1.2 The history of public healthcare insurance

The current Japanese healthcare system can be best understood by reviewing its origins. The public health insurance program in Japan is a combination of three separately developed structures—the employment-based health insurance system, the residence-based National Health Insurance system, and the medical insurance system for those aged 75 and over. Today, these three structures combined form the basis of one of the largest healthcare insurance programs in the world, covering nearly all Japanese citizens and long-term residents, over 127 million people. In light of historical circumstances and following numerous revisions to the Health Insurance Act since its introduction in 1922, these insurance systems are administered by a variety of insurers.

The history of the public health insurance program in Japan

The beginnings of Japan’s system of public health insurance system 

After sweeping through England from the second half of the 18th century and throughout the 19th century, the industrial revolution finally reached Japan. Japan’s industrial revolution began in earnest when state-owned enterprises were privatized in the second half of the 19th century. Just like the rest of the world, this caused a sharp increase in the number of Japanese laborers working in environments such as coal mines and factories. As a result, issues surrounding the improvement of working conditions and the protection of workers’ rights became urgent due to labor movements and social movements. This led to the enactment of the Factory Act in 1916, which regulated employment and compelled factory owners to provide support to workers in the event of workplace injury or fatality.

However, labor movements started by labor unions were based on socialism, and resistance to socialism remained a major hurdle for the Japanese government. The government did not view the labor movement as entirely dangerous. It distinguished between moderate reform and radical reform and worked to prevent confrontations between social classes by permitting moderate labor movements using a Bismarck-style “Carrot and stick” approach. The “stick” in this approach refers to actions that suppressed labor movements. The first “carrot” appeared in 1922, when the Health Insurance Act came into effect. The main purpose of this act was to provide compensation to workers or their families in the event that a worker had a workplace accident or fell ill while not on the job. The concept of the Health Insurance Act itself dates back to the 1890s, when Minister of Home Affairs Shinpei Goto started discussions within the government after recently returning to Japan from a study trip to Germany. However, the topic did not become a priority issue for the government, so many years of effort were required before it was finally enacted. Also, at the time, health insurance for laborers was considered more strongly an industrial policy rather than a medical policy, so it was under the jurisdiction of the same ministry as the Factory Act, the Ministry of Agriculture and Commerce.

Meanwhile, the Great Depression began in the United States in 1929. Shockwaves were sent through Japan’s farming communities when export prices for agricultural products to the U.S. fell one after another, starting with exports of raw silk thread. An additional blow fell when a bumper crop in 1930 sent the price of rice plummeting, further compounding the economic problems already facing Japan’s farming communities. Entering the 1930s, farming communities became an important source of manpower for the Japanese military, so the health and nutritional status of their people became an issue of military strength. The Ministry of Home Affairs began to consider establishing an insurance system for the general populace starting with those in farming villages that would provide wide coverage for people who were not employees. It is said this decision was based upon the fact that the long-established “Jorei” system for providing community healthcare similar to medical aid associations already existed in every region of Japan, particularly in farming communities. The decision was also influenced by the fact that the Health Insurance System that had been created for employees was already starting to show results. It is also said that the Japanese government made this decision after seeing the results of similar systems in Sweden and Denmark.

The former National Health Insurance Act was submitted to the Diet in 1937, but ended up classified as unresolved and rejected after the dissolution of the House of Representatives. When the Ministry of Health and Welfare (now the Ministry of Health, Labour and Welfare) was formed the following January, in 1938, income restrictions that had been an insurance prerequisite were abolished, and insurance became available to non-employees. The condition that insurance be employment-based was also abolished for both the insured and those not covered by employee insurance. This system was replaced by a system in which insurance was provided through location-based insurance associations that viewed municipalities as independent units. This formed the basis of the current system of residence-based National Health Insurance that was enacted in March 1938.


The successful establishment of universal health coverage (UHC)

After World War II ended in 1945, the Supreme Commander for the Allied Powers (SCAP) issued the “Three principles of public assistance” for Japan, making the government responsible for ensuring equality and minimum standards of living. This meant the government had to be more proactive in maintaining the health of the people. In 1948, the previous National Health Insurance system was revised, making it a rule that the insured were under the jurisdiction of local governments rather than regional associations. However, given the economic situation after the war, there were still problems that prevented National Health Insurance from becoming widespread. Even by 1956, one-third of the population of Japan was still unenrolled in any form of health insurance. Due to this, the then Prime Minister Ichiro Hatoyama declared the establishment of “Comprehensive health insurance that covers all citizens” in his annual speech on policy guidelines. This was a massive step forward in the effort to insure everyone. The current National Health Insurance Law was enacted in 1958. It made regional governments legally responsible for the administration of insurance associations and compelled all citizens to enroll in the public insurance scheme if they were not already covered by employee’s insurance or a Mutual Aid Association (MAA). That same year, a new Public Health Insurance act was enacted. After a grace period of 3 years, public health insurance unions were established in all municipalities, allowing Japan to successfully achieve a world-class system of universal healthcare in 1961 [8,9,10].


Coverage for the older population

In 1973, Japan forged a unique health insurance structure for its older population, reallocating public funds to subsidize the 30% of costs typically covered by patients within the NHI cost-sharing scheme and effectively making healthcare free for people aged 70 and over.[11] Japan simultaneously introduced a high-cost medical care benefit system which at first covered only family members of employees via the employment-based health insurance, not extending to employees themselves. Later, employees along with their families came to enjoy the benefits of this system via National Health Insurance, when employment-based health insurance finally grew to also cover employees. Between 1973 and 1980, healthcare spending for people aged 70 and over increased more than fourfold, leading to sustainability concerns and the eventual passage of the 1982 Public Aid for the Aged Act. This act, implemented in 1983, put an end to free healthcare for the elderly by requiring that they pay small copayments.[12] In addition, this legislation helped to subsidize the NHI program by transferring revenue from employment-based health insurance to NHI. As a result, the Public Aid for the Aged Act is considered one of the most critical pieces of healthcare legislation in the history of Japanese health policy.



<Column> Free healthcare for people aged 70 and over: The “biggest mistake” in the history of health policy in Japan

Free healthcare for the elderly is now considered by the Government of Japan to be the “biggest mistake in the history of health policy in Japan” (according to a former MHLW official). While drastically improving access to healthcare among the older population, the system resulted in over-provision of care and medical products, including pharmaceuticals. Older patients flooded hospital waiting rooms to the extent that they essentially became centers of social activity for some people. During that era, it was not uncommon to hear two older people in a waiting room joke, “Ms. Yamada isn’t here today. She must not be feeling well!” The moral hazards created by free healthcare were so extreme that the government moved to revise the policy for people aged 70 and over, re-requiring cost-sharing. However, this proved tremendously difficult politically, with the entire process ultimately taking 30 years.

The Health Services Scheme for the Aged and the medical care system for the retired

The Public Aid for the Aged Act of 1982 created the basis for the Health Services Scheme for the Aged. This scheme, which was administered by municipalities, covers people aged 75 and over as well as those bedridden aged 65 and over (People aged 70 or over born prior to September 30, 1932, were covered by the Health Services Scheme for the Aged). Funding for the scheme was provided by contributions from medical insurers, public funds, and partial contributions by the insured. This scheme was in place for nearly 25 years, only being revised in 2008. There were many reasons for the revision. Chief among them was the lack of transparency regarding distribution of medical expense burden between the young and the old. Through the scheme, a part of every premium contributed by the members of any health insurance plan was transferred to municipal governments. In other words, the groups collecting premiums (insurance schemes) were not the same as the groups paying contributions (municipalities), making it difficult to know how contributions were actually spent. This scheme was finally discontinued in April 2008 alongside the creation of the Medical Insurance System for the Latter-Stage Elderly targeting people aged 75 and over.[12] The cost-sharing details between the young and the old are much more transparent in this system. Furthermore, this system established governmental unions in prefectural associations across the country to act as central locations for the collection and payment of insurance premiums. This system also has clearly defined regulations regarding the responsibilities of management and the use of public finances.

In addition to the previously mentioned systems, in 1984, the Government created the Retired Persons Healthcare System to relieve the building pressure on public finances brought on by increasing numbers of retirees leaving employment-based insurance schemes and coming under the coverage of NHI. The Retired Persons Healthcare System covered people aged 65 and under who were enrolled in NHI, people on employee pensions for over twenty years, and people who elected to receive retirement pensions after the age of forty and had done so for 10 years or more. Dependents were also covered by this system if they satisfied a fixed set of accreditation criteria. This system was administered by municipal governments, and funding was sourced from premiums contributed by system members, as well as premiums paid to employment-based health insurance plans. The Retired Persons Healthcare System itself was discontinued following the establishment of the Medical Insurance System for the Latter-Stage Elderly in April 2008[13].

A new medical insurance system framework for the older population

The 2006 reform of the Japanese medical system is tremendously important when trying to understand health policy in Japan. This reform created a new healthcare system for people aged 75 and over. A number of reasons led to the creation of this new system. The first was related to Japan’s residence-based insurance, a part of NHI that covers people residing in Japan who are not enrolled in employment-based health insurance plans. The health insurance system was set up such that when people retired who had formerly been enrolled in employment-based health insurance plans, they would then be enrolled in Community Health Care Plans.[14] Since people generally retire at older ages, the average age of the population enrolled in NHI (via these plans) grew older and older as time passed. This shift placed enormous financial pressure on the NHI since older people tend to incur greater medical expenses. The 2006 reform aimed to respond to this structural challenge by establishing a framework that allowed people aged 75 and over to be supported by society as a whole. Specifically, a new system was set up requiring people aged 75 and over to cover 10% of their medical expenses, while the remaining 90% is covered by the working population and public funds. A framework was also created by insurers to adjust costs for people aged 65 to 74 by having them enroll in either Community Health Care Plans or employment-based health insurance. The framework for those aged 75 and over came to be known as the Medical Insurance System for the Latter-Stage Elderly, while the framework for those aged 65 to 74 supports people considered to be “Early-stage” elderly.


The Long-Term Care Insurance System

Prior to the establishment of the Long-Term Care Insurance System, welfare and medical care for the elderly were delivered via separate systems. In terms of welfare, municipal governments selected the types of services people were eligible for as well as the institutions from which they could receive the services. Service recipients had no say in these matters. Service fees were decided according to the incomes of recipients and the incomes of their dependents, leading to heavy burdens for middle-class households. As for medical care for people aged 75 and over, a lack of infrastructure for welfare services limited society’s ability to provide long-term care to people in need of services, including daily care in hospitals and care related to specific medical treatments which required longer periods of hospitalization.[15]

As the Japanese population has aged, the focus of the healthcare field has shifted from acute illnesses toward the provision of integrated and continuous medical and nursing care for those with chronic conditions. Fewer and fewer families are now living with their elderly relatives compared to in the past, and the average age of family members providing care to elderly relatives is increasing. The combined effect was an increase in the number of people with no option for medical care but a long-term hospital stay, which put a strain on public finances.

The Long-Term Care Insurance Act of 1997 was created to address this issue. This act established the Long-Term Care Insurance System, which covers all people aged 65 and over, as well as people aged 40 and over who are in need of long-term care. This system gives users the freedom to select the type of services they need, as well as their service providers. This act also created the position of “Care Managers” who are able to assist users in selecting care providers.[16] Users are charged 10% of the medical fees for the services they select, irrespective of their income (although above a certain level of income, they are charged 20%). The system differs from NHI by mandating a “maximum amount of financial support.” After a certain level of support, users must cover the costs of all excess services.


Other healthcare legislation

Implemented in 1948, the seminal Medical Care Act defined criteria for the basic medical services to be provided by public hospitals.[17] The Medical Care Act has since undergone eight revisions in order to better align the provision of medical facilities with community needs as well as to introduce the system of Medical Care Plans.

A more recent piece of major health policy legislation is the Health Care System Reform Act of 2015, which changed the shape of the healthcare insurance system. This act, which will go into effect in 2018, moves oversight of the residence-based NHI from the municipal level to the prefectural level. To support the transition, this act provides prefectures with increased authority and responsibility related to financing and healthcare delivery systems. As one MHLW official put it, it is “the biggest change to healthcare in Japan since the establishment of the modern healthcare system.”

References

[8] Kitayama, T. (2011). Explaining the Institutional Change of Health Politics in Japan: Localities Nationalized?. Yukikaku Publishing Co., Ltd.

[9] Sakaguchi, T. (1977). The History of Japan’s Social Insurance Systems. Keiso Shobo,

[10] Yoshihara, K., & Wada, M. (2008). The History of Japan’s Health Insurance Systems. Toyo Keizai Inc.

[11] Ministry of Health, Labour and Welfare (2016). The status of medical care for the elderly. (accessed 29 January 2018) Retrieved from http://www.mhlw.go.jp/file/05-Shingikai-12601000-Seisakutoukatsukan-Sanjikanshitsu_Shakaihoshoutantou/0000125580.pdf

[12] Ministry of Health, Labour and Welfare. Changes to the healthcare system for the elderly. (accessed 22 August 2017) Retrieved from http://www.mhlw.go.jp/bunya/shakaihosho/iryouseido01/info02d-25.html

[13] Ministry of Health, Labour and Welfare. Amendments to the medical insurance system. (accessed 22 August 2017) Retrieved from http://www.mhlw.go.jp/bunya/shakaihosho/iryouseido01/taikou05.html

[14] Ministry of Health, Labour and Welfare. The medical insurance system of Japan. (accessed 22 August 2017) Retrieved from http://www.mhlw.go.jp/file/06-Seisakujouhou-12400000-Hokenkyoku/0000172084.pdf

[15] Ministry of Health, Labour and Welfare (2015). The current state of the public nursing-care insurance system and its future role. (access 22 August 2017) Retrieved from http://www.mhlw.go.jp/file/06-Seisakujouhou-12300000-Roukenkyoku/201602kaigohokenntoha_2.pdf

[16] Ikegami Naoki (2017). Medical care in Japan; Its history and organization – Direction of future reforms. Nikkei Book Publishing Company.

[17] Ministry of Health, Labour and Welfare (2007). 2007 White Paper of the Ministry of Health, Labour, and Welfare. (accessed 29 January 2018) Retrieved from http://www.mhlw.go.jp/wp/hakusyo/kousei/07/dl/0101.pdf