The Japanese spent 31.4 trillion yen for medical services in fiscal 2004, or about 246,000 yen per person, an increase of 2 percent from the previous year. The figure of 2 percent may be a small and acceptable growth, requiring no stricter lid on the rise of the nation’s medical spending. But Japan’s financial deterioration has made a reduction in medical costs an important policy issue. A reduction in medical spending is necessary to help rehabilitate the government’s financial condition and to keep the health-insurance system from going bankrupt. Helping the nation’s citizens maintain a healthy, productive life depends on the sound management of the health-insurance system.

Mr. Hidehisa Otsuji, minister of health, labor and welfare, hopes to push down medical-service benefits paid by health-insurance schemes and the central and local governments to about 9 percent of national income in fiscal 2025. Unless special measures are taken to reduce total medical spending, it is estimated that the amount of benefits will reach 11 percent of national income in fiscal 2025, up from 7 percent in fiscal 2004. The health ministry envisages reducing the medical benefits by about 6.5 trillion yen that year.

Rising medical costs for elderly people is the largest contributor to the increase in the nation’s medical service outlays. The per-capita medical cost for elderly people in Japan is about five times higher than the amount spent on younger people. Elderly people visit hospitals more frequently and are hospitalized for longer periods of time than younger people. To reduce the length of hospitalization stays, the health ministry plans to strengthen public preventive education on adult-onset diseases, including diabetes and hypertension, and to build a system to care for sick people at home instead of in hospitals.

Other measures the health ministry is expected to propose will include: having elderly people whose income is above a certain level pay 30 percent of their medical costs instead of the current 10 percent (20 percent from August 2006), charging fees for meals, electricity and city water from patients who are hospitalized for a long time, and raising the cap on payments by patients who receive advanced medical treatment. It is even expected to propose that public health insurance not be applied to low-cost medical treatment, thus having patients shoulder all the cost for certain types of medical treatment.

The ministry is also considering lowering fees for drugs and medical treatment covered by public health-insurance systems in step with recent price and wage movements. Since this means lower revenues and income for pharmacy owners, doctors and nurses, organizations such as the Japan Pharmaceutical Association and the Japan Medical Association are likely to put up fierce resistance.

The Finance Ministry and the Council on Economic and Fiscal Policy, an advisory body for the prime minister, criticize the health ministry’s approach as piecemeal. They instead propose introduction of a numerical target linked to the economic growth rate to limit increases in the nation’s medical spending. If medical cost continues to grow at the current rate, it will rise to a level of between 8 percent and 9 percent of gross domestic product (GDP) in fiscal 2025, up from 5.2 percent in fiscal 2004. Some members of the council think the growth in the medical cost can be held to 5.6 percent of GDP in fiscal 2025 by using the GDP-linked numeral target. The health ministry fears that such a system may lead to an increase in patients’ share in the medical cost to an unbearably high level, resulting in a deterioration of public health.

Apart from the introduction of the numerical target, some of the health ministry’s and the Finance Ministry’s proposals overlap. The latter strongly wants to narrow the range of drugs and medical services covered by public health insurance, increase the financial burden shouldered by wealthy elderly people for medical services, and steeply reduce fees for drugs and medical treatment that are determined by the government and paid by public health-insurance associations. Regarding the last point, the Finance Ministry points to the fact that while the National Personnel Authority has recommended lowering wages for public servants, the personnel costs for doctors and nurses have risen.

Whichever approach the government may take, the effect of efforts to restrain medical spending will vary, depending on the combination of methods used and the weight given to various components. Both the government and the Diet must conduct thorough and detailed discussions in order to work out a reasonable and viable plan.

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