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Policy Options for Financing the Future Health and Long-Term Care Costs in Japan

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  • Tadashi Fukui
  • Yasushi Iwamoto

Abstract

As the Japanese population structure changes, health care and long-term care costs will steadily increase. The current style of financing (pay-as-you-go) will create a large increase in future burden of these costs. This paper studies an alternative policy that prefunds the social insurance benefits for the elderly. During a transition process, the proposed scheme maintains a higher contribution rate in order to accumulate sufficient funds. Under our baseline scenario, the sum of the contribution rates toward health insurance and long-term care insurance increases from 5.06 percent of earnings to 12.41 percent of the same. The rate of increase in overall burdens, including taxes and subsidies, is 63 percent. Our sensitivity analysis has shown that the quantitative implications of the increase in total burdens depend on social cost scenarios, the labor force, and the interest rate. However, labor force scenarios do not have a considerable impact on the rate of burden. As against this, the setting of social costs has a significant impact on the same. Even under the most optimistic scenario, the rate of increase in total burden is 34 percent. Even though we cannot predict the exact amount of the necessary contribution rate that is capable enough to transfer the funded system, what we are sure of is that a significant increase in the contribution rate is inevitable.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12427.

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Date of creation: Aug 2006
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Publication status: published as Itō, Takatoshi and Andrew Rose (eds.) Fiscal policy and management in East Asia. Chicago and London: University of Chicago Press, 2007.
Handle: RePEc:nbr:nberwo:12427

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  1. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1991. "Generational Accounts: A Meaningful Alternative to Deficit Accounting," NBER Chapters, in: Tax Policy and the Economy, Volume 5, pages 55-110 National Bureau of Economic Research, Inc.
  2. Louise Sheiner & David M. Cutler, 2000. "Generational Aspects of Medicare," American Economic Review, American Economic Association, American Economic Association, vol. 90(2), pages 303-307, May.
  3. David F. Bradford & Derrick A. Max, 1997. "Implicit Budget Deficits: The Case of a Mandated Shift to Community-Rated Health Insurance," NBER Chapters, in: Tax Policy and the Economy, Volume 11, pages 129-168 National Bureau of Economic Research, Inc.
  4. Olivia S. Mitchell & John Piggott & Satoshi Shimizutani, 2004. "Aged-Care Support in Japan: Perspectives and Challenges," NBER Working Papers 10882, National Bureau of Economic Research, Inc.
  5. "Iwamoto, Yasushi", 1998. "Japan's Labor Force in the Year 2020," Economic Review, Hitotsubashi University, Hitotsubashi University, vol. 49(4), pages 297-307, January.
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Cited by:
  1. Yasushi Iwamoto & Tadashi Fukui, 2009. "Prefunding Health and Long-term Care Insurance," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, Policy Research Institute, Ministry of Finance Japan, vol. 5(2), pages 255-286, November.

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