Inter-insurer adjustment of financial sources has reached its limit

In countries where public health insurance systems cover every citizen, an insurer is designated for the entire country, each state, or each regional block defined for the healthcare system. Insurers can secure a large enough number of the insured to have the principles of insurance work effectively. Japan has a universal health insurance system, but it does not work like this. In a country with a population of 127 million, there are 1,804 insurers of the National Health Insurance set up for municipalities, 1,518 Health Insurance Societies for large companies or groups of large companies in the same trade, and 47 prefectural insurers operated by the Japan Health Insurance Association for small- and medium-size companies. In total, Japan has as many as 3,612 insurers (as of April 2009). This means that there are many insurers in a weak financial position, and that for a long time, they have been managing to make ends meet by receiving public funds and resorting to inter-insurer adjustment of financial sources. However, recent changes in the situation are making the current adjustment mechanism no longer viable: (1) The Health Insurance Association, which predicts a deficit of about 600 billion yen in FY 2009, has run short of reserve funds (i.e., fallen into debt due to cash-flow problems); (2) a majority of National Health Insurance insurers and Health Insurance Societies are in the red; and (3) raising premium rates is unlikely to lead to increased revenues due to declines in income among the working generation.

What the government should do to get over this difficulty is to (1) move up an action that the Ministry of Health, Labor and Welfare has long been advocating-consolidating National Health Insurance insurers in the same prefecture into one; (2) integrate each prefecture's National Health Insurance with the Japan Health Insurance Association, which is already operating on a prefectural basis; and (3) even consider dissolving large companies' Health Insurance Societies for consolidation into these prefectural insurers. A major flaw in the Japanese healthcare system is that a single medical fee scheme, which sets the price of medical treatment, applies in any part of the country, despite regional differences in medical consumption. There are no incentives to improve the efficiency of medical consumption and the manner of provision of medical care.

A regional difference index may be used as a measure by which to compare medical expenses without the impact of age structure. As Figure 1 shows, the highest regional difference index (1.215), demonstrated by Fukuoka, is 1.4 times the lowest figure (0.868), indicated by Chiba. Fukuoka, which continues higher levels of medical consumption than other prefectures for reasons other than the aging of its population, has been able to maintain the same healthcare system as other prefectures because of subsidies received from other prefectures through the universal medical fee scheme and adjustments of financial sources.

Figure 1. Regional difference index of medical expenses

	Prefecture	RDI
Prefectures with high RDI	Fukuoka	1.215
	Tokushima	1.203
	Hokkaido	1.174
National average		1.000
Prefectures with low RDI	Shizuoka	0.893
	Nagano	0.892
	Chiba	0.868

Source: Compiled by the author based on FY 2007 Map of National Health Insurance Medical Expenses.

The same trends can be observed in the premium rates charged by the Japan Health Insurance Association. The insurer was established in October 2008, when the government-administered health insurance, managed and operated for the entire nation until September 2008, was divided by prefecture. Given this history, the insurer's premium rates should have been adjusted in consideration of regional differences in the age and income of the insured and then defined according to the balance sheet of each prefecture's health insurance system. The required premium rates calculated in this way are listed in Figure 2.However, in reality, adjustments to restrict violent changes have been made to these rates, consequently allowing Hokkaido to receive funds equivalent to premiums at a rate of 0.42% from other prefectures, while forcing Nagano to supply funds equivalent to premiums at 0.47% to other prefectures. Although these adjustments are due to expire in 2013 as per the original plan, the government seems to be considering extending them beyond 2013 under the current health insurance system, because the financial crisis of the Japan Health Insurance Association has worsened more than expected. However, as already mentioned, a more effective means of stabilizing the health insurance system would be abolishing all positive and negative adjustments between insurers in order to completely consolidate them into a prefecture-based regional insurance system and conducting a comprehensive reform of the health insurance system along with the system to provide regional healthcare.

Figure 2. Premium rates charged by the Japan Health Insurance Association, by prefecture (effective from Ma. 2010)

	Prefecture	Required premium rate (1)	Adjustments to restrict change (2)	Actual premium rate (1) + (2)
Prefectures with high premium rates	Hokkaido	9.84%	-0.42%	9.42%
	Saga	9.78%	-0.37%	9.41%
	Fukuoka	9.72%	-0.32%	9.40%
National average		9.34%	±0%	9.34%
Prefectures with low premium rates	Shizuoka	9.02%	+0.28%	9.30%
	Niigata	9.00%	+0.29%	9.29%
	Nagano	8.79%	+0.47%	9.26%

Source: Compiled by the author based on data from Kenpo News No. 1892