How Japan Escapes "LTC Hell"
Friday, November 18, 2005
LTC Comment: Read
a report on Japan's radical new LTC social insurance program after the
*** HOUSE WANTS TO "SLASH" MEDICAID LTC.
In the wee hours of this morning, the House of Representatives passed the
budget reconciliation bill we've been following.
Among other controls on Medicaid planning abuses, the measure proposes a
limit of $750,000 on home equity that applicants for Medicaid LTC benefits may
retain while qualifying for public welfare.
That's up from the $500,000 limit that was too low (!) to attract enough
According to CNN.com, "The median price of a single-family American home hit
$188,800 at the end of the first quarter, a rise of 9.7 percent compared with a
year ago." (http://money.cnn.com/2005/05/12/real_estate/metro_home_prices_up/)
So, the House proposes to let people with nearly four times the median
home value get Medicaid to pay for their long-term care.
If you think that's bad, consider this:
the Senate wants no limit whatsoever on the home equity of Medicaid
pooh-poohed a Wall Street Journal editorial about " Medicaid for
Millionaires" (February 24, 2005, http://online.wsj.com/article/SB110920966481062758.html?mod=opinion%5Fmain%5Freview%5Fand%5Foutlooks,
subscription required). The House
and Senate's unwillingness to place reasonable limits on the currently totally
unlimited Medicaid home equity exemption gives the lie to the critics'
objections and bodes ill for the program's fiscal solvency.
It shows clearly why most people ignore the risk of long-term care, avoid
private insurance or home equity conversion, and rely on the faltering Medicaid
program when the worst happens.
the House (especially the Energy and Commerce Committee) is to be commended for
taking the first small, tentative steps in the direction of controlling Medicaid
planning abuse. We congratulate our
former colleague and co-founder of the Center for Long-Term Care Financing David
Rosenfeld for his, and his courageous colleagues', successful efforts to nudge
Congress in this direction. We say
"Godspeed" for efforts to win Senate support of these measures in the
forthcoming conference committee deliberations. ***
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LTC BULLET: HOW
JAPAN ESCAPES "LTC HELL"
LTC Comment: Dues-paying
members of the Center for Long-Term Care Reform who read our daily members-only
LTC E-Alerts already know we recently spent two weeks studying long-term care in
Japan. That's why you haven't
received an LTC Bullet for a while.
Center President Steve Moses and Administrative Coordinator
Damon interviewed two scholars, a Health, Labor and Welfare Ministry official,
and a member of the Japanese Diet's upper House of Councillors in and around
Tokyo. We also visited three
long-term care facilities in urban, suburban and rural areas of Japan in which
we observed home care, adult day care, respite care, independent living,
assisted living, and nursing home services first hand.
In addition, we reviewed many published and unpublished sources regarding
Japan's experience with long-term care service delivery and financing since
World War II.
Following are excerpts from an article by Steve Moses on
Japan's new long-term care social insurance system. For purposes of this Bullet, we've removed the footnotes and
references and dropped some of the historical background for brevity.
To read the full article, please go to http://www.centerltc.com/pubs/Articles/ltcjapan.pdf.
(LTC Hell) and What Japan's Doing About It:
Valuable Lessons for the U.S. and Vice Versa" by Stephen A. Moses
If you think the United States has a problem with aging demographics,
pay-as-you-go social programs, and long-term care financing, consider what Japan
is up against. On almost any measure, the Japanese face bigger challenges
than we do and they have taken stronger action than we have to meet them.
Understanding Japan's problems and corrective actions won't make our
challenges go away, but it sure puts them in context.
Specifically, studying Japan's creative, activist approach to long-term
care service delivery and financing is a great way to put our unimaginative,
bogged-down LTC policy in perspective. In
the end, maybe both countries have something to learn from each other. This article will explore all those points.
A high and growing life expectancy combined with a rapidly declining
birthrate, have made Japan one of the oldest and most quickly aging societies in
the world. "For the last three
decades, Japan has been going through a very rapid aging process in its
population: in 1970, the proportion
of 65 years old or older in its total population accounted for 7.1%, in 2004, it
reached 14.1%, and in 2005, it is estimated to be 19.6%.
Furthermore, according to the mid-range fertility scenario of the
official population projection, the proportion will reach 28.7% in 2025, and
35.7% in 2050." Numbers like
those forebode serious difficulties for government pension, health care, and
long-term care programs that depend on a declining population of working-age
people to support an increasing population of older aged dependents. . . .
"By the late 1980’s, a national consensus had
emerged on the need for a public long-term care service that guarantees a
general access for everyone in need of the service."
Japan's next step into the complex field of long-term care service
delivery and financing was "the Gold Plan." Implemented in 1989, the ten-year Gold Plan "was to be a
major shift from long-term institutionalized care in hospitals and nursing homes
to home programs and community-based rehabilitation facilities.
At the same time, the government formulated a plan to make long-term care
services universally available to older persons."
Home and institutional care would be free to all who met the means test. Eligibility for services was determined by the municipal
social welfare agencies, which also, along with non-profit organizations,
arranged delivery of services. Not
surprisingly, costs skyrocketed. "Gold
Plan programs did grow rapidly, with expenditures rising by 10 to 15 percent a
year for a decade—in fact, the targets had to be raised in the New Gold Plan
of 1994." The Gold Plan did
much to develop Japan's long-term care infrastructure for home and institutional
care, but it also raised expectations and costs.
Faced starkly with the question of
"how to share
the burden of the rapidly increasing long-term care expenses in the
society," Japan turned in April of 2000 to its radical, new long-term care
social insurance system, or "Kaigo Hoken."
Among the new system's objectives, as articulated by experts interviewed
and published sources reviewed for this article were the following:
to ensure a stable revenue source not dependent on taxes alone
to change the system of welfare eligibility determination and service
allocation by municipalities, which stigmatized users
to make services available based on needs and preferences irrespective of income
or the availability of family caregivers
to reduce "social hospitalization," the use of hospitals funded
by universal medical insurance for long-term care, and to increase the use of
home care and nursing home services
to replace welfare financing of long-term care as much as possible with
social insurance funded half through taxes and half through premiums collected
by pension or payroll deduction
to encourage private sector companies and organizations to enter the
field of long-term care service delivery and thus enhance quality through
to make "care managers" routinely available to help
beneficiaries of the program and their representatives find and choose the most
appropriate service providers
to relieve the public's anxiety about saving for retirement and old age in order
to increase current consumption and thus improve Japan's economy
to relieve families of LTC burdens and encourage female labor force
Foremost, Japan's new government-funded long-term care
insurance system was aimed at making the most appropriate long-term care
services universally available to all aging Japanese citizens regardless of
their ability to pay and based solely on their objective medical needs and
personal preferences. For the first
time, publicly funded long-term care services would be available to the middle
class and not just to the poor who qualified for welfare.
But long-term care is "Japan's fifth social insurance program,
coming after medical care insurance, pension insurance, protective insurance
against unemployment and occupational accident compensation insurance."
That's a big load to place on taxpayers and mandatory premium-payers.
Let's turn next to the question "How does the system work?" and
finally to "How has it turned out?" and "What is likely to happen
The Japanese LTC system covers all people over the age of
40 but no one under that age. Younger
people remain covered by the existing welfare system.
Those 65 and older receive insurance benefits for conditions requiring
long-term care regardless of the cause. Those
40 to 64 receive benefits only if their illnesses are associated with aging,
such as stroke, early onset dementia, etc.
Municipalities (of which Japan has about 3500) are the insurers.
They determine tax and premium rates (averaging $30 per month, with half
the premium paid by employers for the age 40 to 65 group) based on geographical
differences in number and financial status of older people.
The municipalities also determine service eligibility based--at least in
theory--only on physical and mental condition, without regard to income or
family members' availability to provide care.
The system is funded half through taxes (25 percent from national taxes;
12.5% from prefecture (cf. state) taxes; and 12.5% from municipal taxes) and
half through premiums, 18% from people 65 or older (withheld from their
pensions) and 32% from people aged 40-64 (through payroll deduction).
The system funds six levels of care depending on need and severity
ranging from "support" and "home help services" to nursing
home care and varying from $500 to $3,300 per month.
The insurance pays 90 percent of the cost to service providers who are
selected by beneficiaries. Users pay 10 percent. The
government decides reimbursement rates based on a difficult, time-consuming
cost-allocation system with readjustments every three years.
The indigent have their 10 percent co-pay funded by the traditional
welfare program, based on eligibility at roughly $800 per month of income.
Whether or not assets are considered in determining eligibility for
welfare assistance depends on whom you ask, but a Ministry of Health, Labor, and
Welfare official interviewed for this study said "There is a limit
on assets; they don't have a right to keep all assets.
If they have a house, they have to sell it; if they have a car, they have
to sell that. The municipalities
This sounds very attractive.
For thirty dollars a month (on average) in payroll- or pension-deducted
premiums starting at age 40, you get unlimited access to a full range of
long-term care services from the provider of your choice for ten cents on the
dollar. Furthermore, the system
seems to be working very well. On a
recent trip to Japan (November 2005), I visited three long-term care facilities
in urban, suburban and rural areas that offered home health care, adult day
care, independent living, assisted living, nursing home care, and special units
for Alzheimer's Disease patients. Without
exception these facilities were immaculate, odor free, and full of active, happy
residents and staff eager to talk about their experiences.
In one case, a group physical therapy class was underway as we entered
the facility. In another, a group
sing along with piano accompaniment, greeted us.
In a third case, residents of a special small LTC unit cheerfully met us
as a group when we toured their section. Frankly,
these experiences were very different from the often depressing,
olfactory-offending visits I've made to some nursing homes in the United States.
Besides visiting LTC facilities in Japan, we also stayed with a family
and met their 93-year-old loved one who receives twice-weekly home health care
visits funded by the LTC insurance system.
Here again the services were efficient, helpful, much appreciated and
very affordable. On all these
measures, it is hard to conclude otherwise than Japan's new social insurance
program for long-term is a rousing, popular success.
But before you jump to the
conclusion that we should import the Japanese LTC system in its entirety to the
United States, consider these clouds on the program's horizon.
In a nutshell, here's how one commentator evaluated the program recently:
insurance . . . has changed significantly how we take care of the elderly not
only at home, but also in institutions as well.
The first stage of the new insurance has been a solid success: all available indices of LTC market outputs have literally
doubled. At the least, a
substantial portion of the family burden has been replaced by LTCI benefits, and
the LTC institutions are admitting high care level individuals.
This success in the first stage, however, immediately creates a far more
difficult problem for the second stage: namely,
how can we control the costs and make the system sustainable in the
long-run?" He goes on: "The
benefits are growing too fast. The
waiting-line for institutional care is getting longer.
There are some signs of moral-hazards in the system.
The financing mechanism is still very shaky.
The regional imbalance may be expanding.
These are the problems that need to be solved to make LTCI sustainable
for the future."
Following is a list of financial and substantive
challenges facing Japan's LTC insurance system as compiled from various sources:
Overall program costs are growing at an alarming rate according to
several analysts and a member of the Japanese Diet's upper house (House of
Councillors) interviewed for this article.
"For 2005, 5.5 trillion [yen] projected, 6.8 trillion [yen] actual.
A major factor driving cost increases is much heavier utilization than
expected of the lowest levels of care provided by the system.
"Government views with alarm: too
many people without much need are getting services."
Premiums that were only expected to average $27 per month by 2010 have
already reached $30 on average and are expected to increase seven percent a year
from now on. Because premiums are
based on income, "many citizens are now paying closer to $50 per
Demand for nursing home services has increased despite the system's
emphasis on home care because the eligibility screening role of municipalities
was decreased at the same time that the system paid "hotel costs" in
nursing homes but not for home care. This
has led to a high demand for and a shortage of nursing facility beds.
On the other hand, demand for and expansion of private-pay assisted
living facilities is increasing rapidly, because their cost to consumers has
plummeted now that the LTC insurance system pays for most care costs and
residents are only responsible for "room and board" expenditures.
This raises a question of whether the assisted living facilities can
provide for the care needs of residents as adequately as nursing homes.
Despite a large increase in available professional LTC services at all
levels "[t]he average number of hours spent for LTC care per day [by family
caregivers] was 5.2 hours, a mere 0.2 hour reduction . . . .
Thus it is clear that LTCI has not removed all, nor replaced most, of the
burdens of family care-givers."
"Information to select care
service providers is not sufficiently provided.
A number of complaints are filed about quality of care services.
Improving quality of care workers and fostering human resources are
problems to be solved. Effective means to eliminate the providers with poor quality
from the market are insufficient."
Long-term care services provided by hospitals and funded by Japan's
medical insurance system have been reduced by LTC insurance, but only to about
half the extent hoped for and intended.
Municipalities continue to apply eligibility screens based on families'
ability to provide care as a means to control program costs.
This occurs less often than before but is increasing once again.
The number and quality of care managers to help people find and retain
the most appropriate services have not increased as much as was hoped for and
To address these major and many other minor concerns, Japan's
social-insurance-financed long-term care long-term care system underwent a major
review resulting in significant modifications of the program which took effect
in October 2005. Among the options
considered to reform the system were:
cutting or changing benefits
expanding the program to include collecting premiums from and providing
services to citizens under 40 years of age
In the end, the idea to expand the program to include all ages was
deferred due to strong political opposition.
Benefits were not cut, although access to IADL support services for
people in the lowest two care levels has been somewhat restricted.
In fact, new benefits were actually added.
The new services include measures, such as "strength training,"
counseling, and encouraging social participation, that are intended to prevent
people from becoming in need of the lower level program services which have been
rising in utilization and cost the most. By
far the most important change to the system, however, is the elimination of the
induced incentive for institutional care by requiring nursing home residents to
pay part of their own "hotel" or room and board costs.
The goal of these reforms, which will be phased in between now and 2008,
was to contain the increase in the average basic premium rate from the projected
amount of $37 per month (without reform), to $34 (with reform), the current rate
being around $30 to $31 per month.
According to Dr. Naoki Ikegami, a leading, local expert
on Japan's system, "By themselves, these measures are not likely to
sufficiently contain costs but they could pave the way for a stricter
curtailment of benefits in the future."
Clearly, a process has begun to rein in the expenditure growth of Japan's
long-term care social insurance program. Nursing
home beneficiaries who will now have to pay their hotel costs will feel the
pinch. They, and their families,
will bring political pressure to bear. As
premiums increase for everyone, there is a risk that political support among
premium payers not currently receiving benefits will increase.
Serious questions have been raised whether it will be feasible to retain
the highly utilized lower level of care paid for by the system, especially IADL
support services. It is difficult to deny services to people in the future who
have been receiving them in the past or who anticipated receiving them based on
the original structure of the program. Will
measures implemented in the 2005 reform successfully curtail program expenditure
growth? The people I interviewed
seemed dubious that new costs for new services (prevention) could significantly
reduce ongoing costs for existing (care) services.
In the meantime, the Japanese public remains very happy with the
long-term care system's services and much less concerned about its costs than
about the cost of their medical and pension insurance systems, which are much
larger. Thus, dismantling the
system in the face of increasing costs is unlikely, but constricting benefits
and increasing premiums and co-payments is virtually inevitable.
And every step in that direction invites more and graver political
challenges for the party in power.
So, what is the bottom line? One
cannot help but be reminded, when considering Japan's long-term care system, of
America's experiments with social insurance, to wit, Medicare and Social
Security. Both programs are enormously popular but totally
unsustainable fiscally. Medicare
has a $60 trillion unfunded liability and Social Security carries a $10 trillion
long-term deficit. Has anyone run
the numbers for the difference between promises made through Japan's social
insurance programs (5 at latest count) and the country's economy's ability to
keep those promises? Sure, in
Japan, as in the United States, governments can keep tweaking taxes, premiums
and benefits to bring them into balance with expenditures.
But as they get closer and closer to a condition in which citizens are
paying too much and getting too little from government programs, they will reach
a limit to how far they can raise the cost and reduce the benefits of programs
and still retain political control. Furthermore,
in the absence of a private market for services in which supply and demand set
prices and determine priorities, governments are hopelessly at a loss to decide
what are the best services to offer and the proper prices to charge for them.
Over time, economic drift caused by subjective prices and bureaucratic
control inevitably leads toward inefficiency, consumer discontent, and
ultimately to political shoals.
One Japanese politician who is struggling with questions like these is
Keizo Takemi, a member of the Diet's upper House of Councillors.
He has a portfolio that includes medical and foreign affairs. Mr. Takemi told me that he is worried about the interaction
between Japan's pension, medical and long-term
care insurance systems. In
principle, I believe his concern is that by taking on the responsibility for
these costs, the government has lifted a burden of personal accountability from
the individual that could create perverse incentives.
For example, Japanese citizens are among the biggest savers and
wealthiest populations in the world. "Compared
to the elderly of other OECD nations, the elderly of Japan are in a very strong
financial position. For those over
age 60, average household savings is about 200,000 Euros [approximately
$234,000] and their annual income of those households was about 45,000 Euros
[approximately $52,650]. Relative
to that of all Japanese households, the average income of elderly households
rose rapidly in the decade between 1975 and 1985 and since that time has
remained at about half that of all households.
As a result there has been a marked decline in the incidence of poverty
among the elderly." Mr. Takemi
told me that Japan's social insurance programs have allowed Japanese citizens to
set aside large amounts of money in savings that are not consumed for their
living or long-term care needs, thus devolving the whole burden for such needs
onto government programs which are already faltering for reasons discussed
This set of conditions--short-range popularity and long-term insolvency
risk of Japan's social insurance programs--leads me to wonder if Japan might
have something to gain from considering private sector alternatives, which
although foundering in the United States, are at least still legally possible
here. For example, private medical
insurance is not permitted in Japan because it is considered socially
unacceptable to allow a person's wealth, including the ability to purchase
insurance, to buy them a higher level of medical care than others with fewer
resources are able to obtain. The
same restriction does not apply for long-term care, however.
The principle accepted in Japan for LTC is that the government should
offer a minimal level of services, but those who can afford to do so should be
allowed to "top off" by purchasing additional services, albeit at
prices set by the government. This
leaves open a possible role for private long-term care insurance in Japan if and
when someday the public perceives that services under the publicly financed
program are inadequate to their needs. Similarly,
if the government someday finds that funding adequate long-term care services
under the current structure is infeasible politically due to opposition by the
public to further tax and premium increases or benefit decreases, public
officials might consider implementing an estate recovery program, similar to the
one mandated (if unenforced) in our Medicaid program.
That could generate substantial new resources for Japan's long-term care
system without burdening the broader population of taxpayers and future
In the meantime, I acknowledge that based on my first-hand, albeit
limited, observations, Japan's long-term care service delivery system is very
impressive and probably excels our own. Japan's
social insurance system for financing long-term care leads me to believe,
however, that combined with its other four social insurance systems, Japan is on
a dangerous trajectory toward major economic decline as the Age Wave crests and
crashes. There is no denying that
Japan deserves praise for tackling the challenge of long-term care early and
that the United States deserves blame for ignoring the same challenge so
doggedly. But just as, compared to
other industrialized nations, America minimized our vulnerability to the
impending collapse of pay-as-you-go social insurance programs for health and
retirement security, maybe our tardiness in addressing long-term care is a
blessing in disguise. While losing
some of the short-term benefits of early participation in other countries'
popular social insurance Ponzi schemes, we may dodge their worse long-term
consequences in the end.
A. Moses is president of the Center for Long-Term Care Reform in Seattle,
Washington. The Center's mission is
to ensure quality long-term care for all Americans. Steve Moses writes, speaks and consults throughout the United
States on long-term care policy. Learn
more at www.centerltc.com or email email@example.com.