Silviase/jgov_v1.4_full_ann huggingface dataset:
out-of-pocket expenses over the long term. Perhaps most importantly, private policies have tended to be silent regarding what they will pay if the government were to dramatically change its policies regarding medical care coverage, out of pocket requirements, spend-down policies, and other related support. Such uncertainty on the consumer’s part regarding the ultimate value of the private insurance surely serves to depress demand, and also depress offerings on the supply side.

In the Japanese context, some have talked about expanding the market for privately-financed medical care but several obstacles currently appear to impede expansion. Balance-billing by providers is currently not permitted, nor are investor-owned hospitals (Ikegami, 2003). Further, the government currently limits private insurance benefits to the provision of at-home care. Until private firms are permitted to operate nursing homes for the elderly, it is unlikely that market answers to the LTC challenge will be successful (Go, 2003). At-home care services are not thus restricted, but public funding or tax subsidies are not allowed to finance them. For this reason, private firms are at a substantial disadvantage vis a vis government-run operations.

Prior to the introduction of the public LTC program, private LTC insurance was not very widely sold in Japan. A key problem facing private insurers was adverse selection, due to the difficulty of measuring people's true health status. Now that the public LTC program has taken on the role of determining care needs and implied care levels required, this may make it easier for private insurers to predict and price risks.

Thus far, the niche for private LTC insurance in Japan has been mainly complementary to the public LTC program. One source of demand is for care if required before age 65, since the public program focuses on the elderly. Another possible source of demand would be for gap cover to meet the co-pays required by the public program – namely, the 10% of the service costs that the consumer must bear under the program.

There are signs that interest in private LTC is growing in Japan. For instance, the share of those with LTC insurance contracts in 2003 was 16% of those who purchased life insurance, more than a doubling of the rate only three years before (7%; Japan Institute of Life Insurance, 2003). Providers of private LTC currently include private life insurance companies (e.g. Nippon Life Insurance Company); private property and casualty insurance companies; the National Mutual Insurance Federation of
Agricultural Cooperatives (Zenkyoren); and the Postal Life Insurance Service of the Japan Postal system. As a rule, the insurance policies stipulated rather severe thresholds for disability, such as the condition of being bed-ridden or diagnosed as demented for more than a six-month period. For instance, a consumer who becomes bedridden for over six months after age 50 may receive ¥1.8 million for ten years, under a policy offered by Sumitomo Life Insurance Company. Recently, however, there has been product innovation in this market, expanding the definition of the conditions required to receive benefits. For example, a policy sold by Sumitomo Life Insurance Company provides an income benefit if care is required for at least 30 days; another provider, American Family Insurance Company, pays benefits to consumers who are certified by the government as entitled to Care Level 1 or 2.

## Potential Policy Responses

When thinking about potential policy responses to challenges in the Japanese LTC environment, it is useful to remember that government providers in other countries have often underestimated the demand for subsidized care when launching a new system. For instance, Pratt (1999) notes that when the US government established public support for LTC under the Medicare and Medicaid programs, it assumed that then-current utilization rates would continue, but demand proved to be far greater than anticipated. If rationing continues to be a problem, either the government will have to raise mandatory premiums or other taxes to pay for enhanced benefits, or the market for private LTC insurance will have to be opened up.

When the publicly-provided elderly insurance program was introduced in 2000, the medical care system was also reformed to curtail the extent of social hospitalization, a major cause of rationing and increasing medical costs. That reform reduced officially-set prices for hospitalization applied to a “specific patient”, defined as an elderly person who remained in the same medical institution more than 90 days (except for several specific diseases). $ ^{17} $ This decreased reward for medical institutions motivated them to discharge elderly patients after 90 days of care. According to the Survey on Patients by JMHLW, the average number of days in hospitals and clinics for the elderly age 65+ was 58.9 days in 1998, but this diminished to 53 days in 2002 (60.9 days in 1999, and 55.1 days for hospitals only).
Average hospitalization days fell for all ages from 39.3 (1998) to 37.9 (2002) (or 41.8 to 40.1 for hospitals only), the decrease was larger for the elderly.

Yet we cannot conclude that those new policies completely erased “social hospitalization” and eliminated rationing. One reason is that the downward trend in average hospitalization days for the elderly started during the 1980s, prior to the new policies. Another is that after 90 days some hospitals are alleged to engage in a form of “musical chairs,” discharging one set of patients but admitting a different groups’ clients in order to reset the 90-day clock. To this end, some have proposed the development of private LTC insurance policies sold through benefit plans offered by employers. In the past, US employers have exhibited little interest in subsidizing this form of insurance directly (Weiner et al., 1994), but the 1996 Health Insurance Portability and Accountability Act (HIPAA) allows employer-paid premiums to be excluded from workers’ salaries for tax purposes, and benefits are nontaxable up to a limit of actual LTC expenses (Rappaport and Stanger, 1997). Additionally, US legislators have recently introduced bills to make LTC insurance premiums tax deductible to employees who purchase the private insurance via an employer-based flexible benefits or “cafeteria” plan. These are plans where workers are granted by their firms a fixed dollar amount which then they can allocate across a range of benefit offerings. In addition, the proposed bill would grant a tax credit of $3,000 per year to families who provide LTC services to relatives. Both provisions have an estimated revenue cost to the government of $30B over the next decade (Rovner, 2003). Whether that or another legislative initiative will pass is unclear, but it does seem that tax subsidies for LTC purchase are likely in the future.

Another approach that would use the workplace as a nexus for LTC provision would be to permit workers to use their mandatory LTC premiums to purchase private coverage, perhaps of a catastrophic-only sort. Contracting out in this fashion would give workers the responsibility of shopping around for LTC coverage, and it would also offer the advantage of lower costs and more competitive products for those of working age. This approach would also be consistent with the national policy objective of enhancing opportunities for female labor supply (Shimizutani, Suzuki, and Noguchi, 2004). On the other hand, to the extent that the current government program is simply a pay-as-you-go tax-and-transfer system, rather than an insurance program with actuarially-fair premiums and reserves,
allowing some workers to contract out would likely exacerbate financing problems for the portion of the program supporting the elderly.

One concern with tax incentives for LTC care is that they might be insufficient to induce low-wage workers to purchase enough LTC coverage. Nevertheless, rising costs of government financed-care have prompted a move to private market provision of care in several countries, including the UK, Germany, Australia, and Sweden (Go, 2003). Though not-for-profit providers have traditionally dominated the market in Europe, LTC services are increasingly being provided by for-profit companies in the US and the UK.

A proposal receiving attention in many aging nations is to combine private LTC insurance with annuity products, which would potentially boost the market for both annuities and LTC cover. For instance, Spillman et al. (2001) and Murtaugh et al. (2001) propose an arrangement whereby a privately-sold life annuity product provides monthly payments that rise in the event that the insured party is certified as chronically and permanently disabled. For example, at retirement the annuity would begin paying $1,000/month to the purchaser, but the cash payment would rise to $2,000/mo if the participant was certified to need help with at least two ADLs (after a one-month waiting period), or if he were certified as having been cognitively impaired (for a minimum of 90 days). Other formulas could also be envisioned, of course. The proposal’s appeal is that the two-tiered coverage – longevity protection due to the annuity, plus a step-up in cash benefits if disabled – may attract more buyers than would a simple life annuity or a simple LTC scheme. This would be expected to reduce the potential for adverse selection which otherwise has been seen as a major obstacle to annuity sales (Brown et al. 1999). Indeed, in the Japanese context, the Postal Saving System has a product of this sort on offer.

Providing the elderly with cash benefits instead of service benefits does give consumers a wider range of choices than the current service-based approach embodies. Yet it is interesting that in Japan, a voucher system or cash benefit was discussed and rejected in the late 1990s (Campbell and Ikegami, 2000). The major concerns were that providing cash might not afford needed relief to (mainly female) caregivers of the elderly, and also that offering cash might induce substantial increases in demand. Further, it appears that policymakers felt that shortages of formal care would best be met by provision of new service facilities. To this day, these facilities are still constructed with heavy capital subsidies from
the public sector. Consequently, government policy still tends to discourage innovative privately-sold forms of LTC including assisted living, group homes, and graduated retirement care communities. LTC service benefits have also been limited to room and board coverage and have not been integrated with medical care benefits. This limits providers' incentives to manage residential, medical, and rehabilitative needs in a coherent and systematic fashion. Finally, problems may arise if people are discharged from LTC institutions due to reaching their charge limits while still in need of medical care.

It should be noted that there are advantages to the Japanese system of providing service instead of cash benefits, with means-tested premiums, co-pays, and out-of-pocket limits. One is that consumers are actually quite well protected against catastrophic LTC costs. This is in sharp contrast with private LTC insurance packages on offer in the US, which pay the LTC consumer a specified daily dollar benefit over a specified and limited number of years. The US format has the advantage of limiting insurers' liability, but it does mean that elderly patients may be left without coverage after exhausting the privately-financed benefit. This in turn would lead them to have to draw down other assets, sell their houses, and/or rely on Medicaid, the public plan for the indigent.

A different approach to LTC would rely on dependents, particularly children, to bear a larger share of LTC costs among the elderly. A tactic adopted in New Zealand and China is to mandate that offspring of working age must support their own needy parents. This could be combined with an insurance-based approach such as in Singapore, where private insurance coverage could be purchased by working-age children for their elderly families (Lee 2003). A different method of risk-pooling would be to require all workers, including those under the age of 40, to pay premiums for mandatory LTC insurance purchase, as suggested for Japan by Campbell and Ikegami (2000). The idea here is that the risk pool is relatively homogeneous early in life, while more and more people at older ages would fail underwriting criteria if they waited to purchase LTC insurance later. For example, in US data, 89% of people age 40-44 could meet LTC underwriting criteria, but only 68% of those age 70-74 are healthy enough to meet the screens (Merlis, 2003).

An indirect way to have families “pay” for LTC would be to facilitate the development of reverse mortgages (RMs) for the elderly. These products can permit an elderly homeowner to borrow against the value of his house to enhance his current consumption, perhaps by retrofitting the home to
make it suitable for elderly living. The lender receives no interest or principal payments until the homeowner dies or vacates his home, at which time the residence is sold and the proceeds used to repay his loan. RMs may be attractive to the elderly because they are permitted to remain in their homes until death, and in exchange, they benefit from additional retirement income. An important feature of a RM loan is that it is “non-recourse,” so that the borrower’s other assets cannot be accessed by the lender to cover loan repayment (Mitchell and Piggott, 2003). In this event, turning home equity into liquid form enhances a retiree’s ability to obtain LTC services while remaining out of the hospital. This is particularly key in the Japanese context since elderly Japanese appear to have housing equity that is some 50 percent larger than their US counterparts. Of course, taking an RM does have the effect of shrinking retirees’ estates. $ ^{18} $

## Conclusions and Directions for Future Research

Our review of long-term care in the Japanese context has drawn out several interesting aspects of the system that was launched in 2000. For historical reasons, health care continues to be paid for and delivered by the separate national health insurance system. Thus the Japanese approach to LTC has emphasized the provision of at-home (nonmedical) services, as well as room and board for those requiring institutionalization. The Japanese LTC system is a rather complex tax-and-transfer scheme, supported by mandatory but means-tested premiums levied on workers and retirees by local governments, as well as general tax revenue from central and local governments. Benefit eligibility is determined by local boards appointed by municipalities, but fees for benefits are set at the national level. For-profit competition is permitted in the at-home care arena, but in the medical and institutional care arenas only non-profits and government providers are allowed.

Our analysis has identified several upcoming challenges and clouds on the horizon. The best available projections suggest that LTC costs in Japan will grow substantially in the future, a fact that will be a central focus of the 2005 LTC system review. Clearly the aging population will drive up demand for LTC, but our analysis also suggests that rising incomes and bed capacity will drive demand up and further boost costs. The current system does integrate deductibles, copays, and caps, all of which do curtail demand and hence expenditures somewhat, but continuing substantial subsidies for
LTC will surely boost future utilization rates beyond simple population projections. As a result, rationing has already emerged and it will likely become even more widespread, which in turn is likely to contribute to political stress as the population ages. Cost pressures and evasion problems will potentially also require extending the mandatory premiums to workers under age 40 who are not currently included in the system.

Another issue we have raised is the fact that the centralized-but-decentralized system tends to do little to smooth regional disparities in the concentration of elderly and frail elderly. Some cross-subsidization does occur by means of the central government, but it is unclear how policies will respond to future regional and national LTC shortages. Additional research is required to help separate the roles of demand and supply for LTC entitlement and utilization patterns, though our analysis indicates (a) that demand is sensitive to income and prices; and (b) the municipalities may not be the most efficient decision locus to handle the entitlement process, benefit determination, provision of care, and financing, particularly given the efforts to standardize eligibility criteria.

While the market for privately-sold LTC products is small, as yet, it does appear that demand has grown over the last three years. Greater private provision of LTC insurance might be an appealing outcome to the extent that the elderly have sufficient income/assets to purchase the coverage. Of course it does depend on LTC consumers and their relatives becoming sufficiently well-informed about quality and price of services to make the market function well. Development of national LTC quality standards for institutional and at-home care services would facilitate consumer shopping for private LTC coverage. Less clear is the ability of private insurers to structure LTC policies that can both attract consumers and also mitigate adverse selection. One possibility might be to sell employer-based policies to workers at younger ages. Plan design features intended to limit moral hazard could logically draw on some already embodied in the current public LTC system, including co-insurance, deductibles, and the determination of need by a third party which is relatively free of conflicts-of-interest. In addition, privately provided LTC cash benefits could be an attractive alternative to the current indemnity approach used by the government, which provides services rather than cash. Last but not least, there may be a role for reverse mortgages in Japan, as a means of financing services and provide care for an increasingly long-lived and numerous elderly population.
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Figure 1. Dependency Ratios by Regio: Japanese Elderly and Entitled to LTC

Source: Authors’ calculations using data provided by Japan’s Ministry of Health, Labor and Welfare; National Health Insurance Association of Japan; and Statistics Bureau of Japan.
Figure 2. Institutional Care Capacity by Region in Japan

Source: Authors’ calculations using data provided by Japan’s Ministry of Health, Labor and Welfare; National Health Insurance Association of Japan; and Statistics Bureau of Japan.
Figure 3. Long-term Care Utilization Rates by Region in Japan

Source: Authors’ calculations using data provided by Japan’s Ministry of Health, Labor and Welfare; National Health Insurance Association of Japan; and Statistics Bureau of Japan.
Figure 4. Long-term Care Fees by Region in Japan

Source: Authors’ calculations using data provided by Japan’s Ministry of Health, Labor and Welfare; National Health Insurance Association of Japan; and Statistics Bureau of Japan.
Table 1: Unit Costs for LTC Services (2000 ¥) At-home Care

At-home Care	Institutional Care	Units
Units
Home-help services	LTC welfare institutions
Physical Assistance	< 30min.	231	Care level 1	per day	677
0.5-1 hour	402	Care level 2	per day	748
1-1.5 hours	584	Care level 3	per day	818
+30 min.	83	Care level 4	per day	889
Daily Life Assistance	< 30min.	208	Care level 5	per day	959
0.5-1 hour	291
+30 min.	83	LTC health institutions	819
Home-visit bathing	per time	1250	Care level 1	per day	868
Home-visit rehabilitation	per day	550	Care level 2	per day	921
Home-visit nursing	Care level 3	per day	975
Provided by home-visit nurse station	<30min.	425	Care level 4	per day	1028
0.5-1 hour	830	Care level 5	per day	830
1-1.5 hours	1198
Provided by hospitals and clinics	<30min.	343	LTC medical institutions
0.5-1 hour	550	Care level 1	per day	820
1 -1.5 hours	845	Care level 2	per day	930
Care level 3	per day	1168
Day services (operated jointly by institutions)	Care level 4	per day	1269
Support required	3 -4 hours	241	Care level 5	per day	1360
4 -6 hours	344
6 -8 hours	482
Care Levels 1 or 2	3-4 hours	307
4 -6 hours	438
6-8 hours	614
Care Levels 3, 4 or 5	3-4 hours	452
4-6 hours	645
6-8 hours	903
Day services (rehabilitation at LTC health services)
Support required	3-4 hours	283
4-6 hours	344
6-8 hours	482
Care Levels 1 or 2	3-4 hours	307
4-6 hours	438
6-8 hours	614
Care Levels 3, 4 or 5	3-4 hours	452
4-6 hours	645
6-8 hours	903
Short Stay (operated independently: nurses are 1/3 of staff)
Support required	per day	831
Care level 1	per day	875
Care level 2	per day	946
Care level 3	per day	1016
Care level 4	per day	1087
Care level 5	per day	1157
Short Stay (operated jointly by institutions: nurses are 1/3 of staff)
Support required	per day	797
Care level 1	per day	841
Care level 2	per day	912
Care level 3	per day	982
Care level 4	per day	1053
Care level 5	per day	1123
Source.