Before Obamacare: Japan's national healthcare system saves some for private insurers

People who live in Japan and are following the health care reform issue in the U.S. may be drawing some parallels. Part of the problem that some people have with President Barack Obama’s history-making legislation is that it falls way short of what is usually referred to as universal coverage. In other countries that do have universal health care, like the U.K., France and Canada, the government pays for medical care. Under Obama’s new plan, the majority of Americans will still have to buy their medical insurance from private companies.

Japan’s system (kokumin kenko hoken) is somewhere in the middle. It’s national in that the government has a health insurance program that pays for almost everything, but it isn’t universal. In Japan you still have to “buy” your insurance, it’s just that you have to buy it from the government. The difference is important, because in countries that have universal coverage everyone is covered regardless of their circumstances. In Japan, you are covered as long as you pay the government. Once you stop for whatever reason, you lose your insurance. That means you could pay your premiums (which are based on income, basically making it a separate tax) to the government on time for forty years and never even use it, and then, suddenly, because you lost your job or otherwise can’t pay, you lose your insurance overnight.

But the real proof that Japan’s public insurance program isn’t universal is that private medical insurance is widely available, and quite popular. The AFLAC duck is more famous here that it is in its native USA. In fact, companies like AFLAC and Alico make as much as 75 percent of their profits in Japan, the third biggest insurance market in the world, and while much of those sales are in life insurance, a good deal is in supplementary medical insurance.

Do you need this supplementary insurance? Is kokumin hoken not enough? Business writers have discussed this question for years, and in the final analysis it appears that national insurance is enough, but supplementary insurance isn’t really designed to take care of medical expenses. It’s designed to take care of anxiety. Insurance companies prey on people’s fear of getting very sick all of a sudden, since most people believe that it will happen to them someday. Supplementary insurance is meant to take care of expenses other than those directly related to treatment: transportation costs, loss of income, upgrade to a better hospital room, etc.

For instance, so-called cancer insurance, which AFLAC pioneered and now most insurance companies offer, gives you about ¥1,000,000 when you are diagnosed, about ¥10,000 a day during hospitalization or ¥5,000 a day during out-patient treatment, and another ¥100,000 when you leave the hospital. Some plans pay between ¥100,000 and ¥300,000 if you undergo surgery.

Considering that national insurance pays for treatment, surgery, medication and hospitalization for cancer, the cost-benefits of supplementary health insurance aren’t really clear. It depends on when you started paying premiums. If you take a typical scenario and look at someone who started paying in his early 30s and was diagnosed with cancer when he was 60, he pays much more in premiums than what he receives in benefits, so in that case he would have been better off just saving his money in a bank.

Also, because people with kokumin hoken pay on average about 30 percent of their medical costs out of pocket, many people are persuaded to take supplementary insurance in order to cover this 30 percent. But in the kind of crises that supplementary insurance is designed for, the patient will eventually get most of that 30 percent back through tax deductions and other means. The health ministry estimates that in the long run the average cancer patient only pays about ¥90,000 out of pocket for his treatment, which on average costs the government close to ¥5 million.

Still, the potential to make money is huge, and right now competition among private insurers is intense. (The possible resurgence of Japan Post in the insurance racket is reportedly irking a lot of companies)  The magazine Shukan Kinyobi often reports that the U.S. government had pressured Japan to change public health insurance regulations to benefit its insurance industry. If any part of a patient’s treatment involves procedures or medication not covered by national insurance, the entire treatment cannot be covered by national insurance, and the U.S. wants to isolate types of treatment so that American insurance companies can sell more private supplementary insurance to cover those treatments not covered by public insurance. This would help not only American insurance companies, but also American pharmaceutical companies, since only drugs for treatment allowed under national insurance need to be approved by the government. Of course, such regulations would also benefit Japanese insurance and drug companies. With Japan’s rapidly aging society, there are plenty of sick people to go around.

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