Copyright GLOBIS

The public cost of social security benefits is 31 trillion yen for the national government alone, and 42 trillion yen when the cost borne by local governments is included. In addition, the public cost of social security has been rising by one trillion yen each year. Japan allocates approximately eight times as much tax revenue to social security as it does defense, and as a result of this, it is impossible to assign enough national government funding for investment in education, in science and technology, for the children’s future, and so on. This “enemy within” is growing larger, and what is more important than anything else is to take it on squarely and begin implementing reform.

1. Healthcare: Incentives to Stay Healthy will Make the System Work

In 2013, national healthcare expenditure was around 42 trillion yen, and according to estimates from the Ministry of Health, Labour and Welfare, this figure will swell to 54 trillion yen in 2025. Total healthcare expenditure is basically calculated as price (P) times quantity (Q). The following measures would allow prices (P) to be cut and quantity (Q) to be reduced:

1. Reduce the price (P) of healthcare: trim spending on drugs, which currently amounts to around 9 trillion yen per year, by requiring that generic drugs be used.

2. Curb the quantity (Q) of healthcare: provide citizens with the incentive to stay away from doctors by raising the self-pay ratio, i.e. the portion of healthcare costs that must be borne by the patient, to 30% for all types of insurance.

3. Curb the quantity (Q) of healthcare: introduce a system of insurance premiums that is based on actual use of healthcare services, e.g. raise premiums the following year if healthcare spending was high.

2. Pensions: Fundamentally Reform the System to Make it Fair to Each Generation

Pension benefit payments amount to 53.8 trillion yen (as of fiscal 2012), and the national government pays half, or 12.4 trillion yen, of the basic pension component. The following measures must be implemented to reduce the burden on the national treasury in order to make the pension system sustainable:

1. The Ministry of Finance estimates that for every year the age at which people become eligible to receive pension benefits is increased by, the cost to the public coffers will drop by 500 billion yen. Employment of elderly people should be encouraged and the pensionable age should be increased to 70 years, and eventually to 75 years.

2. Reduce the basic pension for people with high incomes.

3. Going forward, as the number of elderly people continues to increase and the number of children remains small, the minimum nominal pension benefit amount should be scrapped and a macroeconomic slide (a system whereby the amount of pension paid is altered based on changes in prices and wages) should be steadily introduced, even if there is deflation, in order to reduce the amount of pension paid.

3. Welfare: Reform the System to Ensure that only People that Really Need it Receive Assistance

In March 2015 more than 2.17 million people were on welfare. Reform needs to be implemented swiftly.

1. Reduce welfare expenditure to half the amount of basic pension payments.

2. Scrap the waiver from paying healthcare costs and make welfare recipients pay 30%, the same as other citizens.

3. Make recipients who are healthy and of working age do some form of community service or other type of work.

4. Nursing Care: Review the Self-Pay Ratio to Adapt to an Aging Society

The nursing-care insurance system, which was launched in 2000, is currently paying out 9.4 trillion yen (2013) against premiums of 4,972 yen (national average). However, the Ministry of Health, Labour and Welfare expects payouts to balloon to 21 trillion yen in 2025. Under the nursing-care insurance system, the insured party pays 10% of the cost of their nursing care, with the system footing the rest of the bill. 50% of that remainder comes from tax and 50% from premiums. To prevent the system collapsing, mechanisms such as the following need to be built in to the nursing-care insurance system:

1. Raise the self-pay ratio to 30%, the same as it is for health insurance, to curb the use of nursing-care services.

2. Set an upper limit for the number of people certified as requiring nursing care.

3. Provide incentives for nursing care to be provided in the home.

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