Japan: Economics in Everyday Life

21. How Can the Japanese Spend So Little on Health Care?

21 How Can the Japanese Spend So Little on Health Care? Matthew Loke and James Mak Many Americans are unhappy with the U.S. health care system but they do not agree on how it should be reformed. Americans cherish their personal choice of high-quality health care but are unhappy with unequal access and soaring costs. The Clinton administration’s effort in 1994 to get Congress to pass its health care bill generated heated political debate but little action. Cost of medical care in the United States rises at the fastest rate among industrialized countries. Yet, 15 percent of Americans, including 10 million children, have no health insurance. By contrast, everyone in Japan is covered by health insurance . Japan also has much lower health care expenditures per person. The Paris-based Organization for Economic Co-operation and Development (OECD) calculates that in 1994 Japan spent 1,473 U.S. dollars per person on health care compared to 3,516 U.S. dollars per person in the United States. Japan spent about 7 percent of its gross domestic product on health care compared to 14 percent for the United States. Compared to other Western industrialized countries, Japan’s expenditures on health care, whether per person or as a percentage of the 157 country’s gross domestic product, are not particularly low. It is the United States that is the exceptionally big spender on health care. Japan’s health care system is designed to achieve two goals: (1) universal access to health care, and (2) direct government control of health care expenditures. Two-thirds of the medical costs in Japan are public, not private expenditures. Universal Access to Health Care Japan’s health care financing system is based on a social insurance model patterned after the German health care system but with more direct government intervention. Everyone is covered by one of three types of plan and, by law, no one can opt out of the system. Over 62 percent of the population are covered by 1,800 employer plans. These plans are designed for employees and their dependents, with premiums equally shared between employers and employees. Premiums are automatically deducted from the payroll as part of the employee’s social security system contributions. Employees’ twice-per-year bonuses (see chapter 14) are not subject to premium deductions. Total premiums typically amount to less than 3 percent of the employee’s total income, including bonuses. Co-payments—the part of the medical bills that employees have to pay—range from 10 to 30 percent, and help keep frivolous expenditures down. Medical care benefits covered under employee health insurance plans are established by law and include almost all inpatient and outpatient treatments. However, coverage does not include preventive health care measures such as immunizations, annual physicals, and lab tests (urinalysis, serum cholesterol). Delivery of a baby (without complications) is also excluded, since it is not regarded as an illness. Local governments and trade associations offer a second type of health plan for the self-employed, pensioners, and their dependents. Premiums are based on income and assets and the 158 Japan: Why It Works, Why It Doesn’t number of persons covered. Since people insured under this system generally have lower incomes and are at higher medical risk, the national government provides a direct subsidy to the insurers. The elderly are also covered by this plan unless they are employed or their (low) income level allows them to be covered under their children’s plans as dependents. The copayment rate under this plan is 30 percent. Until recently copayment was waived for the elderly, enabling them to obtain free medical care. This arrangement had to be abandoned due to soaring costs. The elderly now have to pay 10 percent of the total fee. Most of the cost of geriatric care is paid out of a fund that receives contributions from the two insurance systems as well as subsidies from the national and local governments. Under both plans there is a cap on the total amount of monthly medical expenditures that the insured can be asked to pay. On average, individuals pay about 12 percent of their total medical bills directly; the balance is paid by insurance plans and government subsidies. Finally, there is also a separate plan for people on welfare (i.e., public assistance) that covers less than one percent of the population. Private health insurance is available in Japan...