Financial Constraints Driving Healthcare Reform in Japan. Toshihiko Takeda Former Director-General, Health Policy Bureau, MHLW, Japan

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1 Sep. 11 th, 218 Financial Constraints Driving Healthcare Reform in Japan Toshihiko Takeda Former Director-General, Health Policy Bureau, MHLW, Japan 厚生労働省 Ministry of Health, Labour and Welfare Japan s population has entered on the decreasing phase. It is projected, by year 265; the total population will drop below 9 million while the aging population ratio will be around 38%. Population (in1,) 14, 12, Japan faces unprecedented population aging which no other countries have never experienced. Productive age (15 64 years old) population ratio Actual 12,693 Estimated in ,913 1, 8, 6, 4, 2, Population of years Population of 14 years old and below Aging population (65 years old and above) ratio Population of 65 years old and above Total fertility rate % 27.3% 1.44 (216) 3,716 6,875 1,321 8,88 3,381 4, Productive age (15 64 years old) population ratio 51.4% Aging population ratio 38.4% Total fertility rate

2 Changes in population percentage over 65 years of age (population percentage over 65 years of age) 45% 4% 38.4% 35% 3% 25% 2% 15% 1% Sweden Japan 26.6% Germany 21.1% 19.6% 18.9% 18.1% 14.6% 13.% Korea United States France United Kingdom 37.7% 31.8% 27.1% 26.9% 26.2% 24.4% 5% % (Year) 2 Japanese health care services are provided through the universal health insurance system, Characteristics of Japanese universal health insurance system 1. Covering all citizens by public medical insurance 2. Freedom of choice of medical institution (free access) 3. High-quality medical services with low costs 4. Based on the social insurance system, spending the public subsidy to maintain the universal health insurance 3 2

3 Welfare Child benefits Child and disability welfare Basic pension al health insurance Late-stage elderly healthcare system Nursing care insurance (Unemployment benefits) Employees insurance Health insurance (Japan Health Insurance Association) Health insurance (health insurance associations) (Two employment insurance programs) Employment insurance Work accident insurance Mutual pension Employees pension Treasury Prefectures (equal share by employee and employer) Asset income, etc. and prefectures (equal share by employee and employer) (equal share by employee and employer) (equal share by employee and employer) 3% Co-payment* 75 years or older 1% copayment 7 to 74 years old 2% copayment* Yet to start compulsory education 2% copayment * Frozen at 1% for the 12-month period from April 28 Administrativ e bodies al Prefectural Municipal governments Supportive contribution Respective insurer Overview of Medical Service Regime in Japan Patient (insured) (1) Insurance contribution [Medical insurance system] (2) Receive service & copayment (3) Clinical service Insurer (5) Reimburs ement (4) Claims (Principle schemes) (Number of insurers) (Number of enrollment) Public funding -al Health Insurance 1,88 Approx. 35,, -Japan Health Insurance Association administered health insurance 1 Approx. 37,, -Association/union administered health insurance 1,45 Approx. 29,, -Mutual aid association 85 Approx. 9,, * Numbers of insurer and the enrolled are as of the end of March 211 (Preliminary) (However, numbers of mutual aid association are as of the end of March 211) -Advanced Elderly Medical Service System 47 Approx. 16,, * Number of those enrolled is as of the end of March 212 (Preliminary) [Medical Service Regime] Hospital 8,442 Clinic 11,529 Physician 319,48 Dentist 14,533 Pharmacist 31,323 Registered nurse 1,21,665,639 Public health nurse 62,118 Midwife 39,613 Other healthcare professionals 4 In order to secure and maintain the system, health insurance schemes are heavily subsidized form mainly central Government. : \68.6 trillion Contributions from employers 16.9% 1/1 (all borne by employer) 1/1 (all borne by employer) 1/4 1/4 13.8% Insurance fees Insurance fees Insuranc e fees \32.7 trillion Prefectures 13.8% 3/4 55.4% 1/4 Prefectures 9/1 41/1 75 and older: 1/1 Under 75: 4/1 1/12 Prefectures 1/12 1/3 65 and older: 22/1 4 to 64: 28/1 1/8 Prefectures 1/8 1/4 3/4 1/4 83.6% 16.4% 1/1 1/1 (equal share by employee and employer) 1/1 *See note 4 *See note 3 Amount borne by local governments: \13.6 trillion 5 3

4 Current Status of Social Security Benefits and Burdens (FY217) Social Security Benefit Payment in FY217 (budget base): 12.4 trillion (Actual figure; 21.8% of GDP) [Benefit Payment] Costs of Paying the Social Security Benefits [Burden] Pension: 56.7 trillion (47.1%) «1.2% of GDP» Medical: 38.9 trillion (32.3%) «7.% of GDP» Other Welfare: 24.8 trillion (2.6%) (4.5 of GDP) Including long-term care: 1.6 trillion (8.8%) «1.9% of GDP» Child and child-raising: \6.1 trillion (5.1%) (1.1% of GDP) Insurance Burden: 68.6 trillion (59.7%) Tax: 46.3 trillion (4.3%) Portion paid by the insured 36.6 trillion (31.8%) Portion paid by the businesses 32. trillion (27.8%) Insurance burden in respective systems * Other sources of Social Security Funds include income generated from assets, etc al taxes 32.7 trillion (28.4%) al (General Accounts) Social security related expenditures * In the budget for FY217 social security related expenditures was 32.5 trillion (accounting for 55.6% of general account expenditures) Local government taxes 13.6 trillion (11.9%) Income from revenue fund investment, etc Prefectures, etc, and (general fund) 6 With population aging, social security expenditures grow (Trillion yen) al income (Trillion yen) A (on fiscalbasis ) Total benefit (Trillionyen) B 3.5(1.%) 24.8(1.%) 47.4(1.%) 78.3(1.%) 15.4(1.%) 12.4(1.%) (Breakdown) Pension.9( 24.3%) 1.5( 42.2%) 24.( 5.7%) 41.2( 52.6%) 53.( 5.3%) 56.7( 47.1%) Medical care 2.1( 58.9%) 1.7( 43.3%) 18.6( 39.1%) 26.2( 33.5%) 33.2( 31.5%) 38.9( 32.3%) Welfare and others.6( 16.8%) 3.6( 14.5%) 4.8( 1.2%) 11.( 14.%) 19.2( 18.2%) 24.8( 2.6%) B/A 5.77% 12.15% 13.67% 2.31% 29.11% 29.88% 78.3 Pension 15.2 (1, yen) Per capita social security benefits expenditure (right scale) Medical care (fiscal basis) Source: The Financial Statistics of Social Security in Japan for FY215 al Institute of Population and Social Security Research. The figures for FY216 and 217 (on a fiscal basis) are estimated by MHLW. al income for FY217 is based on Fiscal 217 Economic Outlook and Basic Stance for Economic and Fiscal Management (as Cabinet Decision of January, 22, 218) Note: Figures in the diagram are social security benefit expenditures (on a fiscal basis in trillion yen) for FY195, 196, 197, 198, 199, 2, 21 and 217. Welfare and others 1.. 4

5 And, put heavy burden on Government budget. (trillion yen) Flow (Unit: trillion yen) FY218 Bond Dependency Ratio 34.5% General Account Primary Balance -1.4 Stock As of end-fy218 (Percentage of GDP) Government Bonds Outstanding 883(156%) (General Bonds Outstanding) Long-Term Debt Outstanding of ,17(196%) Central and Local Governments Total Expenditure Tax Revenue Construction Bond Issues Special Deficit-Financing Bond Issues (FY) 9 5

6 ( trillion) Historical Changes in Social Security Related Costs and General Expenditures % 8.2 General expenditures Social security related cost Percentage of social security related costs in general expenditures % % 33.% % % % 44.4% 45.% 43.1% % % 55.% 53.8% 54.% 53.1% 55.3% 55.6% 56.% % 55% 5% 45% 4% 35% 3% 25% 2% 15% (Based on original budget) 1 (7) Evolution of Major Expenditure Items in the General Account (FY196) 1.7 trillion yen (breakdown) Social Security related Expenditures.2 Local Allocation Tax Grants, etc..3 Public Works related Expenditures.3 Others.9 al Debt Service.3 (FY197) 8.2 trillion yen (breakdown) Social Security related Expenditures 1.2 Local Allocation Tax Grants, etc. 1.8 Public Works related Expenditures 1.4 Others 3.5 al Debt Service FY196 FY197 FY198 FY199 FY2 FY (trillion yen) Natinal Debt Service Others Education & Science al Defense, etc. Public Works related Expenditures Local Allocation Tax Grants,etc. Social Security related Expenditures (note) FY196-FY2: Settlement, FY218: budget 6

7 Consumer tax rate was raised to 8%, from 5%, and will be 1% next year, both to finance preparation for new demands until 225, and to have sound budget. Incrementally raise the consumption tax rate (national and local) to 8% in April 214 and to 1% in October 219 Expand the allocation of consumption tax revenues to the four costs of social security (pensions, medical care, long-term care, and childcare) from the current three of elderly costs (basic pension, elderly medical care, and long-term care) Clarify the use of consumption tax revenues (use consumption tax revenues to finance social security) Pass on the entire consumption tax revenues to the people and do not use it to enlarge the government Approx. 1% Approx. 4% Enhanced social security Approx. 2.7 trillion yen more Stable social security: Protecting the current social security system Approx. 1.8 trillion yen more Approx % of pensions are funded by the national treasury trillion yen (incl. costs for ensuring that 5% of the basic pension is funded by the national treasury in FY212 and FY213) Reduce the burden passed on to future generations - Current social security expenditures involving increases due to aging (natural increase) and failure to secure stable financial resources Increase in social security expenditures due to the consumption tax increase Approx. 7. trillion yen Approx..8 trillion yen - Increase in pensions and medical service fees along with price increases Approx..7 trillion yen Children and child-raising support - Resolution of the problem of the children on waiting lists (quantitative expansion of childcare and after-school children's clubs), etc. Up to little under 1.6 trillion yen Enhancement of medical/long-term care - Intensive input of medical care resources into the highly acute phase (expanded inpatient medical care), enhancement of home medical/long-term care (from hospitals/institutions to communities and homes), etc. Up to approx..6 trillion yen Improvement of the pension system Provide additional benefits to elderly people with a low income and disabled people, shorten the period of eligibility to receive benefits, etc. - Expansion of measures to deal with poverty and income inequality (measures for low-income earners, etc.) Up to approx. 1.4 trillion yen of the above (redundant) - Reduction of social insurance contributions for low-income earners, total accumulation system, etc. 12 Now, discussion is going on how to deal with "24" 7

8 Japan in 225, and in 24 Aged population will grow rapidly until 225, but beyond 225 it will be moderate. On the other hands, young generation will be losing its share further rapidly. Population Effects on health care cost will de declining. ( 75 yrs. and older) 65 yrs. and older yrs. 8,638 Population Rapid growth of aged (91) (+81.1%)(1,632) 7,728 7,17 ( 単位 : 万人 ) 2,24 (+33.6%)(2,18) +53.7% 3,387 (+ 2.7%) + 8.6% (2,239) 3, % 3, % 7.2% 16.6% 5, (%) Aging factor. Effects on health care cost Effects on Medical care cost Total population effects Population loss ~22 22~ ~23 23~ ~24 ( 年 ) Effect on Long-term care cost (%) 4. Total population Effects Decline in young age - 14 yrs. 1,851 1,595 1,47 1, Est. Est Aging foctor Population loss ( 年 ) 215~22 22~ ~23 23~ ~24 14 Estimates for Social Security Expenditures, and Health Care professionals The ratio of social security benefit cost to GDP will be 21.7 to 21.8% (14.2 to 14.6 trillion yen) in fiscal 225 from 21.5% (nominal amount trillion yen) in fiscal 218. It will rise by 2.1 to 2.2 percentage points over the next 15 years and will be 23.8 to 24.% (188.2 to 19. trillion yen) in FY 24. (Plan based Economic baseline case *) The forecast of Social Security Expenditure ( 兆円 ) Others (21.5%) その他 6.7 (1.2%) 子ども 子育て Child 7.9 (1.4%) 1.7(1.9%) Care 介護 39.2 医療 Medical (7.%) 14.2~14.6 (21.7~21.8%) 7.7 (1.2%) 1. (1.5%) 15.3 (2.4%) 1:47.8 (7.4%) 2:47.4 (7.3%) < 現状投影 > 14.4 ~14.8 (21.7~ 21.8%) 14.6 (2.3%) 1:48.7 (7.5%) 2:48.3 (7.5%) 188.2~19. (23.8~24.%) 9.4 (1.2%) 13.1 (1.7%) 25.8 (3.3%) < 現状投影 > ~19.3 (23.8~ 24.1%) 24.6 (3.1%) ( 万人 ) その他の福祉 1:66.7 (8.4%) 1:68.3 (8.6%) 2:68.5 2:7.1 (8.7%) (8.9%) Health 医療福祉全体 Care total Care 介護 The forecast of health care workers Others 823 [12.5%] [14.7%] < 現状投影 > 933 [14.7%] (24) (42) < 現状投影 > 1,65 1,68 [18.8%] [18.9%] 233 (233) 55 (51) Pension 年金 56.7 (1.1%) (9.3%) (9.3%) Medical 医療 (327) 328 (334) 218 年度 225 年度 24 年度 ( 計画ベース ) 年度 225 年度 24 年度 ( 計画ベース ) 218 ( 計画ベース 225) 24 就業者数全体 6,58 万人 就業者数全体 6,353 万人 GDP : 兆円 兆円 79.6 兆円 保険料負担 : 12.4% 12.6% 13.4~13.5% 公費負担 : 8.3% 9.% 1.1~1.2% ( 計画ベース ) 就業者数全体 5,654 万人 15 8

9 Tax burden and social security burden to GDP in OECD countries % 3 25 Tax ratio to GDP (OECD Average) 25.% 2 Tax ratio to GDP (Japan) 18.6% Social security ratio to GDP (JAPAN) 12.1% Social security ratio to GDP (OECD Average) 9.% 16 Health Care workforce simulation based on the 24 Estimates The Ministry of Health, labour and Welfare, May 218 Simulation #1 In case of health care demands decline Healthy life expectancy extends 2.5 yrs, and so on 1,2 1, ( 万人 ) その他の福祉分野 医療福祉分野における就業者数 (24 年度 ) 1, [18.8%] [17.4%] 1,12 [17.9%] 935 [16.5%] 13 万人 [ 2.3%] 931 [14.7%] In 24 Health care workers Simulation #2-81, (-1.4%) 8 6 介護 In case of health care productivity improve 4 In 24 Health care workers -53, ( -.9%) 2 医療 計画ベース 需要低下 生産性向上 需要低下と生産性向上 就業者数全体 5,654 万人 322 ( 参考 ) 225 年度計画ベース ( 注 ) [ ] 内は就業者数全体に対する割合 17 9

10 Digests Health care cost will grow steadily, but differently Japanese budget situation slightly improved, but not enough. Future challenge will be coping with advanced medical technology, and shortage of health care professionals and workers. Optimal and appropriate use of high-cost drug with appropriate pricing and best practice needed AI and other new technology are to improve productivity 1