Japanese Welfare State Reforms in the 1990s and Beyond: How Japan is Similar to and Different from Germany

Vierteljahrshefte zur Wirtschaftsforschung 4 / 2001, S. 571-585

Tetsuo Fukawa

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Beginning with a review of Japanese welfare state reform in 1990s, we discuss similarities and differences between Japan and Germany in the implementation of three major reforms: public pension reform, health care reform and introduction of long-term care insurance. The latest public pension reform in both countries has the same aim: to establish middle- and long-term stability of the system against ageing of the population. The 1999 Japanese Pension Reform has continued the effort to expand the funding basis and to reduce the future benefit level, and two laws passed in 2001 in the field of occupational pension have paved the way for heavier reliance on private arrangements. Germany’s pension reform of the year 2000 invented a new formula to offset the reduction of public pension benefits through introducing a tax-supported private pension system. This approach may have a strong impact on Japanese reform debates. The freedom of choice of sickness funds by the insured in Germany since 1996 has stimulated discussion in Japan as to how to strengthen the role of the insurers. In Japan, the activities of insurers have been marginal so far, and further strengthening their functions is expected to promote a break-through in health care reform in Japan. Case payment to hospital services and the assessment of hospital budgets using the DRG (Diagnosis Related Groups) method, both now being carried out in Germany, are viewed with keen interest in Japan. The issue of who pays for the health insurance is becoming controversial, and efforts to correct false incentives built in the fee-for-service system will continue in Japan. Since long-term care insurance started in April 2000, a smooth implementation of the system has been the main concern in Japan. Conversion of hospital beds from health insurance coverage to long-term care coverage, and a wide variation across municipalities in the amount and quality of services provided are among the key issues. The Japanese system is to be reviewed every 5 years, and issues similar to those raised in the German system are also very much relevant to Japan: a) to assure the quality of services provided; b) to decrease cost pressure due to ageing; and c) to divide the burden fairly among the population. Social protection is more extensive in Germany, while ageing of the population is taking place faster in Japan. The financing of the welfare state is still one of the key issues in both countries, and thus both are currently reviewing new options, including new approaches to the needs of the elderly, broadening the financing basis of social benefits, and greater reliance on private arrangements. Japan and Germany share many of the same features, such as ageing of the population and dominance of social insurance system, and both countries share many issues in their welfare state reforms.