demographic impacts on social security system and fiscal ...€¦ · projection by fiscal system...
TRANSCRIPT
Demographic Impacts on Social Security System
and Fiscal Policy: Contexts in Japan
G20 Symposium
Junji Ueda
Ministry of Finance, Japan
January 17, 2018
0
• How can we cope with increasing demand and supply for healthcare services, while achieving better health outcomes, efficient service provision and fiscal sustainability?
• What would be possible measures for curbing healthcare spending, and financing increasing spending?
• How can we cope with uncertainties under demographic changes, while keeping social equity and fiscal sustainability?
• Can we attain a better combination of public/private pension, and a better design for public pension combining pay-as-you-go/funded systems?
Key questions for fiscal policy and social security
Income support for elderly people (Pension)
Healthcare
1
0 50 100 150
0
10
20
30
40
50
60
70
80
90
100
0 50 100 150
0
10
20
30
40
50
60
70
80
90
100
0 50 100 150
0
10
20
30
40
50
60
70
80
90
100
1945
(year)
Demographic Change in Japan
2045 2017 1973
050100150
0
10
20
30
40
50
60
70
80
90
100
050100150
0
10
20
30
40
50
60
70
80
90
100
050100150
0
10
20
30
40
50
60
70
80
90
100
0 50 100 150
0
10
20
30
40
50
60
70
80
90
100
050100150
0
10
20
30
40
50
60
70
80
90
100
20
65
age
Men Women Men Women Men Women Men Women
( ten thousand )
Fertility rate Aging rate (65 and over)
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1950 55 60 65 70 75 80 85 90 95 2000 05 10 15 20 25 30 35 40
Projections(as of 1969)
Projections(as of 1986)
Projections(as of 2016)
Actual value
( % )
0
5
10
15
20
25
30
35
40
45
1970 75 80 85 90 95 2000 05 10 15 20 25 30 35 40 45 50 55 60
Projections(as of 2016)
Actual value
Projections(as of 1975)
( % )
(year)
Uncertainties for demographic changes in Japan
2
(Source) MIC (1945-2017), NIPSSR (2045)
(Source) NIPSSR
-5
0
5
10
15
20
25
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Projections(as of 1973)
Projections(as of 1984) Projections(as of 2004)
Actual value
Wage ( % )
Yield on investment
(year)
-8
-6
-4
-2
0
2
4
6
8
10
12
2001 2005 2010 2013 2015 2020
Projections(as of 1994)
Projections(as of 1999) Projections(as of 2004)
Actual value
Uncertainties for macroeconomic variables in Japan
3
( % )
(Source) MHLW, 2016, “2014 Actuarial Valuation and Reform Options”
Uncertainties for public pension system
• Longevity • Fertility • Migration
Demographic changes
• Productivity (and long-term economic growth) • Capital-labor ratio (and interest rate, or return on assets) • Saving / investment balance
Macroeconomic variables
• Changes in relative size of different social groups, such as: employed/self-employed (formal/informal) urban/regional status of immigrants, etc. affecting coverage, eligibility, contribution history, and expected benefit level
Societal changes
4
Measures coping with demographic impacts on pension system
• Amending a future contribution rate
→ To assure balance between actuarial liabilities and future revenues under the currently revised projections for exogenous variables
• At the same time, negotiate for changing policy parameters, such as benefit accrual ratios, eligibility age, indexation rules, etc.
→ To avoid significant increases in the future contribution rate
Before 2004 reform : Regular 5-year actuarial review
‘Defined Benefit’ scheme with 5-year renegotiations and revisions
Affording some incentives for policymakers to :
• postpone raising contribution rate (assuming higher contribution rate in the future)
• make optimistic projections for exogenous variables to avoid both cutting benefits and increasing contribution
→ Uncertainties for future policies about benefit and contribution, and less credibility of public pension system
5
6 Measures coping with demographic impacts on public pension system
1. Fixing future contribution rates
• Gradually increasing the EPI contribution rate on wages from 13.58% (2004) to 18.3% (2017)
2. Automatic adjustment for benefit level
• Introducing a modified indexation rule reflecting demographic factors
→ To assure fiscal sustainability, the rule will be automatically applied for necessary periods, which will be described in regular 5-year actuarial valuations.
3. Increasing subsidies to basic pension (NP)
• Using additional revenue from consumption tax raised in 2014
After 2004 reform : Automatic balancing mechanism (ABM)
contribution
Res
erve
s
Nat
ion
al
sub
sid
ies
Amount of Pension
Fixed
6
Measures coping with demographic impacts on pension system
1. Expanding the mandatory coverage of EPI* • Including short-term workers [since 2017]
(working 20 hours in a week, earning 800 USD in a month, at companies with more than 500 employees)
→ To enhance old-age income support by public pension for short-term workers *EPI: Employees’ Pension Insurance, providing an earning-related pension on top of a basic
pension (both public, pay-as-you-go)
2. Expanding the role of private pension and saving • Introducing personal DC pension with tax allowance (iDeCo) [since 2001; expanded in
2017] • Expanding tax allowance for small saving by households (NISA) [since 2014]
→ To supplement smaller public pension by voluntary private saving
Other reforms for pension system
7
Measures coping with demographic impacts on pension system
Further reforms
1. More incentives for working longer • More flexibility for pushing back the starting age of receiving public pension
→ To allow working longer, and receiving more pension after the deferred starting age
2. More re-distributional functions of public pension • Need to reconsider pension benefit and tax on pension for high-income earners
→ To focus the role of public pension on preventing old-age poverty
3. More flexible adjustments of benefit level • Need to reconsider ‘nominal floor’ of pension benefit adjustment
→ To avoid intergenerational inequity
8
Objectives of a national healthcare system
Decent benefit coverage
with limited copayment
: assuring equal access by all
income level citizens to decent
healthcare services
Quality of
healthcare services
: better services by
competition and
technological progress
Limited fiscal burden
: not requiring excessive fiscal
resources (mandatory social
contribution and general tax) More redistribution for equity purpose
requires more fiscal resources
Asymmetric information between patients and providers results in inefficiency, such as supplier-
induced demand / increasing costs
Japan’s context: • Laissez-faire approach for
service delivery (dominated by private service providers, without gatekeeper functions)
• Strict price control to contain costs (using uniform fee schedule revised every 2 years at global and item-by-item level)
Japan’s context: • Increasing fiscal deficit 9
24.5
13.7
10.3
7.8
8.3
10.6
12.5
14.0
15.8
19.5
24.5
30.8
39.4
50.0
65.3
80.2
94.4
107.8
0.0 20.0 40.0 60.0 80.0 100.0 120.0
0~4
5~9
10~14
15~19
20~24
25~29
30~34
35~39
40~44
45~49
50~54
55~59
60~64
65~69
70~74
75~79
80~84
85~ Public Subsidy
349,000
0.4
3.3
7.0
15.6
36.4
75.0
131.9
202.0
0 50 100 150 200 250
40~64
65~69
70~74
75~79
80~84
85~89
90~94
95~
Health Care Spending per capita by Age Groups (CY2016)
Elder Care Spending per capita by Age Groups (CY2016)
(Source) MHLW, 2018, “Estimates of national medical care expenditure”, “Survey of long-term care benefit expenditures”
(JPY10,000) (JPY10,000)
Average
553,000Yen
Average
910,000Yen
Average
50,000Yen
Average
480,000Yen
(Age) (Age)
Public Subsidy
77,000
Approx.
5times
Approx.
1.6times
Public Subsidy
14,000Yen
Public Subsidy
136,000Yen
Approx.
10times
Average
184,000Yen Public Subsidy
26,000
Approx.
3times
Approx.
3times
Approx.
5times Approx.
13times
Average
4,000Yen Public Subsidy
1,000Yen
Challenges for healthcare system under demographic changes
Higher per capita healthcare spending by elderly people
• Higher ratio of elderly people results in higher healthcare spending in total.
10
-1.0
-3.16 -0.82
0.19 0.004 0.1
-1.31
1.7 1.6 1.9 1.3 1.5 1.2 1.3
1.6
1.0 1.2 1.1 1.0 0.9 0.9
0.2 1.2 1.3
1.8 1.5
1.5 2.2
2.1
2.1
0.4 1.1
0.7
2.9
0.0
1.9 1.8
3.2
0.0
3.0
2.0
3.4 3.9
3.1
1.6 2.2
1.9
3.8
-0.4
-4
-3
-2
-1
0
1
2
3
4
5
2003 04 05 06 07 08 09 10 11 12 13 14 15 16
Increases in medical care spending
Contribution of others, including technological progress Medical care
expenditure
Contribution of price changes Contribution of demographic changes
( % )
Challenges for healthcare system under demographic changes
( proportion of GDP, % ) ( proportion of GDP, % )
Medical care Long-term care
Projection of healthcare spending
( FY ) ( FY )
6.5
7.0
7.5
8.0
8.5
9.0
2018 20 25 40 601.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2018 20 25 40 60
Projection by Government [2018/5]
Projection by Fiscal System Council [2018 April]
Projection by Fiscal System Council [2018 April]
Projection by Government [2018/5]
11
(Source) MHLW, 2018, “Factor decomposition of national medical care expenditure”
(Source) Cabinet Secretariat et al., 2018, “Projections for social security 2040”; Fiscal System Council, 2018, “Long-term projections for Japan’s public finances”
Oncoming trilemma and reform options in Japan
Decent benefit coverage
with limited copayment
: assuring equal access by all
income level citizens to decent
healthcare services
Quality of
healthcare services
: better services by
competition and
technological progress
Limited fiscal burden
: not requiring excessive fiscal
resources (mandatory social
contribution and general tax)
• Enhance efficiency and productivity using data and technological progress, redesigning incentive structure, etc.
• Effective supply control mechanism regional supply plans by prefectures
• Rationalize copayment considering ability to pay (income/asset), not relying on age
• Review benefit coverage enhancing self-help for low-risk areas; reflecting effectiveness of medicine and treatment;
• Secure fiscal resource from tax and social contribution earmarking consumption tax revenue to social security spending; broadening base for social contribution;
• Preventive healthcare, enhancing better health
12
Measures coping with increasing healthcare service
Economic and Fiscal Revitalization Action Program (2015) : FY2016-2018
• Optimization of the healthcare and long-term care delivery systems [11 agenda]
• Incentive reform [8 agenda]
• Industrialization in public services [4 agenda]
• Reviewing burden and benefits [4 agenda]
• Reforms relating to the dispensing of drugs and compensation for drug costs [11 agenda] New Plan to Advance Economic and Fiscal Revitalization (2018) : FY2019-2021
• Promoting preventive medicine and better health [18 agenda]
• Reforming healthcare service provision [31 agenda]
• Reviewing benefit and burden [10 agenda]
Reform agenda and programs for curbing growth
13
Diversified outcomes and demand / supply across different regions (prefectures)
-90
-60
-30
0
30
60
90
120
(ten thousand)
◆ Regional difference of medical care expenditure per capita
( 47 prefectures)
Max:Fukuoka prefecture
+104,000 Yen
Average for 47 prefecture :537,000 Yen
Min:Niigata prefecture
-7,100 Yen
■:inpatient
■:outpatient + pharmacy
■:dentistry
18
22
26
30
34
600 1,100 1,600 2,100 2,600
number of hospital beds per one hundred thousand people
Impatient expenses per capita (ten thousand)
◆ Relationship between impatient expenses and number of
hospital beds (47 prefectures)
Measures coping with increasing healthcare service
• Enhance fiscal responsibility of local governments
→ Establishing a clear linkage between benefit and burden at local government level, while being supported by national subsidies
Long-term care system : municipalities
Medical care system : prefectures
→ Institutionalizing mandatory supply plans made by local governments
→ Visualizing different outcomes and effectiveness to motivate reforms
Strengthening the fiscal role of local governments
14
(Source) MHLW
Lessons learned from Japan’s experiences
• Installing flexible and automatic adjustments for benefit parameters
→ need to cope with realization of uncertainties without renegotiation / political decisions
• Effective control of demand and supply of services by fiscally responsible institutions
→ need to focus on and incentivize for better outcomes and efficiency
• Avoiding commitments based on optimistic assumptions and projections
Ex. free healthcare provision to people aged 70 and more adopted in Japan from 1973 to 83
For sustainable pension and healthcare systems
• ‘Output is central’ for assuring real benefit of social security system at national level
→ Need to carefully consider impacts of social security system on labor supply (elderly and female)
→ Need to effectively use retirement savings for long-term economic growth
→ Need to avoid significant economic distortions by further revenue mobilization
Need to assure sustainable growth under demographic changes
15