Japan's Longevity Revolution and the Implications for Health Care Finance and Long-term Care

This paper consists of five related notes on Japanese health care. Section 1 of the paper proposes a simple model of health care needs in a stationary population where all the sickness is concentrated in the period leading up to death. The main variables determining the burden of health care, such as life expectancy, duration of chronic illness prior to death, etc., are identified. While we are not able to comment (at this time), on trends in the prevalence of chronic conditions in old age, extrapolation of trends in life expectancy presented in Section 2 of the paper suggest that there will be continuing increase in the number of Japanese surviving to extremely old ages. This aging of the population will assuredly put upward pressure on health spending, but this pressure must be put in the context of other factors. Section 3 decomposes increase in Japanese health care spending into portions attributable to overall demographic increase, change in population age structure, and change in a residual "underlying factors" term subsuming changes in technology, health system coverage, etc. The residual dominates total increase in health care spending. In fact, based on historical data and projected demographic trends, the strongest upward pressure from population aging occurred in the period 1980-95, when aging accounted for 1.4 percentage points of 5.6% per annum total health expenditure growth. Health care spending growth attributed to ageing is estimated to be 1.13% per annum in 1995- 2020 and only 0.34% per annum in 2020-2050. Section 4 focuses on home care of the elderly and suggests that there is a substantial ongoing decline in the supply of potential in-family caregivers. Lower fertility is an important determinant of this trend. Section 5 describes the overall profile of the Japanese health care system, noting that it receives relatively high marks in international comparisons but tends to lump together acute care and chronically ill patients. As recognized by the "Gold Plan" policy currently being implemented, there is a severe shortage of nursing home facilities beds as well as services to make home care a more practical option for families. A simple ratio analysis suggests that the number of bedridden chronically ill persons (i.e., the population that would ideally be cared for in a nursing home setting) will reach 1,800,000 by 2020 as opposed to 600,000 today