Cost Sharing among Different Ages/Regions/Occupationsin Japanese Social Security Healthcare
Takayama, N. Prof. Dr.
Professor Emeritus at Hitotsubashi University
President of RIPPA, Japan

1

Introduction1
Cost sharing in Japanese social security healthcare has been growing and its current
size is quite massive. It is executed by pooled insurance contributions and statutorytransfers from general revenue. Due to dragged-out slowdown of her economy along witha rapid population aging, a resulting persistent budget deficit has forced the central
government to severely contain an increasing amount of transfers from general revenue
to healthcare. Consequently, cost sharing by pooled contributions, especially by the
supportive grants from actively working generations to retired persons, plays an
increasing role.
This paper presents cost sharing in Japanese social security healthcare, withhighlighting their backgrounds and underlying philosophies. Before going into detailed
discussions of them, Section 2 explains the outline of healthcare system in Japan, andpoints out its several unique features. Section 3 focuses the substantial differences of
medical expenses by age. Sections 4 and 5 clarify how to share the medical cost for elderly
persons. Section 6 provides a brief outline of the Kokuho (国保) scheme organized on acommunity basis and deals with its cost sharing between rich and poor regions. Section7
takes up varying insurance contributions among different provinces for the Kyokai (協会)
scheme of employees in SMEs. Section 8 concludes this paper.
2

Outline of Healthcare Insurance System2
The Japanese insurance system of social security healthcare has the universal
coverage. Currently it is broadly composed of the following five schemes, covering
different sectors of the population by age and by occupation:
A: the scheme for the “Old-old” (those aged 75 and over: 後期高齢者)
B: the schemes for those of age 74 or younger
B1: for regular employees
civil servants (Kyosai: 共済)
employees in large firms (Kumiai: 組合)
employees in SMEs (Kyokai: 協会)
B2: for non-regular employees, self-employed, pensioners, and others (Kokuho: 国保)This paper is a revised and extended version of my report presented at the China-Japan joint
workshop on pensions, Beijing, 27 July 2018.
2 Ikegami-Campbell (1995), Ikegami et al. (2011), Iwabuchi (2013), Ministry of Health, Labour andWelfare (2013, 2014, 2016, 2017c, 2018a, 2018b) make an overview of the Japanese system.
1

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Individuals have no choice of the schemes. The participation in the first Old-old
scheme is exceptionally on an individual basis. The schemes for regular employees are
based on employment, while the last scheme (Kokuho) is organized on a community basis.
Dependent persons are covered by respective schemes which their breadwinnerparticipates in.3, 4 The first and the last schemes (Old-old and Kokuho) are financiallymanaged on a provincial basis (都道府県単位).5
Poor persons6 are exempted from participating in any schemes above mentioned, andtheir medical costs are wholly covered by public assistance (生活保護: 医療扶助).
There are several unique features in the current Japanese healthcare insurance
system. Among others,
1) at retirement, regular employees are usually obliged to move from their schemes(Kyosai, Kumiai, or Kyokai) to the last one (Kokuho).7 The Kokuho has no choice but justmandate the retirees to participate in its scheme;2) the social security coverage of medical care service and its reimbursement toproviders are the same for all the programs;3) each patient in Japan enjoys free access to any medical service providers at any
time, purchasing most available medical treatment at a publicly determined price throughsocial insurance program for healthcare;4) the copayment (user charges) is basically 30% of medical costs, while special
reductions are given to older people of age 70 or over and infants less than 6 years old(Table 1).8, 9 Moreover, a very generous ceiling on copayment is implemented, and any
amount that exceeds the fixed monthly threshold is to be reimbursed in order to ensurethat the financial burden on the patient does not become too heavy. The system is called“Refund of High Medical Expenses (高額療養費制度).” Its standard case for a middle-wage
earner10 is presented in Figure 1;
Dependent persons do not directly pay their own insurance contributions. Instead, theirbreadwinner pays them based on his/her salary (Kyosai, Kumiai, and Kyokai) or on his/her annual
income, number of household members, etc. (Kokuho). Dependent persons have their own healthinsurance card individually.
4 Dependent persons in China are to be all covered by a community-based scheme. This is a big
difference between China and Japan. See Katayama (2018).
5 Japan currently has 1724 cities (市町村) and 47 provinces (都道府県) in 2019. Each city belongs to
the respective province.
6 Their number was 1.7 million; 1.4% of the total population in 2014.
7 In China, retired employees remain in the same scheme as before in many cases.
8 To be more accurate, prior to the start of compulsory education. The copayment for infants is virtually
reduced a great deal or even to a nil, due to special political considerations by almost all municipalities.
9 The copayment in China is quite different from that in Japan. Chinese people are asked to first pay
100% of the medical expenses up to the stipulated amount in many cases, and after these deductible
expenses, a copayment rate ranging from 3% to 40% is applied. Moreover, there is the upper ceilingabove which Chinese patients are again forced to pay 100% of their medical expenses. Eachdeductible amount and each upper ceiling vary between the inpatient and the outpatient, and the
copayment rate depends on the different ratings of hospitals and/or where the hospital is located orwhether the hospital is administered by the corresponding local government. These Chinese system
looks like a private insurance one.
10 There are five different minimum amounts of copayment above which the reimbursement isavailable. They are set by respective income classes.
3

2

Table 1

Copayment by Age

Age

Copayment (%)

0-5

20

6-69

30

70-74

20a

75+

10a

a: 30% exceptionally for those households with annual income of JPY 5.2 million or higher(for single households, annual income for JPY 3.83 million or higher).

Figure 1

Ceiling on Copayment for Middle-income Earners
Monthly Medical Expenses: JPY 1 million

Copayment

Refund: JPY 300,000 – JPY 87,430 = JPY 212,570
Individual Ceiling: JPY 80,100 + (JPY 1,000,000 – JPY 267,000)×1%= JPY 87,430
Note: Figure 1 takes up a case of JYP 1 million for the amount of monthly medical expenses.
The amounts of JPY 80,100 and JPY 267,000 together with the percentage of 1% are all
given by the legislation concerned. The middle income is defined as the annual income
between JPY 3.7 million and JPY 7.7 million. The exchange rate as at 10 September
2019: RMB1 Yuan = JPY15.1

Figure 2

Copayment in Practice

Source: Ministry of Health, Labour and Welfare, Japan (2018c).
Note: less than age 70.

Case: 30% copayment rate3

Figure 2 depicts varying institutional percentages of the copayment among different
income groups. In fact, the effective copayment rate on the national health expenditurebasis was about 11.6% on average in 2015.11
5) in contrast to the benefit side, each program for healthcare adopts a different
financing method. Generally speaking, schemes covering low-income persons as theirmajor part receive statutory transfers from general revenue of the central and/or local
governments,12, 13 and first Old-old scheme additionally receive supportive grants fromall the other schemes whose major income source is the insurance contribution paid by
their enrollees (and their employers).
There are following two principles in paying medical expenses.
1) The Old-old and Kokuho schemes are not responsible for higher average ages of
their participants. Differences in average annual medical costs due to different age
distribution have thus to be adjusted for equity consideration.
2) Persons with the same level of income should pay the same amount of contributions,regardless of regions, provided that the age-adjusted medical costs per person
remain same. Differences in the average income level among different regions areanother structural factor to be adjusted for achieving horizontal equity.
Reimbursement to healthcare providers is principally based on fee-for-service
schedule (出来高払制) that is uniform among different healthcare schemes. The amount of
aggregate annual healthcare expenditure in 2016 was 7.8% of GDP, which is relatively
low among major old countries.14 Due to the rapidly aging population, however, it willfurther increase steadily until around 2040.
3

Substantial Differences of Medical Expenses by Age
Figure 3 gives annual medical expenses per person by age in 2015. It shows that they
very much varied among different age groups. For example, they were JPY 159,000 for
those less than 15 years old, JPY 120,000 for those between 15 and 44, JPY 285,000 for
those 45 and 64, and JPY 742,000 for those 65 and above. For the old-old persons aged 75
and above, they were JPY 929,000, about 7.7 times the expenses of those between 15 and44 years old.
Elderly people are heavy users of medical care services, and consequently in 2015,
59% of aggregate medical expenses were incurred on the people aged 65 and above,15
while their share of the total population was 27%.
On the other hand, the average annual income is relatively low for participants in the
Old-old scheme, as is indicated in Table 2, and thus the Old-old scheme can hardly be
See MHLW (2018c) for more details.
In addition, schemes without employers’ insurance contributions receive statutory transfers fromgeneral revenue.
13 In 2018, transfers from the central government to social security healthcare totaled up to JPY 11.6
trillion, which was almost the same as the amount to social security pensions (JPY 11.7 trillion).
14 See Honkawa Data Tribune (2019).
15 The aggregate amount of medical expenses for the Old-old was JPY 15.1 trillion in 2015,
amounting to 35.7% of the total expenses. Its share has been steadily increasing.
11
12

4

maintained independently. Some cost sharing is required among different age groups.
Figure 3

Annual Medical Expenses per Person by Age in 2015

Source: Ministry of Health, Labour and Welfare, Japan (2017b)

5

Table 2

Basic Statistics by Healthcare Scheme in 2015
Schemes
Kyosai

KumiaiKyokai

KokuhoOld-old

No. of participants (1,000)

8,774

29.136

37,16531,822

16,237(share, %)(6.9)(23.0)(29.3)(25.1)(12.8)

Participation Rate (%) (Age 65-74)

1.5

3.1

6.4

38.7

―

Average Age
Annual Medical Expenses per Person

33.1

34.6

36.9

51.9

82.3

157

154

174

352

952

6.37

5.52

3.79

1.4

0.8

Transfer from General Revenue

0%

0%

16.4%

41%

33%

Rate of Insurance Contributions (%)

9.24

9.03

10.0

―

―

271

221

187.0

139

67

1.37

4.49

6.41

11.46

15.21

0.30

0.98

1.42

1.99

1.19

―

―

1.22

4.27

7.04

0.58

1.84

1.98

1.34

▲ 5.85

2.19

6.80

7.29

2.89

1.13

(JPY 1,000)
Average Annual Income(JPY million)

Average Annual Contributions(JPY 1,000)
Aggregate Annual Medical Expenses(JPY trillion)
Aggregate Annual Copayments(JPY trillion)
Aggregate Public Transfers(JPY trillion)
Aggregate Supportive Grants Paid
(JPY trillion)
Aggregate Insurance Contributions Required(JPY trillion)

Source: Ministry of Health, Labour and Welfare, Japan (2017b)
Notes: (1) Average annual income for employment–based scheme is calculated by excluding salaries
more than the upper limit. Average income and contributions for Kokuho are exceptionally on ahousehold basis. (2) Transfers from general revenue includes transfers from local governments,
as well. (3) Rates of contributions are combined ones for the employees’ portion and theiremployers’ portion. (4) Annual contributions are the employees’ portion only for Kyosai, Kumiai
and Kyokai. (5) The aggregate supportive grants for Kokuho is a net amount subtracting JPY
390 billion (received for the young-old) from JPY 1.73 trillion (paid to Old-old).

Cost Sharing for the Old-old of Age 75 and overIn 1983, a cost sharing scheme was established for the elderly. Several reforms werecarried out thereafter, and the latest overhaul was seen in 2008.
4

4.1

Basic Framework
The main contents of the current Old-old scheme are as follows.
The old-old (age 75 and over) pay a lower share of their medical costs; their
copayment (患者負担) is basically 10% as described above,16 and additionally theirinsurance contributions (保険料) are set only to finance 10% of the remaining aggregate
costs (Figure 4).

Their effective copayment rate in practice was 7.8% in 2015. Some experts assert that the basic
rate of copayment for them should be lifted up to 20% as that for those of age 70 to 74.
166Figure 4

Cost Sharing in the Old-old Scheme

Supportive
Grants(40%)

PublicTransfers(50%)

Contributions(10%)

Note: Copayments are excluded.

The major part of aggregate medical costs for the Old-old are financed by statutory
public transfers from general revenue (公費負担; 50%) and the supportive grants (支援金)from all the other schemes of younger groups (40%) as is demonstrated in Figure 4.17,18
Public transfers come from both the central government and local governments. Theirrespective shares are 2:1. Among local governments, provinces and their cities share thetransfers equally on an aggregate basis.
The supportive grants are first divided into two parts by the head count ratio
between all employment-based schemes and Kokuho.19 Then, among the employmentbased schemes, each share is decided to be proportional to respective aggregate amountsof salaries. The ability-to-pay principle is completely applied within the employmentbased schemes in sharing the supportive grants. The average income of participants in
Kokuho are lower than that of participants in any employment-based schemes as isshown in Table 2, however. Kokuho is forced to bear heavier burdens by the first perhead principle on cost sharing.20
4.2

Insurance Contributions
Contributions by participants in the Old-old scheme are composed of two portions: aflat-rate amount and an income-related portion (which is proportional to income).21 Eachshare on an aggregate basis is normally 50:50 where the average income of the old-old in
the province concerned equals the national average. Any province with a higher average
To be precise, statutory public transfers are 47%, due to no public transfers to old-old persons who
enjoy a higher level of income as actively working employees. Supportive grants are lifted up to 43%,
then.
18 Statutory public transfers are perfect testimony to a government commitment, and a reflection ofgenerous thought to low-income earners. On the other hand, the supportive grants are for reducing
the share of insurance contributions. Note further that public transfers are financed not only byincome taxes, real-estate taxes, and VAT, but also government debts in current Japan. That is,healthcare costs for the elderly are partly covered by deficit bonds, which is putting off their burden
on to future generations.
19 In calculating each head count ratio, the number of dependent persons is taken into account.
20 Moreover, the average income of Kokuho participants vary by province. Under the per-headprinciple, the Kokuho groups in poorer provinces are further forced to bear much heavier burdens
than those in richer provinces.
21 Contributions are individually deducted from social security pension benefits of each participant
in the Old-old scheme before he/she receives pension benefits.
17

7

income has a share of more than 50% for the income-related portion. Elderly persons withlower income are applied to the reduced amount for the flat-rate portion. The reductions
are 70%, 50% and 20% depending on the level of income.22, 23 Their gap is covered byadditional public transfers.24 The upper ceiling has been set up for the annual amount of
combined contributions, and the latest annual ceiling is JPY 620,000 in 2019 (Figure 5).25
Contributions(JPY 10,000)

Figure 5

Insurance Contributions in 201962

Income-related Portion

Flat-rate Portion0

153 168

224

270

Annual Pension Benefits(JPY 10,000)

There remains a considerable gap (1.5 times) among different provinces in annual
medical expenditures per person for the Old-old even after the difference in the age
structure is adjusted, as is presented in Table 3.26 Still more, even when annual medical
expenditures per person is same, municipalities with richer participants could levy alower rate of contributions on each participant. Currently there is no social pooling of
insurance contributions between rich and poor provinces in the Old-old scheme.

There remains a transitory reduction of 85% in 2019.
Those persons with reduced contributions are 8.26 million in number, amounting around 52% of
the total participants of Old-old in 2015. Due to these reductions, the share of the flat-rate portion
was pulled down from normal 50% to actual 37% on average, and no province had a share more than
50% for that portion.
24 These reductions (JPY 270 billion in total) together with other factors cut down the share ofcontributions from 10% (above mentioned) to around 7% in practice in 2015.
25 The annual ceiling is set for persons with the annual amount of pension benefits of JPY 8.64
million or more in 2019.
26 This gap can be used to give great incentives to those provinces with higher medical costs per person forcontaining them, by imposing higher amounts of contributions and copayment. The gap in the annual flatrate contribution per person was 1.8 times (JPY 29,700 vs JPY 16,900) between provinces and the gap in
the rate of insurance contributions was 1.6 times (11.47% vs 7.15% of taxable income) among them.
22
23

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Table 3

Gap of Age-adjusted Annual Medical Expenses per Person by Province in 2015:
The Old-old Scheme (Top 3 and Bottom 3)
Province

Rank

Medical Expenses (JPY million)

Kochi (高知)11.15 (1.23)

Fukuoka (福岡)2

1.14 (1.22)

Nagasaki (長崎)31.09 (1.17)

National Average

0.93 (1.00)

Aomori (青森)450.80 (0.86)

Iwate (岩手)460.75 (0.81)

Niigata (新潟)470.75 (0.81)

Note: Figures in ( ) indicate each ratio to the national average.
Source: MHLW (2017d)

4.3

Adjusting Income Gap Among Regions
Equal footing can be attained through a following adjustment mechanism, as is
illustrated in Figure 6.
Let us consider a two-province case; one is rich and the other is poor in terms of
average annual income (M1 and M2), where M1＜M2. Provided that all other things areequal (the amount of age-adjusted annual medical expenses per person, the amount offlat-rate contributions per person, the amount of income-related contributions perperson), the rates of income-related contributions (r1 and r2) differ between the province
1 and the province 2, where r1＞r2. That is, the poor province 1 has to levy a heavier
burden.
Figure 6

Income-gap Adjustment

(JPY)
g2
g1
Incomerelated
Contributions
per Person

r1

r2

r

Flat-rate
Contributions
per Person

M1

Source: Komatsu (2008)
9

M

M2

income

If equal footing is required, then both provinces should have an equal rate of incomerelated contributions. The equal rate of income-related contributions can be calculated
as follows. Let M be the average annual income of the two provinces combined, then r isequal to the average rate of income-related contributions as a whole. We then have g1
and g2 as differences of the amounts of income-related contributions per person between
before and after required adjustments. If some adjustment fund is set up, and it collects
the supportive money (g2 multiplied by its number of persons P2) from the rich province
2, while giving subsides (g1 multiplied by the number of persons P1) to the poor province
1, then an income-gap adjustment is completed.27
Japan currently has a different way of equal footing from the example stated above.
7.5% of the aggregate medical expenses (copayment excluded) are currently transferredfrom general revenue of the central government to each province. This adjusting moneyis called as the general subsidy (普通調整交付金), which is one component of public
transfers given in Figure 4.28 Using this general subsidy, the income-gap among
different provinces is partly adjusted.
Its adjustment mechanism is as follows. Let us take three provinces, where theiraverage annual incomes are denoted as M1, M2, and M3. If M3 = M (the national
average), then no adjustment is done, and the original subsidy of 7.5% remains
unchanged for the province 3. If M1 = 0.8×M, then the poor province 1 can levy 80% of
the income-related insurance contributions C1 (which is calculated as if its average
income were equal to M), and the gap is made up for an additional general subsidy.
Consequently, the province 1 finally receives the original 7.5% subsidy plus 20% of C1 as
the general subsidy. On the other hand, the province 2 is rich and their income is given
as M2 = 1.3×M. Then, the province 2 is asked to levy 130% of C2 (calculated as if its
average income were equal to M), and its general subsidy is reduced in turn. The
province 2 finally receives the original 7.5% subsidy minus 30% of C2 as the generalsubsidy.
Currently all provinces receive more or less the general subsidy from the central
government, and only a part of the general subsidy is used to adjust income gaps
between rich and poor provinces.
5

Cost Sharing for the Young-old of Age 65-74
As for those elderly of age 65-74 (前期高齢者), around 80% of them currently

participate in Kokuho. The majority of them are retired persons who moved from
employment-based programs. The amount of medical costs per person for this age-groupis relatively expensive, as is shown in Figure 3 (p.4). If no scheme of cost sharing for

In this case, g1×P1 is not always equal to g2×P2. Consequently, the adjustment fund has to holdits own reserves or to receive transfers from general revenue.
28 There is another subsidy from the central government, called “the special subsidy (特別調整交付金).” It is for helping provinces suffering from natural disasters and other specific difficulties, andcurrently is 0.83% of the aggregate medical expenses (copayment excluded). The other components ofpublic transfers are all proportional to the medical expenses.
27

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them had been implemented, then Kokuho would have faced serious financial
difficulties.
The special cost sharing method was invented in 1984, and its latest revision was
done in 2008. The current method is depicted in Figure 7. The basic idea is that eachhealthcare scheme has to share the medical expenses as if its participation rate29 of theyoung-old is equal to the national average. Let us denote each participation rate by r𝒾 ,where r1＜r2, and r is its national average. Further let us denote each amount of annual
medical expenses per person for the young-old and each number of participants of age
less than 75 by E𝒾 and P𝒾 respectively. Then the amount of grants paid in the cost
sharing scheme is given by E1×P1×(r－r1), whereas the amount of grants received isgiven by E2×P2×(r2－r).30
Through this kind of the cost-sharing arrangement, Kokuho receives a massive
amount of grants from all the employment-based schemes. Table 4 presents cost sharing
for the young-old in practice in 2018. It shows that Kokuho received the grantamounting annually to JPY 3.6 trillion. It was a little more than its aggregate amount of
insurance contributions, equivalent to around one fourth of its total revenue. In otherwords, cost sharing for the young-old operates as another method of income transferfrom actively-working younger persons to retired older ones, though Japan has no
independent healthcare scheme for them.
Figure 7

Cost Sharing for the Young-old

(%)

r2

r
r1
0

E1×P1

E2×P2

The participation rate for each scheme is defined as the number of participants of age 65-74
divided by the total number of participants of age less than 75.
30 Using E
𝒾 as a base for cost sharing may have no incentives to containing higher
29

medical expenses of Kokuho.

11

Table 4

Grants Paid and Received for the Young-old in 2018
SchemeAnnual Amount (JPY trillion)

Kyosai (共済)Kumiai (組合)
Kyokai (協会)
Kokuho (国保)0.5

(paid)

1.5(paid)

1.5(paid)

3.6(received)

Note: Figures are based on the budget for fiscal Year 2018.

Through cost sharing in the Old-old scheme and a special arrangement for the
young-old above explained, social security programs for healthcare are becoming very
similar to those for pensions, in that the basic feature of the program is income
redistribution from younger and middle-aged to older people.
6 Cost Sharing in the Kokuho Scheme
6.1 Overview of Kokuho
Kokuho dates back to 1961 when all the remaining others than participants in theemployment-based healthcare insurance programs were mandated to enroll in thecommunity (city)-based program. It includes self-employed persons, farmers, independent
workers, non-regular employees, the unemployed, and retired persons.31 Their averageage is relatively high, and thus their average medical cost per person is relatively high, aswell. Still more, their average level of income is relatively low. Incidentally a little lessthan 30% of Kokuho households had no taxable income in 2015 (see Table 5).
Table 5

Income Distribution of the Kokuho Households in 2015
Annual Taxable Income

Household Share(JPY 10,000)

(%)

0

28.4

1～99

28.2

100～199

22.9

200＋

20.5

Total＿_

100.0

Average Income: JPY 1.40 million
Number of persons per household: 1.66
Note: Annual taxable income is calculated by deducting JPY 330,000 from annual earnings.
Here, annual earnings are obtained by subtracting business expenses from its returns,
or by subtracting the statutory deduction from public pension benefits.
Source: MHLW, The 2015 Facts and Figures of Kokuho (国民健康保険実態調査)
The major part of the Kokuho participants has changed dramatically for the past 50 years. In
1965, farmers and the self-employed people were 68% in number, while in 2015 its share dropped to17%. In turn, non-regular employees and persons with no occupation (including pensioners) were
34% and 44% respectively in number in 2015.
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The insurer of Kokuho is each city. In 2015, the small-size Kokuho insurers of lessthan 3,000 participants were 471 in number, one fourth of the total (1716). Theirfragmented financial condition was quite unstable. Furthermore, even within eachprovince, there were considerably huge gaps among their cities in the annual medical
expenses per person (the maximum 2.6 times within Hokkaido province), the averagelevel of annual income (the maximum 22.4 times within Hokkaido province), and theaverage amount of insurance contributions (the maximum 3.6 times within Nagano
province).
In 2018, a new cost sharing scheme within each province launched. That is, the main
body for Kokuho financial managements of healthcare services moved from cities totheir province. Each province is responsible to pay all the medical expenses to medicalservice providers, while it collects the required money (国保事業費納付金) from its
member cities. Each amount of the required money is decided by the province and islevied on its member cities.
Money Flow of Kokuho
The chart of current money flow is demonstrated in Figure 8. Insured persons of
Kokuho receive medical services in kind from medical-service providers by directly
paying the copayment A (患者負担分) to them.32
6.2

Figure 8

Money Flow of Kokuho

Central Gov.t (General a/c)
Adjustment FundG
Province
C

I

Special a/c

H

General a/c

J(Social Pool)K
D

F
Federation of
KokuhoEach Member-city
General a/c

Special a/c

E

K
B

Medical-service in kind

Insured Persons(Patients)

Medical-service
ProvidersA

Participants can receive cash payments, as well, such as the refund of high medical expenses (高額療養費), lump-sum allowance for childbirth/child-nursing (出産育児一時金) and others. These cash
payment is not illustrated in Figure 8.
32

13

The copayment by patients is basically 30% of the total medical cost. However, a
reduction applies to the specified age-groups, and there is an upper limit in copayments.
Consequently, the effective copayment rate was 17.3% of the aggregate medical expenses
in 2015.
Medical-service providers send the bills of the remaining medical cost to theFederation of Kokuho (国保連合会)33 and receive the reimbursements K after the
professional checks and approvals from the Federation of Kokuho.
As is explained above, the current main body for Kokuho financial managements iseach province where its special account (特別会計) for Kokuho works as a social pool forpaying the reimbursements K to medical-service providers through the Federation of
Kokuho, and for paying the supportive grants J to the Old-old scheme through the
Adjustment Fund (支払基金).
Figure 9

Cost Sharing in the Kokuho Scheme

Subsudies

PublicSupportive

Transfers

GrantsContributions

50%

50%

Note: Copayments are excluded.

Figure 9 demonstrates the financial sources of the special account for Kokuho at theprovince level together with their respective shares. Its major source is the supportive
grants (前期高齢者交付金) for the Young-old of age 65 to 74 which come from the employmentbased healthcare schemes (I in Figure 8), as is already described in Section 5 in this paper.
The remaining sources are public transfers, subsidies34 and insurance contributions, andthe share of public transfers is statutorily set to equal 50% of those sources.
Public transfers are made up of the following 4 components.
1) The basic transfer from the central government (定率国庫負担). It was initially
20% of the aggregate medical expenses. It was once increased up to 40% of theaggregate expenses (copayments excluded). But, due to embarrassed state
33
34

The federation of Kokuho is set up on a province basis.
Subsidies are mainly for reducing the share of insurance contributions.
14finances, together with a new introduction of transfers from local governments, it
was decreased step by step to 32% of them (both copayments and supportive
grants excluded) from 2012 on.
2) The general grant from the central government for partly adjusting the incomegap among different provinces (普通調整交付金). Its standard rate is 7% of theaggregate medical expenses (two components excluded, as mentioned above).
Rich provinces receive less than 7% of them, whereas poor provinces do morethan 7%.
3) The special grant from the central government (特別調整交付金) for helping
provinces/cities which suffer from natural disasters and other specific difficulties.
As a whole, it is 2% of the aggregate medical expenses of Kokuho (twocomponents excluded, as mentioned above).
4) The grant from its own province (都道府県繰入金). Its share is 9% of the aggregate
medical expenses (two components excluded, as mentioned above).
The first 3 components are shown as G in Figure 8, while the 4th component isdenoted as H in the same Figure.
Regarding subsidies, Kokuho receives following 5 kinds of them.
5) The compensating grants for reduced contributions (保険料軽減分) toward low
income persons. 75% of them are subsidized by the province and the remaining
25% by the city. They are shown as D and E in Figure 8.
6) The subsidizing grants for paying high medical expenses above JPY 800,000 per
month per person (高額医療費負担金).35 The central government and the provinceshare each 25% of them, and the remaining part (50%) is paid by insurance
contributions. The grants are included in G and H shown in Figure 8. 36
7) The subsidy for supporting insurers of Kokuho (保険者支援分), which corresponds
to the varying number of low income persons. The central government shares
50% of its subsidy (shown as C in Figure 8), while the remaining 50% is sharedhalf and half by the province and the city (both included in D and E respectively
in Figure 8).
8) The stabilization grant (財政安定化支援分) from the central government for helping
to level off the average amount of contributions among different cities.37 This
grant is included in C in Figure 8.

There is an additional subsidy for paying much higher medical expenses more than JPY 4.2
million per month per person. This subsidy comes from the central government.
36 China has a unique system for managing high medical expenses in the community-based scheme.
It is a joint venture of the community and private insurance companies.
37 There is an additional money transfer, though not legislated by statute, coming from many cities(which is included in E in Figure 8). This transfer is to make up for the deficit of the special accountof Kokuho at the city level, arising mainly from hesitating to levy higher insurance contributions
and/or a lower collection rate of contributions. The aggregate annual amount of this transfer was
JPY 300 billion in 2015, which decreased the amount of contributions from JPY 3.0 trillion to JPY
2.7 trillion.
35159) The subsidy (保険者努力支援分) from the central government for encouraging local
governments to make medical expenses more reasonable and to promote a
healthier life there. This subsidy is included in G in Figure 8.
Owing to the implemented massive amounts of supportive grants, public transfers
and subsidies, the share of the insurance contributions is reduced to 24% of theaggregate annual medical expenditures (copayments excluded), as is shown in Table 6.
Nevertheless, burdens of insurance contributions in Kokuho are still heavier than thosein the employment-based schemes.38
Table 6

Financial Sources of Kokuho in the 2019 Annual Budget
Amounts

Share(JPY trillion)(%)

Supportive Grants（前期高齢者交付金）

3.49

31.8

Basic Transfer（定率国庫負担）

2.29

20.8

General Grant（普通調整交付金）

0.64

5.8

Special Grant（特別調整交付金）

0.18

1.6

Grant from Province（都道府県繰入金）

0.64

5.8

Grant for Reduced Contributions（保険料軽減）

0.44

4.0

Subsidy for High Expenses（高額医療費負担金）

0.19

1.7

Subsidy for Supporting Insurers（保険者支援）

0.26

2.4

Stabilization Grant（財政安定化支援）

0.10

0.9

Subsidy for Encouraging Insurers（保険者努力支援）

0.09

0.8

Insurance Contributions（保険料）

2.67

24.3

10.99

100.0

SourceTotal（総計）Note: Copayments are excluded.

6.3

Allocation of the Required Money: Cost Sharing among Regions
The aggregate amount of required money for each province (国保事業費納付金) is

given by deducting supportive grants for the Young-old, public transfers and subsidies
from the aggregate amount of annual medical expenses (copayments excluded), and byadding the supportive grant to the Old-old scheme. This amount is allocated into its
member cities by each province. Each member city has to pay exactly the same amountof the allocated money to its province. In allocating this money, age gap and income gap
are both taken into consideration. This section explains how these gaps are currently
adjusted in the Kokuho scheme.

In 2015 the average rate of contributions for Kokuho was 9.8%, whereas that for Kumiai was 5.7%
(employers portions excluded).
38

16

6.3.1
Adjusting Age Gap
Age gap is seen between provinces and also within provinces. Age gap between
provinces is adjusted through cost sharing for the Young-old (前期高齢者) based on theirrespective participation rates, as is described in Section 5 of this paper.
Age gap within provinces is adjusted as follows. Take City A for example, and let 𝑁𝑖
and 𝑀𝑖 indicate each number of Kokuho participants in its city and each nationalaverage amount of annual medical expenses per person by 5-year age groups 𝑖
respectively, then the total sum of (𝑀𝑖 × 𝑁𝑖 ) divided by the total number 𝑁 of Kokuho
participants in City A means the amount of annual medical expenses per person in thatcity, provided that medical expenses per person of City A by age were equal to thenational average. The age-adjusted index is given by 𝑌/[sum of (𝑀𝑖 × 𝑁𝑖 )/𝑁], where
𝑌 demotes the actual amount of annual medical expenses per person in City A.39
If this index is more than 1, the age-adjusted medical expenses are relatively higher
than the national average. Using this index, cost sharing among cities is executed.
6.3.2
Adjusting Income Gap
There are mainly two policy measures for the authorities to adjust income gap.40
One is the general grant from the central government (普通調整交付金), and the other isthe required money levied on its member cities by each province (国保事業費納付金).
The adjustment mechanism of the former is essentially the same as that of the Old-old
scheme, as already explained in Section 4.3 of this paper. If Province P has its averageannual income being equal to the national average, then it receives the standard 7% of
its aggregated medical expenses as the general grant. If Province Q is rich, enjoying ahigher income level, then its general grant is reduced to less than 7%. If Province R ispoor, having its average income less than the national average, then it receives morethan 7% as its general grant, which enables Province R to set the share of incomerelated insurance contributions to less than 50%.
All the statements above assume that the age-adjusted annual medical expenses perperson in Provinces P, Q and R is same. If this amount is different among theseprovinces, then the general grant is further adjusted, being proportional to the ageadjusted index above explained in Section 6.3.1 of this paper.
Allocation of required money to the member cities (国保事業費納付金) is sophisticated.
In allocating it, the money is divided into two parts; one is proportional to the headcount ratio (人数割), and the other is an income-proportional portion (所得割).41 There isa guideline that the standard shares of them are 50:50, provided that the average
income of the region is equal to the national average. Any city with a higher (lower) levelof average income is asked to have a share of more (less) than 50% for the incomeproportional portion.
In practice, the age-adjusted index is calculated as its moving average of the latest three years.
Another measure is the subsidy for supporting insurers (保険者支援金).
41 In practice, the head-count ratio can be combined with the per-household portion, and the incomeproportional portion can be matched with the real-estate-related one.
39
40

17

Take Province P for example which has 3 member cities, A, B, and C. Let assume
that the amount of age-adjusted annual medical expenses per person of Province P (andits cities A, B, and C) is equal to the national average, and that each number ofparticipants and the amount of average annual income in member cities are given as
presented in Table 7. The amount of the average annual income per person in Province P
is assumed to be equal to the national average (JPY 10,000), and the aggregate amountof required money for this province is assumed as JPY 100,000. Then, each share of two
portions is 50:50 on the province basis, and each allocated amount is shown in Table 7.
Table 7City

Number of

Allocation of Required Money: Example 1

Average income Index of Medical

Required Money

Aggregate Amountper Person (JPY)Portion 1
Portion 2

of Required Money (JPY)Portion 1 Portion 2
Total

Participants(JPY)

ExpensesA

50

10,000

1.0

500

B

20

17,500

1.0

500

C

30

5,000

1.0

500

Total

100

10,000

1.0

―

500
875
(500×1.75）
250(500×0.5）―

Income Ratio
Portion 1 Portion 2

Total

25,00025,00050,000

0.050

0.050

0.100

10,00017,50027,5000.02860.050

0.078615,0007,500

22,500

0.100

0.050

0.150

50,00050,000100,000

―

―

0.100

Note: It is assumed that the amount of age-adjusted annual medical expenses per person and thelevel of annual income for Province P are both the same as their national averages. Portion 1
indicates the part by the head-count ratio, and portion 2 means the income-proportional one.
Figures highlighted in blue are the assumed ones.

Table 7 implies that without the income-proportional portion, the poor city C would
have been forced to pay quite heavier burdens due to the portion by the head-count ratio
only, though the head-count principle will equalize the burdens per person among cities
in Province P. With the combined income-proportional portion, the relative burdens ofCity C are reduced, although its burdens still remain relatively heavy. Anyway, theincome-proportional portion operates as a gap-decreasing factor, and enables each rateof insurance contributions (the income-proportional portion) of the member cities to besame if all their indexes of age-adjusted annual medical expenses per person remainsame.42
Table 8City

Number of

Allocation of Required Money: Example 2

Average income Index of Medical

Required Money

Aggregate Amountper Person (JPY)Portion 1
Portion 2

of Required Money (JPY)Portion 1 Portion 2
Total

Income Ratio

Participants(JPY)

ExpensesD

50

10,000

0.8

400

400

20,00020,00040,000

0.04

0.04

0.08

E

50

10,000

1.2

600

600

30,00030,00060,000

0.06

0.06

0.12

Total

100

10,0001.0――

50,00050,000100,000

―

―

0.10

Portion 1 Portion 2

Total

Note: It is assumed that the average level of annual income in Province Q and its member cities D
and E is all equal to the national average, and that each number of participants for D and E
is also equal. The index of annual medical expenses per person is given as age-adjusted, andis assumed to be different between D and E as 0.8 vs 1.2. Figures highlighted in blue are theassumed ones.

42

This adjustment is done by the general grant from the central government (普通調整交付金).
18

Table 8 demonstrates another allocation of required money in the case that theindexes of age-adjusted annual medical expenses per person vary among different cities.
Table 8 takes up Province Q which has two member cities, D and E. D and E have theonly difference in levels of the index of medical expenses, assuming all other things
being equal. It is shown that the required money for the member cities is proportional tothe varying index of medical expenses, and this holds true for both portions. In short, a
guiding principle is that if the average level of income is same for the two cities
concerned within a certain province, the required money per person levied is
proportional to the age-adjusted average medical expenses per person of each city.43 The
different level of the age-adjusted medical expenses per person remains untouched incost sharing. It is a matter of each insurer, and insurers are encouraged to have morecost-effective healthcare services by other policy measures.
6.4

Offer of the Standard Contributions
When a province gives the formal notice of each annual amount of the requiredmoney to its member cities, it offers the standard insurance contributions to them, as
well, as a pro forma amount. The comparative list of them together with the index ofage-adjusted medical expenses per person and the average income can visualize theirdifferences among member cities, and thereby promote their leveling within its province.
This leveling is preferred after the unit of social pooling was scaled up to each province.
The base for calculating the standard insurance contributions is given by deducting
two subsidies44 (for supporting insurers (保険者支援) and for encouraging insurers (保険者努力支援)) from the required money, and adding the expenses for implementing healthprograms (保健事業).45 In calculating standard contributions, each province takes into
account the standard collection rate of contributions for respective cities.46
6.5

Insurance Contributions47
Each insurer (city) decides the actual contribution rate, referring to the standard one
given by its province, with taking into account the compensating grants for reduced
contributions (保険料軽減分).
Furthermore, some cities are able to have a lower rate in practice if they can enjoy
special non-statutory transfers from general revenue of its own city, and/or they have ahigher collection rate of contributions.
There are some rooms, though exceptional, for provinces not to set the required money completely
proportional to the indexes of medical expenses for their member cities.
44 There is one more deduction: a subsidy to care for intractable diseases such as mental andchildren-related ones.
45 Their examples are consciousness building, health guidance and encouraging medical consultationby using receipts and others.
46 The standard collection rate of contributions for Kokuho was 83.3% in 2015 on average. In otherwords, around 17% of the total Kokuho households remained delinquent in paying insurance
contributions in the same year.
47 An overwhelming majority (87%) of cities have adopted the insurance “tax” for the legal term,
instead of the insurance “contributions” in 2016.
43

19

Contributions for Kokuho are generally composed of following four portions: (a)income-related (所得割), (b) the real-estate-related (資産割), (c) per-person (均等割), and (d)per-household (平等割) portions. The former two portions are an ability-to-pay part,while the latter two are a part on benefit principle.48, 49, 50
Reduced contributions are levied on persons with lower income. Reductions only
apply to the per-person and per-household portions. The rates of reduction are 70%, 50%
and 20% depending on the level of income.51
The upper ceiling for the annual amount of contributions per household are
JPY800,000 in 2019, and this ceiling has been updated every year. The proportion of
those households who are applied to this upper ceiling will gradually reach to 1.5% of
the total Kokuho households in number.
In total, around 40% of the Kokuho households were exempted from paying theincome-related portion due to their very low or zero taxable income in 2015. Only 15%
paid the real-estate-related portion, and a little more than 50% were permitted to pay a
reduced contribution levied on benefit principle.
7

Insurance Contributions in the Kyokai Scheme
The current scheme for employees in SMEs is Kyokai (協会), which is financiallymanaged by a nationwide non-public organization, while the rate of its insurance
contributions is set on a provincial basis. Its former scheme was called as Seikan (政管：
政府管掌健康保険) which was managed by the central government and had only one
unified rate of insurance contributions. The shift of the scheme to Kyokai took place in2008.52

Kyokai receives statutory transfers from general revenue. They currently amount to16.4% of the aggregate annual medical expenses (copayments excluded). The main
reason for these statutory transfers is the participants’ lower level of income, comparedwith that for Kumiai or Kyosai participants as is presented in Table 2.53 Age gap andincome gap among different provinces are adjusted through transfers from generalrevenue, as well.54
Smaller cities usually have the real-estate-related portion, while larger ones do not necessarily
have this portion. Some cities, though minor in number, do not have the per-household portion.
49 In the employment-based healthcare schemes of Japan, there is only an income-related portion,and no other portions such as those on benefit principle.
50 In China, the community-based system has a flat-rate per-person portion only, with no otherportions.
51 In 2019, the respective thresholds of annual earnings for reductions of 70%, 50% and 20% are JPY
330,000, JPY 330,000 + (JPY 280,000×N), and JPY 330,000 + (JPY 510,000)×N, where N is thenumber of household members. Recently around 40% of Kokuho participants pay reduced
contributions.
52 This shift is in line with the policy that each province, which holds jurisdiction over establishing asystem that provides high quality medical care, is to actively work through diminishing the gap in
medical expenses per person between provinces.
53 The overwhelming majority around 81% of business establishments participating Kyokai were
those with 10 employees or less in 2017.
54 On the other hand, Kyokai pays a substantial amount of supportive grants to the Old-old schemes
and to Kokuho (for the young-old). In 2017, it amounted to 36.7% of its aggregated annual
48

20

The rate of insurance contributions differs between provinces, reflecting varying
indexes of age-adjusted annual medical expenses per person (see Table 9) and different
levels of salaries on average.55
Table 9Gap of Contributions by Provinces in 2018:
The Kyokai Scheme (Top 3 and Bottom 3)

Province

Rank

Rate of Contributions (%)

Saga (佐賀)

1

10.61

Tokushima (徳島)

2

10.28

Oita (大分)

3

10.26

………

………

………

Shizuoka (静岡)

45

9.77

Nagano (長野)

46

9.71

Niigata (新潟)

47

9.63

Source: Kyokai (2018) “Table of Contributions” (協会けんぽ「2018 年度保険料額表」)

8

Concluding Remarks
Overall, thanks to full-fledged cost sharing among different ages, regions andoccupations, together with free access to any medical service providers and a very
generous refund system for high medical expenses, Japanese are under a distinctively
egalitarian scheme of social security healthcare.56 Yet, her aggregate annual amount of
medical expenses as a ratio to GDP is relatively low among major old countries in theworld.
Age gap and income gap are two major structural factors to be adjusted in cost
sharing of social security healthcare. At the same time, a majority of Japanese take it for
granted that gaps in medical expenses per person have to be reflected to varying
amounts of copayments and relevant rates of insurance contributions among different
healthcare schemes.
Cost sharing of social security healthcare is massively done in Japan through pooled
insurance contributions (supportive grants) and public transfers. By and large, it isexecuted on a provincial basis.

expenditures.
55 See Hokkaido Branch (2014), p.4 and pp.11-13 for more details.
56 As far as social security system of healthcare, pensions and long-term care are concerned, Japan
looks like a country under a profound socialism. Generally speaking, Japan is sustaining a society ofmutual trust between people, and almost all Japanese government officials are clean, winning a
sense of trust from a majority of people.
21

Due to persistent ongoing aging of her population, its cost sharing will further growin the future. How to make it to be compatible with a cost-effective system still remains.
Never-ending reforms will continue in Japan.57, 58

Among others, halving the gap in medical expenses among regions is one of top priorities incurrent healthcare policies. Also the gender gap in medical expenses will be additionally taken into
account in allocating the general grant from the central government (普通調整交付金) in Kokuho.
58 Social security long-term care and medical assistance (in public assistance) in Japan will face
more serious financial problems.
57

22

【Acknowledgements】
The present author is deeply indebted to valuable comments and helpful advices fromDr. Xinmei Wang, Prof. Xiaobing Feng, Mr. Kei-ichi Fukuyama (福山圭一), Mr. Takashi
Yoshino (吉野隆之) and Mr. Michihide Akita (秋田倫秀) for revising this paper. He is very
grateful for research grants from the JSPS (19H01496, 17H00991, 16H03629). The
present author is solely responsible for any remaining errors.
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