Japan needs to deal with its massive healthcare costs if its budget deficit is to be kept under control with an older and older tax base.
Author: Keiji Kanda, Daiwa Institute of Research
Japan’s economy has been in a growth phase since December 2012. Corporate earnings have reached record highs, and the job opening-to-application ratio has improved to a level not seen in the last 44 years. But during the same period, general government gross debt has grown at a pace exceeding the economic growth rate. It reached 239 per cent of GDP in 2016 — the highest such rate in the world.
An important contributor to the debt problem is the growth in social security expenses for medical and nursing care. Medical- and nursing-care benefits in the 2015–16 fiscal year grew 1.3 and 1.6 times respectively over the previous 10 years. Nominal GDP during that same period marked time for the most part. Relative to the scale of the economy, growth in medical- and nursing-care expenses is phenomenal. One third of the resources for Japan’s National Health Insurance is provided by public funding (tax and fiscal deficit),and a major element in Japan’s fiscal deterioration (public funding of the National Health Insurance scheme accounted for 6.4 per cent of GDP in the 2016–17 fiscal year).
The biggest challenge for Japan — a leading consequence of population ageing — is to maintain the sustainability of its social security system given increasing medical and nursing costs. The ratio of Japan’s population over the age of 65 (the aging rate) was 28 per cent as of February 2018 — far in excess of other Asian nations. The United Nations and the World Health Organization define ageing rate levels as follows: over 7 per cent is considered an aging society, over 14 per cent is an aged society and over 21 per cent is defined as a super-aged society. Japan passed the point of super-aged society in 2007, and the ageing rate is expected to grow to nearly 40 per cent by the year 2065.
To begin the process of fiscal consolidation, the Abe Cabinet plans to reform the medical- and nursing-care systems. By making medical- and nursing-care data more easily available and usable, the Cabinet hopes it will be easier to understand where and when individuals’ medical and nursing issues may emerge, producing incentives for insurance subscribers and individuals in general to make use of preventative medicine and improve health outcomes.
