July 18 (Bloomberg) -- Kaoru Ishiyama gets to an orthopedic clinic in Kawasaki early so he can chat with about 20 other retirees while they wait outside for it to open, each sitting on folding chairs brought from home.
“I come six times a week to have a doctor check my back and for rehabilitation,” said Ishiyama, 82, who was injured in a car accident seven years ago. “We see each other almost every day. Coming to this clinic to see my friends is the secret to staying in good spirits,” he said, puffing on a cigarette.
Ishiyama, like most others 70 or older, pays just 10 percent of his medical fees. It’s a feature of a social welfare system that gives little incentive to reduce hospital visits and encourages the Japanese to see a doctor three times more often than people in the U.S. Medical costs are the fastest-growing burden for an indebted government with a budget deficit of 41 trillion yen ($400 billion), larger than Thailand’s economy.
“No matter how much the government raises taxes, there is no consolidating the budget unless social welfare spending is curbed,” said Robert Feldman, head of Japan economic research at Morgan Stanley MUFG in Tokyo. “If the government continues to let the spending swell, it will get out of control.”
People in Japan are required by law to sign up for public health insurance, with the type of plan varying by occupation and the size of contributions depending on incomes.
The 90 percent subsidy for people 70 or older applies to those with household income of less than 5.2 million yen.
People in that age bracket used an average 806,800 yen of medical services in 2011, four times as much as those under 70, who bear 30 percent of their bill, according to the most recent welfare ministry data. Thirty-eight percent of the expense fell on local and national governments.
The light financial burden for patients, underdeveloped home health-care services and an abundance of hospital beds all help drive up medical costs for the government, said Hisao Endo, an economics professor at Gakushuin University.
“This encourages them to see a doctor even when they don’t have a serious illness,” said Endo, who is also a member of the government’s council for social welfare system reform.
People in Japan see a doctor 13 times a year on average, compared with 4 times in the U.S. and 5 times in U.K. The average hospital stay for patients with an illness or injury requiring short-term treatment is 17.5 days in Japan, above 4.8 days in the U.S. and 7 days in the U.K., according to the Organisation for Economic Co-operation and Development. Japan’s 13.4 hospital beds per 1,000 people is the highest in the OECD, eclipsing 3.1 in the U.S. and 2.8 in the U.K.
The burden is a challenge for Prime Minister Shinzo Abe, who is trying to steer the world’s third-biggest economy out a two-decade slump as the society ages. The 70-plus age bracket is projected to account for a quarter of the population by 2030, about 6 million more than in 2013.
While Abe is set to decide later this year whether the economy can bear another 2 percentage point increase in the sales tax on top of a 3-point hike to 8 percent in April, the bigger task may be to prevent welfare costs from overwhelming the government over the longer term.
“With a view on the year 2025 when babyboomers will be 75 or older, it is important to create a system where all generations support each other,” Abe said in Tokyo yesterday.
National budget outlays on social welfare spanning health care to pensions climbed 23 percent over the five fiscal years through March 2015. Medical-related spending, which accounted for 32 percent of social welfare outlays in fiscal 2012, is forecast to soar 54 percent to 54 trillion yen in fiscal 2025, according to the welfare ministry.
Abe needs to put more priority on social-welfare reform to prevent the system from becoming unsustainable, said Hitoshi Suzuki, a senior researcher of Daiwa Institute of Research in Tokyo.
Even under the most-optimistic scenario, Japan’s debt is forecast to rise to 264 percent of gross domestic product by 2030 from 227 percent in 2013, according to the fiscal system council, which advises the finance ministry.
To stabilize debt at about 270 percent of GDP by 2020, the government would have to cut social-welfare spending for people 65 or over by 27 percent and raise the sales tax to 17 percent, according to Feldman.
The government has tried to curb welfare costs. To rein in pension expenses, it is gradually lifting the age that people start to receive benefits to 65 by 2025 from 60 in 2013, and plans to keep pension payment increases below inflation, reducing the real burden over time.
Efforts to curb medical spending have met less success. A law passed in 2006 requiring the government to raise the co-payment burden for people between 70 and 74 to 20 percent in 2008 was frozen until last year.
Government spending on medical care will rise 70 percent by 2025 from 2012 levels, outpacing a projected 10 percent increase in pension-related expenditure over the same period, according to ministry of welfare estimates.
The government should reduce the number of hospital beds and the length of stays while promoting medical treatment at home, private members of an economic council advising Abe proposed in April.
Shifting more of the burden to the public, especially the elderly, is difficult for politicians concerned with votes, said Junichi Makino, chief economist in Tokyo at SMBC Nikko Securities Inc.
“The public still doesn’t share a sense of crisis,” said Makino. “Making a commitment to raise the self-pay burden for medical care would be a ticket to losing an election.”
Ishiyama, who retired from a lifelong career as a taxi driver seven years ago, lives with his wife on public pension of about 170,000 yen per month.
“I would be in serious trouble if the government raised the self-pay burden for medical care,” said Ishiyama. “I always go to the poll to vote during elections.”
Tomohiko Murakami, who worked as a doctor for five years in Yubari on the northern island of Hokkaido, said people there live as long and are as healthy as before the city went bankrupt in 2007, closing most hospitals.
“Older people are squeezing money from the young and future generations under the current system,” said Murakami, who now works at Sasaeru clinic in Iwamizawa, Hokkaido. “Japanese already have the longest life expectancy in the world. How come we need to spend more money on medical services and sacrifice our future?”
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