Silviase/jgov_v1.4_full_ann huggingface dataset:
will be concentrated in the nation’s top major metropolitan areas, particularly Tokyo and Osaka. Such concentration would raise concerns, since elderly urban housing is often crowded and of low-quality, it may be ill-suited for those with physical limitations, and it may be inappropriate for those needing frequent services and attention. $ ^{13} $

Another important point to note is the substantial differences in terms of LTC capacity across regions, particularly regarding the number of beds available in institutions. Figure 2 and Table 5 indicate that beds per 1000 elderly average 32 overall, with a high of 50 and a low of 22; the ratio of beds to eligible elderly averages 238 per 1000, but the low is 169 and the high is 319. Interestingly, the capacity is highest per capita in the Chubu region, and also in the south of the country (AJFNHIO, 2003).

Utilization ratios are also of interest, insofar as they reflect regional differences which will likely translate into uneven cost patterns across the nation. Figure 3 indicates the regional variability in institutional care users per elderly, which averages a 3% rate overall, with a range from 2 to 5%. The highest is observed in Okinawa. An even larger range is observed for at-home care users, where the national average of 8% covers the 5-10% range. Here too, it appears that utilization rates are lowest in the Kanto region, and highest in the south of the country, particularly Miyazaki.

A related consideration regarding the current decentralized LTC system is that it appears to be suffering excess demand for its services. Kishida (2002: 269) wrote that “since LTC insurance was initiated, there has been a sharp increase in applications to these special skilled nursing homes, and waiting periods of 6 months to one year are not unusual.” Asahi Shinbun (2003) reported that a survey of prefectural governments found over 200,000 elderly people were on waiting lists seeking entrance to special care homes, among the subset of offices keeping records (only 27 of the 47 responded with data). The latter article also found substantial shortfalls in 2001: residences for those 65+ who could not care for themselves were operating at 97 percent capacity, and the national capacity was only for 314,000 residents in total. Ikegami (nd) indicated a substantial rise in the fraction of the elderly population certified as needing care over time, from 10.5% in 2000 to 14.1% in 2002, higher than the 12% ratio used for planning purposes. Of those certified, the percentage actually receiving benefits rose from
76.1% in 2000 to 77.8% by 2002, with the remainder waiting to be accepted in institutional facilities. These figures suggest that as the population becomes more aware of the benefits available, demand will rise.

If Japanese LTC services were priced in such a way that they reflect economic scarcity, the economist would expect that capacity differentials would result in higher fees across regions of the country. Yet prices are not set by markets; rather, the government sets national service fees and alters these only every three years. This results in a very low degree of variability in fees per user across the country (Figure 4), with the average institutional charge per user of institutional services totalling about ¥43,000 annually and at-home care fees for homecare users amounting to about ¥11,000 annually. Standard deviations around these numbers are quite small, on the order of ¥900-1,000. This confirms that substantial differences in utilization and capacity are not reflected in regional fee differentials.

It must also be noted that regional disparities are also influencing the revenue side of the program. Ikegami (2003) has argued that high levels of joblessness contributed to lower LTC system revenues, particularly in the prefectures hardest hit by the long Japanese recession. Furthermore, the poor elderly participants pay no premiums, due to either evasion or waivers (currently about 40% of the total), and this group is not necessarily evenly spread across the country, either. Consequently, there is increasing awareness of the need for geographic cross-subsidization, and the federal government has promised that 5% of the program’s budget will be used to adjust for differences in municipalities’ financial capabilities.

## Multivariate Analysis

To further analyze observed cross-sectional fee and utilization patterns, we next turn to a multivariate analysis of the determinants of LTC entitlement and utilization patterns across Japanese prefectures. Three dependent variables are selected for analysis: elderly LTC entitlement rates, utilization rates for institutional care, and utilization rates for at-home care. These are available at the prefectural level, and we relate them to a set of explanatory variables also measured at the prefectural level: population density, wages of caregivers, and local care capacity. $ ^{14} $ Our goal is to evaluate, in
particular, whether entitlement and utilization rates vary with population density; are higher in rural vs urban areas; are responsive to proxies for care prices; and vary with capacity indicators. The particular functional form we use is as follows:

$ Dep\ Var_{it} = f(\text{Density}_{it}, \text{Healthcare salaries}, \text{Area income}, \text{Capacity}_{it},) $

where i refers to the prefecture, and t refers to the year of the data (2000 and 2001 prefectural-level data were used in the analyses). Density refers to the number of residents in that prefecture (per km squared); healthcare salaries represent earnings plus bonuses in the healthcare sector by prefecture; area income refers to the monthly average earnings (including bonuses) by prefecture; and capacity refers to the ratio of long-term care and hospital beds to the number of elderly.

Results appear in Table 6, where we first control only on density, healthcare sector salaries, and income; thereafter, we add a set of capacity regressors. Focusing on column (1), we note that entitlement rates are significantly higher in more densely populated areas, holding other things constant, which contradicts a common perception that rural areas have higher percentages of elderly who are eligible for LTC. The finding may indicate that the urban elderly can remain independent more readily, due to reliance on friends, neighbors, and offspring, than can their rural counterparts. We also see that entitlement rates are significantly lower in areas with higher wages for healthcare sector workers, suggesting that entitlement decisions may respond to costs of providing the care. Entitlement rates are also significantly lower in prefectures with higher incomes, which may proxy for better health among the well-off, or it may also reflect a negative income effect: that is, those who can afford it are more likely to avoid LTC. These findings suggest that efforts to project future demand for LTC should take into account not only growth rates of the elderly population, but also the likely impact of future increases in income and care costs. The results also indicate that eligibility rates are higher, the greater fraction of the population age 75+; this is reasonable in view of higher disability rates among the more elderly. Column (2) indicates that these findings are robust to the inclusion of capacity indicators, captured here by the number of LTC and hospital beds per 1000 elderly. It is interesting that LTC bed availability is positively and significantly associated with entitlement patterns, but non-LTC bed availability is not statistically significant.

The empirical relationship between at-home and institutional utilization rates is reported in
Columns 3-6. Focusing first on the at-home care equations, Columns 3 and 4 suggest that, again, more densely populated areas have higher utilization rates for home care. There is a strong and significant negative relationship between healthcare salary levels and LTC utilization, ceteris paribus, which implies that utilization responds to the price of care. Area income is negative (though less statistically significant), which may reflect the fact that higher-income eligibles face a higher cost of care (are less subsidized) than lower-income eligibles. After controlling on bed capacity, utilization proves to be positively associated with LTC beds, but not with regular hospital bed capacity. Columns 5-6 report our analysis of institutional utilization rates, where many of the patterns just reported are reiterated. In more urban areas, institutional care utilization rates are positive, as is the effect of higher percentages of people age 75+. While healthcare sector earnings are less statistically significant, income levels in the prefecture remain negative. LTC utilization is positively and strongly related to LTC bed capacity, while non-LTC bed capacity is not. $ ^{15} $

## Socially versus Privately-Provided LTC: The Arguments

There is an ongoing and contentious debate in the literature over who should pay for long-term care and how it should be delivered. $ ^{16} $ Some believe that private-sector insurers can develop and market insurance products that efficiently provide the needed protection against the possibly catastrophic costs associated with having to go into a nursing home. Others take the position that LTC insurance cannot be provided in a competitive market, arguing that a governmental entity is required to mandate and perhaps provide LTC in a national social scheme.

Many who favor the social insurance approach argue that LTC should be provided via a central delivery system paid for by mandatory premiums (taxes dedicated to the LTC program). Proponents of social provision offer several arguments to support their case:

a) They contend that consumers are underinformed of the risks and costs associated with LTC, so they must be protected from failing to purchase LTC insurance;

b) A private LTC insurance market suffers from adverse selection: people who know they require care would tend to buy insurance coverage, driving up premiums for the rest of the population and destroying the risk pool;

c) A private LTC market suffers from moral hazard: people might overuse LTC services if they had insurance, driving up premiums and producing a market breakdown;

d) LTC costs are often catastrophic and many people cannot afford to buy insurance to cover them;
and

e) It is unfair to require the elderly to sell their homes and spend down all their assets if become frail.

Of course, economists may agree that market failures exist, but many would contend that these could be addressed by making private markets work better, rather than requiring the government to offer a centralized LTC system. For instance, misinformed consumers could be better apprised of LTC costs, enhancing demand for privately-provided insurance products. In other cases, such as adverse selection, mandating participation in a LTC system could help preserve the risk pool without having the government provide these services centrally. In order to combat moral hazard, however, so people do not overutilize care, it may be necessary to establish strict requirements for care provision as well as deductibles and co-insurance. And finally, the equity arguments (d and e above), could imply some need for vouchers or low-income subsidies: here again, however, the government need not set prices nor dispense services directly.

By contrast, those who stress the need for market approaches to LTC emphasize several distinct arguments to support their case, including the following:

a) People might be able to self-finance LTC by saving for their own old age, by liquidating private assets (including housing equity) to cover costs, or by receiving care from their families (which many elderly would prefer);

b) Privately purchased LTC insurance coverage would permit tailoring of care to consumers' particular needs and wishes, better than a single menu offered by government;

c) Observed low demand for private LTC might be the result of “crowd out” – that is, consumers may believe that government “safety net” programs will care for them if they become indigent, so they fail to make private provision;

d) Government care, perceived as “free,” would boost inefficient utilization, whereas privately-purchased insurance might mitigate this tendency with deductibles and co-insurance;

e) Subsidized government provision can cause inefficiencies in both the labor and the LTC markets, and evasion associated with redistributive taxation.

In other words, a market-based approach to LTC provision would propose that private provision could be more efficient than a government at establishing prices and quantities of long-term care services sold. Some concerned that the poor could end up without care would likely favour a voucher system, so that a minimum level of care could be provided to destitute consumers requiring LTC. On the other hand, resulting low benefits and restrictions on access would mean that most consumers would still have to pay for care at prices reflective of economic resource costs. Such an approach, if combined with mandatory participation, would still embody some inefficiencies, but it could offer consumers
incentives to seek lower-cost alternatives and to undertake more self-provision, either through saving or insurance, than would be the case otherwise.

## Prospects for Private LTC Insurance in Japan

In view of the catastrophic nature of LTC expenses, it is interesting that the private insurance market plays such a small role in Japan, as well as in many other developed nations. For instance, Garber (1999) argues that the “most striking feature” of the US health care system is its failure to develop much of a private insurance sector. Only one in five married couples deemed to be able to afford private LTC insurance in the US, for instance, is adequately protected against this risk in retirement (Merlis, 2003). Many attribute this shortcoming to the pervasive influence of public programs such as Medicare and Medicaid, which tend to crowd out privately-provided LTC insurance (Doerpinghaus and Gustavson, 2002). The wealthy tend to self-insure, leaving the middle class as the group potentially most interested in private LTC coverage. It is widely believed, however, that this middle group thinks that their LTC will be met through Medicare (which is not correct), so hence they do not purchase individual policies. Better marketing by insurers could correct this misinformation, but this has not happened to date to any large degree.

## Future Demand for Private LTC Insurance in Japan

Several factors will influence Japanese demand for LTC in future years. These include developments in health care and technology, and changes in length of time during which the elderly population experiences periods of frailty. Their net impact on LTC demand is difficult to predict. Perhaps the greatest unknown is how attitudes in Japan will continue to evolve given what is widely recognized as a fundamental change in the society’s approach to care for the elderly. On the one hand, establishing an entitlement-oriented LTC program in Japan will surely make it possible for older persons to accept services without social stigma. On the other hand, demand for LTC may not grow as quickly as the elderly population. This is what has occurred in the US due to falling disability rates in the older population. Indeed, reduced elderly morbidity may mean that more people are able to care for their spouses in a nonmarket setting, thus reducing the demand for institutional LTC (Lakdawalla and Philipson, 2003). In addition, levels of wealth will surely influence the demand for care, by directly shaping older consumers’ ability to pay for care, and indirectly by influencing younger workers’ ability.
to pay for rising premiums associated with the national mandatory system.

Another key factor affecting the demand for LTC will be the attractiveness of these services to elderly consumers, particularly institutionalization, as compared to the alternatives of at-home care or residential living of some other sort (Pauly, 1990). In other words, people may be less likely to opt for institutionalization if attractive and low out-of-pocket cost substitutes are available. The medical literature on this topic is discouraging, since it suggests that home care is not a particularly effective substitute for nursing home care. One well-designed experimental program in the US, known the Channeling Demonstration project, showed that assigning expert case managers to help frail customers remain in the community increased costs and patient satisfaction, but did not forestall health deterioration, nursing home admission, or death (Garber, 1999:148). From a quality-adjusted perspective, then, the economics profession has concluded that the price elasticity for nursing facilities among the very ill is fairly small. On the other hand, some aspects of nursing home demand do appear to be price-sensitive, particularly among those in nursing facilities for short stays (Garber and McCurdy, 1992).

In Japan's case, a variety of price elasticities for different types of institutional care were evaluated by Noguchi and Shimizutani (2002), who examined the determinants of exit and reentry from medical facilities (requiring substantial medical input), versus welfare facilities (providing room and board, but little medical intervention). Using a unique dataset on Japanese nursing homes from Kaigo Service Shisetsu Zigyousho Chousa (Survey on Care Service Providers) conducted by the government in 2000, they showed that a one percentage point rise in consumers' cost of care increased their probability of returning home by only 0.04 percentage points from long-term welfare facilities. The estimates were much larger, 3.7 percentage points, for exits from health facilities. It is also interesting that they found large price elasticities with respect to re-hospitalization probabilities: a one percentage point increase in consumer costs cut re-entry to a health care facility by 3.3 percentage points, and by 1.9 percentage points to a medical care facility. Evidently, at-home care is a substitute for some institutional care, but care in medical institutions is complementary for nursing home care. It is also apparent that the elderly in relatively lower care levels, who face higher self-burden in the event of needing long-term care, also tend to be re-hospitalized if they lack family members with whom they can
live. Consequently, policies that address the residential patterns of those who are “socially hospitalized” in Japan could well focus on that category of elderly consumers. Finally, the research study found that the price elasticity with respect to duration of stay in nursing homes is -1.7 percentage points for long-term care welfare facilities, and -1.8 percentage points for health facilities. These rather large elasticities imply that price policy may be effective in inducing clients to reduce consumption of institutional care in favor of at-home care.

Another issue of relevance in this arena is whether people prefer public and/or nonprofit care providers, versus for-profit providers. In the Japanese context, Noguchi and Shimizutani (2003) found that 40% of the providers of at-home care are situated in the for-profit sector. Evidently, the introduction of public LTC insurance in Japan did not foreclose the entrance of profit-oriented firms to the at-home services market. The evidence also suggested that households with higher care needs were more likely to choose a nonprofit provider. This is partly in response to the legal requirement that these firms are the only ones permitted to provide medical and institutional care, and also a result of the fact that nonprofits were early participants in the marketplace, having been permitted to operate prior to the LTC reform. While for-profit providers are therefore disadvantaged, the study found that households with greater knowledge of supplier choices were more likely to select for-profit firms as caregivers. This suggests that, over time, greater information about the positive aspects of the for-profit firms will render the at-home care market more competitive.

Future Supply of Private LTC Insurance in Japan

The supply of private LTC is deeply influenced by the probability of adverse selection. To some extent, underwriting in private markets should reduce adverse selection, but it is important to note that the assessment technology remains in its infancy (Garber, 1996). Of course, mandating LTC coverage mitigates the problem of adverse selection in the purchase of the insurance, but it does not help in terms of service utilization. Asymmetric information remains a concern regarding who needs the benefits: it is expensive and difficult to assess each person’s case individually. There is some interesting recent research finding no positive correlation between LTC insurance purchase and the probability of entering a nursing home; indeed, Finkelstein and McGarry (2003) find that those who purchased LTC insurance in the US were more cautious and less likely to go into a nursing home, than
those without coverage. For this reason, their research suggests that LTC insurance prices may not be unduly influenced by actuarially unfair selection, which eases the policy concerns about market failure.

There is increasing interest in developing approaches to measure the quality of care given in nursing homes and other LTC institutions. Carpenter et al. (2001) discussed five indicators for evaluating quality in the US context: falls by patients per month, the presence of pressure ulcers, fecal incontinence, restraint use, and social interaction with others. They reported that Japan had very low rates of pressure ulcers, while US homes had very good rates of social interaction but also high rates of falls and restraints. These authors proposed that all nursing homes be encouraged to gather data on these and other performance measures, and that insurers link outcomes to reimbursement patterns.

Further information on the quality differentials between for-profit versus public sector and nonprofit providers in the home-care marketplace in Japan is provided by Shimizutani and Suzuki (2002). That study reported that for-profit firms appear to have less experienced and trained staff, but the differences could be explained by the age of the business. Not surprisingly, younger firms had somewhat less experienced staff, but they also proved to have better information processing systems, better handling of accidents and emergencies, and better hygiene practices. Controlling on service quality, they reported that public providers cost slightly less, but newer firms were more efficient than older providers. These findings therefore confirm that competition contributes to improving the quality and efficiency of the market for at-home LTC services.

There may also be other reasons for why insurers have moved slowly into the LTC marketplace in the developed world. One issue is that there is inevitably substantial and fundamental uncertainty regarding the future paths of diseases, medical breakthroughs, and technological advances. Each of these could dramatically change future life expectancies, life years in frail condition, and consequent LTC costs. Also, the existence of LTC insurance may induce moral hazard: that is, families may find it easier to “unload” their relatives to nursing homes, (recall the concept of “social hospitalization” mentioned above). Both factors help explain why private LTC policies in the US have had daily and lifetime (and sometimes financial) caps on coverage offered. In the past, many private policies did not guarantee renewability either, though this may be changing of late. And researchers have noted that private LTC policies are often not price indexed, meaning that the consumer remains at risk for