【Aging, safety net and fiscal crisis in Japan】No.2: Prediction of healthcare expenditures

In this column series, Yukihiro Matsuyama, Research Director at CIGS introduces the latest information about aging, safety net and fiscal crisis in Japan with data of international comparison.

The Canon Institute for Global Studies (CIGS) held a symposium, with the theme "Fiscal / Social Security Symposium: Scenario Analysis of the Crisis after Fiscal Collapse" on December 8, 2017. Under the Abe administration, the Japanese economy has maintained gentle growth and the stock prices have been steady. However, the fundamental reform of social security, which is the biggest contributor to the budget deficit, has got further delayed. Therefore, we could not deny the possibility of a spike in interest rate some day in the future, as and when there are no buyers of government bonds. The causes of Japan's crisis are its aging population and the decline in birth rate. This is a problem that foreign countries are also likely to face in the near future. Overseas interest in the Japanese economy and society is expected to increase further in the future. Therefore, I would like to use this column to introduce data useful for understanding the actual situation in Japan.

The first column predicts healthcare expenditures, which consist of medical care and long-term care. The government announced the revised forecast of population last April. The future healthcare expenditures are estimated by using the latest population forecast and per person medical care and long-term care expenditures by gender and age group. The data does not reflect the effect of inflation or wage increase. Figure 1 shows the trend of medical care and long term care expenditures from the beginning of 2015, which is taken as the base year. The total expenditures during it are indexed as 1. In 2015, the absolute expenditures on medical care and long-term care were 42.4 trillion yen (385 billion US$; 1US$=110 Yen) and 9.8 trillion yen (89 billion US$), respectively.

The population of Japan is expected to decrease at an average annual rate of 0.7% from 2015 to 2060. The line A shows the medical care expenditures, which reflects only the demographic dynamics, and indicates that the decrease in medical care expenditures due to declining population will exceed the increase in expenditures due to an aging population. As a result, the medical care expenditures will start to decline around 2030. Meanwhile, the new medicines and medical devices that will appear due to advances in medicine will be expensive and contribute to the increase in medical care expenditures. It is considered that this pushes up the expenditure by more than 1% per year in other developed countries. The line B is the result of incorporating the 1% increase in expenditures, relative to those in line A. In other words, people's requirement of medical care will continue to increase even after assuming declining population.

The line C shows the trend of long-term care expenditures by considering the demographic dynamics. Till 2040, it will continue to increase at a pace that far exceeds the increase in medical care expenditures. This is due to the rapid increase in the population of those above 80 years, and a corresponding increase in their long-term care needs. Therefore, the increase in the long-term care expenditures will have a huge influence on the budget deficit.

Figure 1: Prediction of healthcare expenditure (2015=1)


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