HEALTH CARE FINANCING AND NATIONAL HEALTH INSURANCE

The evolution of national health insurance

    National health insurance emerged in Japan as the result of a gradual process that can be traced back to 1905, when the Kamegafuchi Textile Company provided limited benefits for its employees.¹ In the decades that followed, more and more corporations began offering benefits through mutual aid societies. A health insurance law enacted in 1922 was inspired by the German system established by Chancellor Bismarck in 1883. As in Germany, this first law extended health insurance coverage to industrial workers and miners but excluded the self-employed and employees in companies with fewer than five workers.² This law, implemented in 1927, established the practice of mandating coverage by enterprises and created an important government role in the provision of health insurance to those individuals not covered by employers. In 1938, health insurance was extended to farmers, fishermen, foresters and other groups not covered by the 1922 law.

    After World War II, the effort to rebuild Japan gave new impetus to the achievement of universal coverage. In 1958, the 1938 law was revised to include the remaining 30 percent of the population not previously covered. This revision broke the precedent of extending health insurance to occupational groups by calling for universal coverage on the basis of residence. Every government jurisdiction, whether city, town or village, was required to provide health insurance to every uncovered resident by 1961. Since 1961, virtually all Japanese have been covered by either employers or the government.

Health care financing

    Health insurance expenditures in Japan are financed by payroll taxes paid by employers and employees and by income-based premiums paid by the self-employed. In contrast to the United States, where the federal, state and local governments finance roughly 42.9 percent of all health care expenditures and out-of-pocket payments contribute another 22 percent, in Japan, only 31.7 percent of national health care expenditures derive from national and local public funds and 12.2 percent from out-of-pocket payments. The largest share of health care financing in Japan is raised by means of compulsory premiums levied on individual subscribers (34.6 percent) and employers (21.7 percent).³ This employment-based share of health care financing in Japan (56.4 percent) raised by means of voluntary employer, employee and individual subscriber premiums in the United States (Figure 1).

The structure of the national health insurance system

    At first glance, understanding the system seems to be an impossible task. Japan's national health insurance program is made up of some 2,000 private insurers and more than 3,000 units of government. The system can be simplified, however, by distinguishing between two broad groups of beneficiaries (Appendix 2, Figure 1):1) employees and their dependents, including some elderly dependents (65 percent of the population); and 2) the self-employed, unemployed, elderly and their dependents (35 percent of the population).⁴

    Ignoring some administrative complexities and small beneficiary groups, health insurance plans for employees may be categorized into four groups:

1. Government-managed plans - These plans provide coverage for the almost 30 percent of the population comprised of employees (and their dependents) of small enterprises with more than five but fewer than 300 employees. These plans are managed by the government's Social Insurance Agency through a network of some 300 local offices. Premium contributions are set by law at a fixed rate (8.2 percent of monthly income before taxes) and evenly split between employees and employers.
2. Society-managed plans - Known as health insurance societies, more than 1,800 company plans provide coverage for 26 percent of the population. These health insurance societies are managed jointly by representatives of labor and management in enterprises with more than 300 employees. Society-managed plans can be also established by several enterprises employing 3,000 or more employees. Payroll taxes for such plans range from 5.8 to 9.5 percent of gross monthly income.⁵ Employers are required to pay at least half of these contributions, and some pay as much as 80 percent.
3. Mutual aid association (MAA) insurers - Covering almost 10 percent of the population, these include 27 plans for government employees in the national public service, 54 plans for local government employees, and one plan for quasi-public employees like teachers and other school employees. The average payroll contribution of these plans in 8.5 percent of the employee's wage.
4. Plans for day laborers (for those who work less than two months during the year) and seaman - These independent plans cover only 0.1 and 0.4 percent of the population, respectively.

    In addition to the employee groups noted above, employees in enterprises with fewer than five workers, the self-employed and retirees are covered either by municipal governments or by national health insurance societies. Roughly 3,000 municipal governments cover over 90 percent of such self-employed individuals as farmers, shopkeepers, their dependents, and a large number of elderly people on pensions. There are also 166 national health insurance societies that directly manage plans for certain trade and occupational groups such as physicians, lawyers, dentists, food retailers, carpenters, and barbers. Contributions to these national health insurance societies are based on reported income and assets as well as on the number of individuals per household.

    In contrast to health insurance for employees, municipal governments and national health insurance societies receive no direct contributions from employers. Moreover, the self-employed and retirees earn less on average than employees in large enterprises, so the government ends up paying slightly less than 50 percent of their health insurance expenditures - four-twelfths by the national government and one- twelfth each by prefectures and municipalities.⁶ Once the elderly reach the age of 70 (or 65 if bedridden), since they use the lion's share of health care resources but do not pay premiums, under the Health Services System for the Elderly the other half of their expenses are financed by taxes on premium payments to all insurers of employees and the self- employed.

    Most of Japan's health insurance plans are private organizations in terms of administrative law; in practice, they have a quasi-public status insofar as they are largely bound to provide uniform benefits and to cover all eligible beneficiaries. All employers with at least five employees are mandated by law to insure them (along with their dependents). Employers have little freedom to alter premium levels, which range from 5.8 to 9.5 percent of the wage base.⁷ The self- employed are required to contribute premiums to health insurance plans that are administered by local governments or trade associations. And all of these premiums are taxed to finance the national fund which, along with government subsidies, finances national health insurance for the elderly.

The extent and regulation of health insurance benefits

    Health insurance benefits are designed to provide basic medical care to the maximum number of individuals. Although there are exceptions, mandated benefits are similar across the four groups of employee plans and for the self-employed and retirees. They include ambulatory and hospital care, extended care, most dental care and prescription drugs. Not covered are such items as abortion, cosmetic surgery, most traditional medicine (including acupuncture), certain hospital amenities, some high-tech procedures, and childbirth.⁸ Expenses that fall outside the normal boundaries of medical care are either not covered, dealt with on a case-by-case basis, or covered by the welfare system.

    Differences between plans include the level of copayments, the amount of cash benefits, and the extent of cross- subsidization and government subsidies (Appendix 2, Figures 2 and 3). With regard to copayments, all plans for employees have a 10 percent rate for plan members and their dependents, a 20 percent rate for inpatient care, and a 30 percent rate for outpatient care. For the self-employed and their dependents, the copayment rate is 30 percent for both inpatient and outpatient care. For the retired, the copayment rate is 20 percent, and for their dependents, the rate is 20 percent for inpatient care and 30 percent for outpatient care. But under Japan's system of catastrophic health insurance, there is a monthly ceiling for each beneficiary on all copayments for all health insurance plans.⁹ This has limited private insurance to coverage of copayments. There is, however, a small market for supplemental benefits that pay for amenities like private rooms.

    Health insurance plans for employees provide cash benefits for extended sickness and injury and for maternity leave and delivery expenses. National health insurance plans for the self- employed and retirees provide cash benefits for midwifery and general expenses. Cash benefits can be substantial. Nearly $2,400 is provided to cover child delivery expenses under most employee plans, for example.¹⁰ If the mother is the primary beneficiary, the cash benefit may be 50 percent of her monthly salary. Maternity leave amounts to 100 days and is compensated at 50 percent of a mother's salary in the case of working women. In the event of prolonged sickness or disability, an individual collects 60 percent of monthly remuneration for 18 months.

    Society-managed plans provide more extensive benefits in kind. In addition to providing the cash benefits noted above, 74 percent of these plans also have a "patient cost-sharing restoration" program which picks up a portion of the mandatory 10 percent copayment.¹¹ Society-managed plans are also actively involved in health screening and promotion. Enterprises own and operate more than 3,500 sanitoriums, 1,000 gymnasiums and 300 health centers, for example.¹²

    There is thus a widely held perception that employees of large corporations covered under society-managed plans are getting a "better deal." There is no evidence that these beneficiaries enjoy better health status, however. As John Campbell noted at the Japan Society conference, among all plans, individuals enrolled in society- managed plans receive the least value back for what they pay. For every dollar paid in premium contributions, only 62 cents is received in health insurance benefits. The beneficiaries of government-managed plans receive 84 cents in benefits for every dollar of premiums paid, the self-employed receive $1.66, and retirees receive $4 to $5.¹³

Government subsidies and cross-subsidization between plans

   Age and income disparities among health insurance plans result in an unequal distribution of health risks. Plans that insure beneficiaries who are older or in higher risk occupational groups will incur higher costs and therefore often generate deficits. Given the Japanese commitment to equity, these inequalities are reduced through government subsidies and cross-subsidization between plans.

    With the exception of mutual aid associations for government employees, all insurance plans receive some form of government subsidy. Even society-managed plans, for example, receive government funds (Y4.85 billion in 1992) to defray their administrative costs. Likewise, government subsidies financed 50 percent of the benefit payments to self-employed individuals covered by national health insurance (Appendix 2, Figure 3).

    Cross-subsidization supports the poorer plans. As noted above, the most generous example is the national pool created as part of the Health and Medical Service Law for the Aged of 1983. Government (national and local) provides 30 percent of this special fund, and local governments another 20 percent. The remaining 70 percent comes from other insurance plans based upon the total enrollment of retirees in each fund.¹⁴ As a percentage of their total expenditures, government- managed plans, society-managed plans and national health insurance plans contribute 15.4, 20.4 and 24.2 percent, respectively.¹⁵

Provider reimbursement

    Under Japanese national health insurance, all insurance plans pay health care providers low fees by American standards (Table 3). The fees must conform to a uniform national fee schedule known as the point-fee system. For any particular service, the same fee is paid by all insurers to all providers. As in Canada or Germany, there is no "extra-billing": neither physicians nor hospitals may bill their patients more than the authorized fee; but illegal side-payments are common and condoned. All covered medical procedures are ranked by complexity, and neither geographic location, the institutional setting (e.g., type of hospital or ambulatory care), the qualification of the provider, nor the actual cost of the service are considered in this rating system.¹⁶

    Medical procedures are assigned a number of points, each of which is worth 10 yen.¹⁷ Only the basic charges for hospital room and board services are covered; the costs for additional hotel amenities are not covered.¹⁸ The fee covers all supplies, materials, capital depreciation and personnel costs. There is no flexibility in this system of price controls for insurers or for providers. Hospitals can bill patients extra only for room and board and a restricted number of specialized services, for example.¹⁹ As John Campbell noted at the conference, "cheap stuff is profitable and expensive stuff is unprofitable. A doctor who sees a few extra patients and prescribes drugs for them makes money; coronary bypass surgery at an urban hospital loses money."

     The Ministry of Health and Welfare sets the fee schedule. Its Central Social Medical Care Council has 20 members who represent a cross section of health care interests: eight providers (five physicians, two dentists, and one pharmacist), eight payers (four insurers, including government representatives, two employers and two labor representatives), and four public interest representatives (three economists and one lawyer).²⁰ Every other year, this council renegotiates the fee schedule with the medical profession, but these negotiations are constrained by a rate cap set by the Ministry to limit the overall increase in costs. This rate cap results in an effective, if implicit, global budget for all health care expenditures.