Linkage Between Benefit Expenditures and Premium Burdens: Long-Term Care Insurance in Japan

The analysis described in this chapter considers the discretionary premium-setting behavior of municipalities in the Japanese system of long-term care insurance (LTCI) with respect to the link between benefit expenditures and premium burdens. Although the LTCI system is managed at the municipality level, the financial system is controlled by the central government, and municipalities seem to have no discretion over the financial system. However, our empirical analysis of benefit expenditures and premium-setting behavior shows that each municipality has a different premium-setting forecast. This result is contrary to the central government’s initial intention for the LTCI system. Specifically, the adjustment subsidy does not function in line with the intention of the system, affecting the standard premium-setting process. Moreover, contrary to expectation, our empirical results show that municipalities seem to have some discretion in setting premiums. In particular, cities set premiums low, reflecting the political power of elderly people. In addition, premiums might be more influenced by the elderly when fewer neighboring municipalities are available for reference.