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What we can take away from Japan's healthcare 

First published in TODAY on 24 September 2012
Japan is one of the world's most rapidly ageing countries. According to statistics, 23 percent of its population of about 120 million people was aged above 65 in 2010. By 2055, this percentage is expected to double.

The country's woes do not stop there. Japan's population is also shrinking at a negative compounded annual growth rate of a half-percent each year. Its total fertility rate is 1.3, far below the replacement rate.

Likewise, Singapore suffers from similar problems. While Japan has the world's most aged population, Singapore's population is among those ageing fastest in Asia. In Singapore, the percentage of people aged over 65 will double to 20 percent of the population by 2030. The nation’s fertility rate last year is a meagre 1.2.

Both countries — two of the most developed in Asia — share interesting parallels when it comes to demographic trends. Japan started grappling with the burden of a greying population in the 1970s, 30 years before this issue emerged proper in Singapore.

Given that Singapore seems to be following in Japan's footsteps in terms of demographic challenges, it would be particularly pertinent for Singapore to observe what Japan has done with its healthcare system and the challenges that lie ahead for the country.

An overview of Japan's healthcare system

In 1961, Japan became one of the earliest countries worldwide and the first in Asia to successfully implement universal medical insurance coverage. Japan’s universal health and social care system offers each Japanese citizen free choice and access to healthcare.

Following a uniform fee schedule, citizens pay between 10 and 30 percent of the cost as co-payment. This is lower for young children and the elderly.

Beyond universal medical insurance, Japan has also put in place Long Term Care Insurance (LTCI) for the elderly.

Many of the policy makers and academics I have spoken to during my travels overseas as a member of KPMG's Global Healthcare practice have repeatedly touted Japan’s LTCI for aged citizens as probably the greatest innovation the country can share with the world.

Indeed, there are good reasons for Japan to be proud of its LTCI system.

Since 2000, the mandatory scheme entails payment of premiums starting at age 40 for all citizens, topped up by subsidies from the government — central, prefecture and municipal.

LTCI then reimburses 90 percent of healthcare expenses to providers which range from semi-public welfare corporations and hospitals (which are all non-profit) to for-profit companies providing home and respite care. All providers are licensed and supervised by the local governments.

Fees for each service are set by the national government and revised every three years. There is also a comprehensive list of services available to elderly citizens, from day rehabilitation centres to 24-hour home visits, and this list is updated as new needs are identified.

As countries including Singapore consider universal coverage and equitable access for both healthcare and elderly care, Japan's fairly successful model which differentiates and covers both is well worth studying.

Challenges Japan still faces

Japan's hospital sector still struggles with inefficiency issues and low profitability. According to Japan Hospital Federation's 2010 report, 85 percent of government sector hospitals and 37 percent of private sector hospitals are suffering losses.

Where do these inefficiencies lie?

For one, the Japanese show a heavy reliance on hospital care. The average hospital stay in Japan lasts 20 days — more than three times the Organisation for Economic Co-operation and Development (OECD) average of seven days.

While Japan has a large number of acute hospital beds relative to the size of its population at an estimated 14 beds per 1,000 people in 2010, many of these beds are currently being inappropriately used for the long-term care of the elderly. This has led the Japanese Government to drive the conversion of a-third of the one million acute hospital beds to community beds for long-term elderly care or assisted living beds over the next few years.

While a revision of the national fee schedule for medical and social care occurs every two years, there is increasing pressure to cap reimbursements to healthcare providers as cost and government budgetary pressures mount.

Japan's national medical and long-term care expenditures are also expected to increase significantly as the population ages and shrinks, with fewer adults of working age supporting the elderly. Japan is therefore under an increasingly unbearable financial burden.

To fund such relentlessly increasing expenditure, Japan's Diet has recently passed legislation to double consumption tax from five to 10 percent over the next three years. This is, however, understandably a difficult political decision to make.

As healthcare costs rise, it would seem that no amount of savings or pooled premiums collected will ever be enough for Japan.

Lessons for Singapore

Japan's steady-handed approach to healthcare contains lessons for countries with ageing populations such as Singapore.

The various obstacles it now has to overcome also provide Singapore with a better idea of what to expect in terms of healthcare for a graying population.

Singapore's national healthcare system is marked by the 3Ms- MediSave, a compulsory savings plan for hospitalisation expenses; MediShield, a low-cost insurance scheme for catastrophic illnesses and MediFund, an endowment fund set up by the Singapore Government to help those who cannot afford their medical bills even after the first 2Ms have kicked in.

In addition, Eldershield, Singapore's limited and voluntary version of long term care insurance for severe disabilities was also launched in 2002.

The key questions now are whether enough Singaporeans are taking up these schemes and whether payouts are sufficient for the high medical costs.

Following Japan's example, Singapore policymakers may need to consider whether more schemes should be compulsory. How can mindsets of Singaporeans be changed, so that they are more open to the idea of paying higher premiums at a younger age? How can the insurance dollar be stretched, and coverage be extended equitably beyond hospitals into long-term and social care?

The Eldershield scheme is due for review in 2013, and it may be timely for all these to be considered then.

Another key lesson Singapore may learn from Japan is that the right model for healthcare is vital to ensure the efficient and effective use of resources.

Singapore is already on the correct path- a major part of Singapore's Healthcare 2020 vision entails increasing capacity to achieve a 30 percent increase in acute hospital beds, tripling of community hospital beds, and adding another 6600 nursing home beds.

Moving ahead, hospitals can think about how they can be horizontally integrated to achieve sustainable economies of scale. More can also be done in assisting healthcare providers in implementing shorter term cost-cutting or process improvement initiatives.

The route ahead for healthcare and elderly care in Singapore is no easy one as the challenges an ageing population poses are severe and urgently require attention. Learning from the successes and pitfalls of others who have embarked on similar journeys will provide us with ideas on how to move forward.

This article is contributed by Dr Loke Wai Chiong, Director, Global Healthcare Practice, KPMG in Singapore. The views expressed are his own.