1 Developments in Long-Term Care Insurance in Japan Olivia S. Mitchell, John Piggott, and Satoshi Shimizutani Research Paper 08/2007
2 Developments in Long-Term Care Insurance in Japan Olivia S. Mitchell, John Piggott, and Satoshi Shimizutani* April 2007 *Mitchell is the International Foundation of Employee Benefit Plans Professor of Insurance and Risk Management; Executive Director of the Pension Research Council, and Director of the Boettner Center at the Wharton School, University of Pennsylvania; and a Research Associate of the NBER. Piggott is Professor of Economics and Director of the Centre for Pensions and Superannuation, University of New South Wales. Shimizutani is an Associate Professor of Economics at Institute of Economic Research, Hitotsubashi University. Funding for this research was provided by the Economic and Social Research Institute, the Pension Research Council, the Boettner Center at the Wharton School of the University of Pennsylvania, the Australian Research Council and Hitotsubashi University. We thank Noriko Inakura and Takeshi Yamaguchi for their excellent research assistance. Without implicating them, we acknowledge helpful assistance and suggestions from seminar participants at the ESRI, Cabinet Office, Government of Japan, Tokyo in March The authors retain full responsibility for all views contained herein Mitchell, Piggott, and Shimizutani.
3 2 Developments in Long-Term Care Insurance in Japan Abstract As the Japanese long-term care (LTC) system was implemented only recently, there is little information available on the determinants of entitlement and utilization. This paper seeks to disentangle some of the patterns using the most up-to-date data. We find that the demand for LTC in Japan particularly home care is growing rapidly, as elderly consumers find subsidized LTC care preferable to and more available than hospitalization. At the same time, regional disparities in care persist and are likely to grow. KEYWORDS: health insurance, nursing home, aging, elderly care, hospital, disability, means-testing Olivia S. Mitchell (corresponding author) 3641 Locust Walk, 304 CPC Department of Insurance & Risk Management Wharton School, University of Pennsylvania Philadelphia PA John Piggott School of Economics University of New South Wales Sydney 2052, Australia Satoshi Shimizutani Associate Professor, Institute of Economic Research, Hitotsubashi University, 2-1 Naka, Kunitachi-shi, Tokyo Japan
4 1 Developments in Long-Term Care Insurance in Japan Olivia S. Mitchell, John Piggott, and Satoshi Shimizutani Demographers and policymakers have observed the striking fact that the Japanese nation is aging very quickly; today about one-fifth of the population is age 65 or older, or roughly double the US rate. Notwithstanding its overall effectiveness and low cost, the Japanese healthcare system is under stress, as a result of rising numbers of long-lived older persons (here defined as age 65+) who using more medical care overall and particularly long-term care. For instance, healthcare costs of persons 65+ were five times the average in Japan in 2000; furthermore the bulk (90%) of the growth in healthcare costs in recent years can be attributable to population aging (Yashiro et al., 2006). Some 3% of the 65+ in Japan currently reside in nursing homes, and this fraction is projected to rise dramatically over the next two decades (Ikegami and Yamada, 1996). It would appear that as the number of elderly rises, they may experience relatively high levels of hospitalization and incur expensive medical care at the end of life. Our paper contributes to research on this topic by evaluating recent changes in the Japanese LTC delivery model and updating the statistical model introduced in Mitchell, Piggott, and Shimizutani (2006). In what follows, first we briefly describe the Japanese long-term care system drawing on existing studies and adding updates from recent policy developments. Next, we present our new estimates and offer an interpretation of findings. Finally we discuss possible policy implications. A Brief Overview of Japan s Old-Age Care System 1 The Japanese healthcare system relies on mandated universal medical coverage tied to participants jobs or regions of residence. 2 For employees, municipalities and firms must offer
5 2 mandatory healthcare coverage financed by premiums levied on household heads (in the case of the community-based plans), or shared half by employers and half by employees (for company-based plans; the self employed pay the full premium). The special position of older persons (age 65+) 3 has been summarized by Mitchell et al. (2006) and others (e.g. Campbell and Ikegami, 2000). In the main, medical services for the older population are provided via a national mandatory plan known as the Citizens Health Insurance (CHI) program which provides hospitalization and medical services to the elderly. The Japanese healthcare system has experienced several reforms over the years, and a time line of key policy changes appears in Table 1. Many authorities have praised Japan s relatively low health care expenditures, compared to international developed nation standards (c.f. Ikegami and Campbell, 1999), said to result from strict government control over medical services and pharmaceuticals, fixed reimbursement systems for hospital services, and a low intensity level of care per patient (Yoshiro et al., 2006). Table 1 here In addition, persons over the age of 40 are included in a national long-term care insurance (LTCI) program also mandated by the national government. Under this scheme, the central authorities set the prices of nursing home beds, adult day-care centers, and home health aid providers. They also play important roles in setting eligibility standards and determining who is entitled for care. Specifically older persons needing benefits under the current Japanese LTC program can avail themselves of both in-home services (at-home care) and services at facilities (institutional care). 4 Eligibility for care is set based on a local or prefectural-level committee s lengthy assessment of all applicants medical and physical status (Ikegami, 2003). This committee categorizes applicants into one of six health care level groupings, and then benefits are attached to that grouping. 5 Applicants are assigned a case manager who provides a care plan; the
6 3 applicant s status is then re-evaluated every six months. (Medical care is not included in the LTC menu; rather that is delivered separately by the applicant s doctor.) LTC services range from in-home services (e.g. home visits, day treatment), to short-stays at residential facilities, to long-term custodial and health facilities. Financing of the LTC system is pay-as-you-go, relying on social insurance premiums, general tax revenue, and user fees. About half of the LTC system is financed by earmarked premiums from workers over age 50 and retirees; the remainder is split between the central government and local government entities (JMHLW, 2002). Worker and retiree premiums vary geographically, and the payments also depend on income (those with low incomes pay relatively less). Users of the LTC system also bear out of pocket costs via a 10% co-insurance on each service used, up to a cap which can vary with income; they also pay meal charges while in a residential facility. 6 An interesting feature of the Japanese approach to LTC is its relatively high degree of reliance on local or decentralized decisionmaking regarding service use. Though the central government sets prices and types for LTC services and determines the number of units of care per pre-set level of care need, each municipality (and there are now around 2,000) establishes insurance premiums, and care managers are assigned to determine what types of care a certified person is eligible for. In addition, there is room for each municipality to control how many people to serve with LTC via a unified certification process; local governments also must approve providers of LTC insurance (only nonprofits can provide institutional care) The idea is that providers will compete locally for patients along several dimensions including quality of care, but not prices ; this is more likely for non-hospital entities including home care providers which include for-profit and not-for-profit firms, as well as local government service organizations.
7 4 There is substantial geographic diversity across Japan in terms of the where older persons are located. Figure 1 depicts dependency ratios, or the number of people age 65+ as a percent of the population, from North to South by prefecture, in 2001 and again in 2005, the most recent year for which we have data. Overall, in just four years the older population grew 10 percent, with some experiencing a rise in the fraction of people over 65 by up to 25%. Figure 1 here Both the geographic differentials and the large changes over what is a rather short period are again apparent in Figure 2, which depicts the entitlement rate for long-term care by prefecture. We define this as the number of people age 65+ which have been deemed to be entitled to LTC, as a percent of the population of that age. In the earlier year, 2001, the average entitlement rate was 13%, but only four years later, this had risen by more than one third, to 17.3%. Figure 2 here A breakdown of the overall data into patterns of institutional versus in-home care is useful, as it soon becomes clear that the overall picture conceals substantial changes in patterns of care. Figure 3 tracks regional patterns in the number of persons age 65+ entitled to institutional care, and here we see that overall, the percentage change was small, on the order of 5% between the four years. By contrast, home-health care utilization grew by almost half (47%). Such patterns no doubt played a key role in the reform enacted in Spring 2006, under which elderly benefits from the Long-term Care Insurance system were reduced so as to slow the national rate of growth of costs (Ogawa et al., 2007). Figure indicates how the mix of capacity is changing over time: in just four years, the number of hospital beds per thousand persons age 65+ fell by 15% on average, whereas the beds dedicated to LTC rose by almost 8%. This marks a substantial change in the way care facilities are being allocated to the elderly in Japan.
8 5 Figures 3 and 4 here Model and Estimates Our earlier work on the Japanese LTC system analyzed available data on the links between elderly entitlement rates and utilization rates of LTC beds and demographic as well as economic variables (Mitchell et al., 2006). That analysis relied on two years of regional data for FY 2001 and FY 2002, to evaluate whether there were demographic and economic factors that could be sensibly linked to the observed patterns. Now we have gathered three additional years of data (FY 2003-FY 2005) to expand our sample size from 94 observations in the earlier work, to 235 here (47 prefectures for 5 years). Summary statistics appear in Table 2. Table 2 here Our approach relates several key factors to the observed LTC entitlement rates as well as institutional-care and home-care utilization rates by the elderly. Table 3 offers three models for each dependent variable. Model 1 includes as regressors the area s population density, the percent of the population over the age of 75, average household earnings, and health care employees pay. Population density proxies for urbanity; in cities, older people are hypothesized to be less likely to have offspring readily accessible to care for them. The fraction 75+ is included to test whether LTC entitlement and utilization rates are responsive to demographic concentrations of older persons. We include healthworkers pay to indicate whether utilization is responsive to salary levels of caregivers, and average household earnings controls on ability to pay which varies both cross sectionally and in the time series. Model 2 adds two capacity variables, namely the number of LTC and hospital beds per older (65+) person, to assess whether utilization responds to capacity. If there is no response, this may be because beds are quantity-rationed. Model 3 includes all the
9 6 foregoing factors and also adds year controls, to assess robustness of results. In order to address the fact that prefectures have different size populations, we employ the Weighted Least Squared Deleted: each Deleted: s (WLS) method to perform the regressions. Table 3 here The estimates for Model 1 are reasonable, as in our previous work, but in some cases the effects are much larger than before. For instance, population density has a more positive and statistically significant effect than our earlier findings on overall entitlement rates and on home-care utilization (the effect on institutional care is not substantially different). This suggests a widening discrepancy in LTC usage between urban and rural areas over the period. Similarly, an older population (age 75+) was previously positive and significant on LTC entitlement rates and utilization rates. In the extended dataset, our results are stronger than before, particularly for entitlement and home care utilization rates, where the coefficients increased substantially. For reasons mentioned below, this is not the case for institutional care use. Moving on to healthcare workers pay levels, the coefficients are negative and significant as before, mainly for entitlement patterns and home care use. This sensitivity of LTC patient usage is probably a result of the coinsurance structure of the LTC insurance system. Average household earnings in the region are not statistically significant in most models (unfortunately we have no data on average earnings for elderly persons alone.) Model 2 includes bed availability for institutional and non-hospital care. It is interesting that bed availability for institutional care enters the entitlement and utilization rate equations positively. Nevertheless the coefficients are small, perhaps because there is excess demand from consumers so that supply determines usage rates. This is especially the case for institutional care utilization where availability accounts for most of the variation. Model 3 adds year dummies to
10 7 Model 2; it is clear that entitlement and home care usage are rising over time. This may be due to consumers learning about the new system, whereas they had information about the preexisting hospitals providing institutional care. Overall, we believe that the most notable change in results has to do with the large increase in the coefficient on the proportion of the population 75+. Evidently this group is demanding and obtaining higher levels of LTC services over time, controlling for other factors. It is also worth noting that large regional disparities in age structure across the nation pose challenges for the centralized approach to LTC under the Japanese system. Local government reluctance to boost hospital capacity for institutional care is likely to instead direct increasing numbers of newly entitled elderly to home care use. Whether this will ensure adequate treatment is unclear in the Japanese context; however the US literature on this topic indicates that home care is not a particularly effective substitute for nursing home care (Garber, 1996). Conclusions and Discussion The US and other developed and aging nations look with interest at how Japan is coping with a high and rising demand for long term care for its large and growing older population. The Japanese approach to LTC model is a 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 and out of pocket payments by beneficiaries. LTC eligibility is determined by local boards appointed by municipalities, but fees for benefits are set at the national level. As the Japanese system has been in place just a few years, there is yet little information available with which to study the determinants of entitlement and utilization. This paper seeks to disentangle some of the patterns using the most up to date data.
11 8 Compared to our earlier work which covered only two years, our extended data show some interesting patterns. In just a few years, LTC entitlement rates have risen substantially by as much as one third, from 13% to 17.3% of the 65+ population. Utilization rates have also risen, mainly in the home health care area, where usage rose almost 50% (versus only 5% for institutional care use). Indeed, the number of hospital beds per thousand persons age 65+ fell by 15% on average, whereas the beds dedicated to LTC rose by almost 8%. This marks a substantial change in the way care facilities are being allocated to the elderly in Japan. Our regression results imply that the demand for LTC in Japan will grow, as elderly consumers find subsidized LTC care preferable, and more available, than hospitalization. Noguchi and Shimizutani (2002a) has noted that at-home care is becoming increasingly attractive to older persons compared to welfare institutional care, particularly when an older person has no family members with whom he or she can live. Our results also indicate that regional and urban/rural disparities in entitlement and utilization patterns will continue, so that the adjustment scheme proposed to smooth over these regional differences (with 5% of total revenue) may not resolve inequality in treatment across prefectures. As noted by Shimizutani and Inakura (2007), local governments now face tighter fiscal budgets, and they are clamping down on both entitlement and LTC care utilization. And Fukui and Iwamoto (2006) state that until FY 2100, the scheme maintains a higher contribution rate in order to accumulate sufficient funds.the sum of the contribution rates with regard to health insurance and long-term care insurance increases from 5 percent of the total earnings to percent of the same. The implied 63% increase in the tax burden under the current scheme one which is already strained suggests that more fundamental reforms may be needed to keep the system afloat. One approach may be to spur the market for privately-provided LTC insurance, insofar as
12 9 older persons can muster sufficient income/assets to buy the coverage. In other work (Mitchell and Piggott 2004) we have suggested a role for reverse mortgages in Japan in this regard, as a means of financing services and provide care for the nation s growing elderly population.
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