

Assessmentof

based on the medical doctor’ opinion → Seven frail- grades

frail-grade
2-(2)co-payment
right of choice of

3start in the year of 2011ofServices2-(1)- Assessment by the third

servicecare manager

in Japan, three grades in Korea
10% of costs for all kinds ofserviceinstitutional care service:15%,

residentialcareservice: 20%

choice-by-users typecare manager: existent

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care manager: non-existent