Rising medical costs and the reform of Japan's health insurance system

Abstract

From the early twentieth century until recently, the Japanese health insurance system consistently expanded its coverage and benefits. In 1961, Japan achieved universal coverage for health insurance. In the 1970s, however, the insurance system began to experience severe fiscal problems, as total medical expenditures rose faster than national income, as medical costs for the elderly increased rapidly, and as enormous budget deficits accumulated in several insurance schemes. Controlling the increase in medical care expenditures became the top priority of the 1980s for the Ministry of Health and Welfare. The paper presents recent government policies and efforts to contain medical expenditures and establish a firm financial basis for Japan's social security system. The government began with regulating the demand side of medical care but is also introducing planning measures for supply factors. Possible government interventions to contain medical expenditures are proposed for both demand and supply approaches. Measures for cost containment, however, need to be balanced with efforts to improve people's health and maintain equity in the health insurance system.