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Chapter 4
Directions of the Social Security System in the Future


In this Chapter we will first review the recent changes in various systems based on the concept of the structural reform of the social security system, and also examine the recent activities in the U.S. and Europe where social security systems have been reexamined and adjusted to balance their systems, economy and financial conditions along with the increase of aging population and changes in economy in similar ways as in Japan.Then, while describing the current condition in which the working generation feels concerned about the social security system, we will discuss three areas indicating that we do not need to feel excessively worried about the social security system in the future. The first area is the recognition of the burden for the social security benefits; the second is a different view of aged society in the 21st Century by changing our ideas; and the third is the five viewpoints in our consideration of the social security system in the future. While keeping these topics in mind, we shall review and adjust various systems as required in order for the systems to fully function and to serve to achieve their objectives. The improvement of the systems will lead to resolve concerns.

Section 1. Recent Trends of Revisions to Social Security Systems and the Activities in the U.S. and Europe

1. Recent Trends of Revisions to Social Security Systems

1-1. Promoting Structural Reform of the Social Security System

(Background to structural reform of the social security system)

Structural reform of the social security system started in late 1990s. In the background to the efforts the social security system was recognized in the way described below.

While the social security system has important and indispensable roles in securing stable living of the people, expenditures for social security benefits are expected to grow in the future with the advancement of aged society with fewer children. In addition, surrounding environment of the social security system has been changing greatly with the slow economic growth, worsening national finance condition, and diversification of the demands for the social security system to meet the affluent living in 1990s. Because of these changes, it has become necessary to build a social security system to adequately satisfy people's demands requiring responses to the issues on long-term care without imposing overly heavy burden on future generations and to secure stable living of people with the reliable operation of the system. To make our social security system suitable to a matured society and economy, the decision was made to implement structural reform of the social security system by reexamining the entire system.

In order to determine the directions for structural reform of the social security system, a Conference of the Chairmen for Councils Related to the Social Security System with the members consisting of the chairmen of eight councils including the Advisory Council on Social Security which is closely related to the social security system was held, and in November 1996 the Directions of Structural Reform of the Social Security System (Interim Report) was formulated to summary the discussions in this conference. Since then, the actions for structural reform have been underway in accordance with the basic directions indicated in the "Interim Report".

(Trends of fiscal structural reform)

To create a new social economic system as the policy measures of the Government about the same time, the Government decided to proceed with "Six Reforms" including administrative reform, fiscal structural reform, structural reform of social security systems, economic structural reform, financial system reform and educational reform. In order to improve the deteriorating fiscal condition, the Cabinet made a decision in June 1997 on "the Promotion of Fiscal Structural Reform" to clearly layout the specific directions for the reform and the reduction of expenditures, and established a law to clarify the contents. The bill of Fiscal Structural Reform Law (the Law on Special Measures for the Promotion of Fiscal Structural Reform) was submitted to the 141st extraordinary Diet session and was voted into law in November 1997.

This law aims to set temporal objectives for fiscal structural reform such as to reduce the ratio of financial deficit to GDP to 3% or less, to set up basic policies for reforms in the area of various expenditures as well as to set the quantitative reduction goals, and to promote reforms of various systems. For the social security systems, the Government proceeded with structural reform of the social security system and regulated to minimize the increase of social security-related expenditures that would be required more along with the progress of aging, and to proceed with reform of the medical insurance and pension insurance systems.

However, the Japanese economy fell into a critical condition due to the financial instability and financial and economic confusion in Asian nations starting at the end of 1997, and the economic growth of fiscal 1997 recorded a negative figure for the first time in 23 years since immediately after the oil crises in 1974. This was the second time to mark negative growth after the war. The economic growth continued to be negative in fiscal 1998. Considering the circumstance, economic measures were executed twice in 1998 with total spending of \40 trillion, and the decision was made to review the Fiscal Structural Reform Law. In May 1998, the target period to complete the recovery of healthy fiscal status was revised with two years of extension, and in December the Law to Stop the Fiscal Structural Reform Law was formulated to stop the enforcement of the law until the establishment of another law, and this status has not been changed to the present.

1-2. Directions of Structural Reform of the Social Security System

The first direction of structural reform of the social security system is to improve overall efficiency through reorganization across systems.

While systems of pension, medical services and welfare services are structured discretely, we must attempt necessary reorganization of the system to reduce gaps, waste and duplication in the social security system to improve efficiency while meeting needs across the entire system.

The second direction of structural reform is to emphasize support for self-sufficiency of individuals.

To support self-sufficiency among individuals, we must promote the effort to disclose information and to allow individuals to select quality services at adequate cost. This focuses on individuals' ability to sustain self-sufficient living in their home as long as possible, even when they become disabled and need some care, and attempts to facilitate detailed services to meet diverse requirements including in-home medical care and personal care. A goal of this effort is to create a user-centered system to support independence of individuals.

The third direction is to appropriately divide various roles for public and private functions and to introduce the vital energy of the private sector into the field.

Considering the development of private business in the area of health and welfare, the system should be developed in such a way that the public function meets the basic and fundamental needs and the private sector provides additional services that users can freely select. To promote the introduction of vitality in the private sector, deregulation should be further propelled and the system should be reformed to provide better services through competition.

The fourth direction is to ensure overall impartiality and fairness.

Considering the conditions of income for the elderly, it is necessary to ensure impartiality and fairness in the benefits and burden of the social security by keeping the balance between the elderly and the working generation as well as between people with assets and without assets.

1-3. Actions for Structural Reform of the Social Security System

The following actions have been taken for structural reform of the social security system (See Figure 4-1-1.Also, please refer to Part 2 for the details of activities in place for reforms of individual systems.)

(The establishment of long-term care insurance system)

The establishment of long-term care insurance system is positioned as the first step in structural reform of the social security system. In response to the issue of long-term care for the elderly, which is a major concern in the life after retirement, serious discussions started in the council meetings in 1995. The, a bill was submitted to the Diet in November 1996 and voted into law in December of the following year. In structural reform of the social security system, the public long-term care insurance system has the roles to build the user-oriented long-term care service system, to consolidate the long-term care services which are currently divided into two areas, welfare for the elderly and medical care for the elderly, to correct the imbalance of the users' burden of welfare and medical care, to adjust the difference in the procedures for using services, and to resolve long-term hospitalization in general hospitals (so called "social hospitalization") of the patients mainly requiring long-term care by actively developing in-home services. Since the establishment of the law, actions have been taken vigorously to be prepared for swift enforcement in April 2000. Such activities include the formulation of various standards with ministerial ordinances, the development of infrastructure for long-term care services based on the New Gold Plan, assessment services for certification for long-term care need, and organization of the system for processing administrative work in municipal offices, which will be the insurer.

Figure 4-1-1. Procedure for Structural Reform of the Social Security System

Procedure for Structural Reform of the Social Security System

(Reexamination of the medical care system and the medical insurance system)

In the area of medical care system, various revisions were made in 1997 to the Health Insurance Law and Health and Medical Service Law for the Elderly to avoid temporal crisis with the medical insurance finance, and the insurance premium and co-payment were raised in the scheme of the government-managed health insurance system. To maintain reliable and stable medical insurance system in the full-fledged aged society with fewer children in the 21st Century, it is essential that we realize fundamental reform across all systems, and the discussion on reforms started in late 1997.

Reform of the medical insurance system encompasses a wide range of issues including the medical fee schedule, drug price system, and medical care system for the elderly. The Council on Medical Insurance and Welfare is currently leading the discussion. The key issues for the medical care delivery system are to develop a system for providing in-hospital medical care, to promote the accessibility to medical information, and to improve the quality of medical professionals. More specific issues are the division of the functions of hospital beds, the improvement of the method to deliver information on medical examinations including patients' files, and the introduction of compulsory clinical training to physicians and dental practitioners.

(Review of the pension system)

Mainly at the National Pension Council, the reviews of the entire pension system started in 1997 to prepare for the actuarial revaluation in 1999, and to optimize the benefit and burden to prevent excessive burden on the future working generation. The Ministry of Health and Welfare presented "the five Alternatives" as a framework of the benefit and burden, published the "White Paper on Pension" in 1998, and conducted survey to the learned and students on the pension system to gather opinions of a wide variety. Then the opinions were summarized in the National Pension Council, and a bill of amendment was submitted to the Diet in July 1999 after the reporting of the revision.

(Amendment of the Child Welfare Law and fundamental structural reform of the social and welfare system)

In the area of welfare, the Child Welfare Law was amended in 1997 to change the procedure for enrolling children to nursery centers from the municipal office assignment system to guardians' selection with the consideration of change in the environment around children and families such as the increase of families with fewer children, double-income households, and diminishing child rearing capability in families and community, to regulate the after-school program for sound development of children, and to review the name and functions of child welfare facilities. It was a major amendment of the Child Welfare Law since its initial establishment.

Following this change, since 1998, the review on fundamental structural reform of social and welfare system is making progress with the consideration of use of social welfare services and social welfare foundation to meet increasing and diversifying needs for welfare services in the changing environment around social welfare services and in the aged society with fewer children, to be able to efficiently deliver welfare services, and to attain credibility and support from the users. Measures for protecting the rights of the users are also in discussion.

2. Actions in the U.S. and Europe

2-1. Recent Actions in the U.S. and Europe

Discussions on social security systems are increasing in developed nations as they face a common issue of keeping the balance between the social security system and their economic and financial conditions because of the current condition of growing payment of social security benefits in aged society, changing of economic trend, high unemployment rate, etc. (See Table 4-1-2).

Table 4-1-2. Recent Trends of Reform of Social Security Systems in the U.S. and Europe

Recent Trends of Reform of Social Security Systems in the U.S. and Europe

(Actions in Germany)

In case of Germany, Kohl Administration revised the medical insurance system in September 1996 by reducing the premium rate and increasing the co-payment of the insured. In the Public Pension System, the pensionable age was raised earlier than the initial schedule, and the 1999 Reform of the Pension System Law was established in 1997 to reduce the standard of benefit with consideration of increase in the average life expectation, and the law was scheduled for full enforcement in January 1999. However, in September 1998 upon the victory of an opposition party of the Social Democratic Party, Kohl Administration retired. Newly established Schroder Administration, which is a coalition with Social Democratic Party, Alliance 90, and the Greens, cancelled the plan for reform of the social security system created during Kohl Administration, which included the medical insurance with the increase of co-payment by the insured and the reduction of pension benefit. The new administration plans to implement necessary structural reform to create a stable social security system by year 2000, after discussions on the issue in the next one or two years.

(Actions in the United Kingdom)

In case of the United Kingdom, Blair Administration of the Labor Party, which won the power in 1997, immediately positioned the welfare reform as an important policy issue . It claims that the welfare system was not fully functioning during the 18 year of ruling by the Conservative Party, and social welfare expenditures expanded since 1980s to reach 33.7% (1995) of the total government expenditures, but income gaps enlarged and some portion of people including single households were overly depending on the social security benefit.The new administration sets a slogan of the "New Deal of Welfare", and plans to work in cooperation between the government and private-sector companies through motivating the people to be independent by reforming the current system, which is inefficient for rescuing indigents and creating many people depending on welfare benefits. Based on the concept of "Welfare to Work", the new administration is taking measures to aim for a welfare system to accelerate employment with aggressive employment promotion measures to encourage people with working capability to take jobs through vocational training and placement programs.

(Actions in France)

In France, reform of the social security system has been an important political issue to the administration of each time with the background of increasing expenditures for the social security system. The recent actions include the announcement of the "Juppe Plan" in 1995 by Prime Minister Juppe to rearrange and improve the social security system, and according to the plan, various measures were implemented such as the introduction of the system to set a target growth of annual medical expenditures, changing the fund source for the medical expenditures from premium payment to general social contribution, and introducing the social security debt repayment contribution to reimburse the deficit of the social security system. In 1997 Jospin Administration took power and aimed for the enhancement of social justice in the social security system. While maintaining urgent measures for the finance of the social security system with the target to resolve the deficit by 1999, it has been implementing various measures including the enhancement of family measure through the improvement of the family allowance system, submission of the bill on the expansion of the coverage by the sickness insurance, computerization of medical information with the use of IC card for insurance certificates, promotion of the certification system for the quality of medical care provided by hospitals, etc. For the pension system, the current key issue is to determine what kind of reform to execute before the baby-boom generation reaches the pensionable age in 2005, while maintaining the pay-as-you-go method to best achieve the collaboration across generations.

(Actions in Sweden)

In Sweden, the details of reform of the pension system were decided in 1994, and enforced in January 1999.The contents of reform include the reorganization of the system from the current "two-tiers" to the "one-tier" income-related pension system. It is a complete change from the current system including the change of calculation method for the annual benefit by combining the pay-as-you-go method and the prefunded method, introduction of the minimum guaranteed pension system, etc.

(Actions in the United States)

In case of the U.S., while the generation known as baby-boomers (The post-war baby boomers in the U.S. The generation born in late 1940s to early 1960s after WWII) is aging, it is becoming important to suppress the increasing expenditures on the mandatory spending such as medical expenditures, to ensure income security for retirement life, and to carry on stable operation of OASDI (Old-Age, Survivors and Disability Insurance) system. Currently, Medicare (A public medical insurance for the elderly) and Medicaid (A public medical aid for the indigents) are taking a large portion in the Federal budget, and in 1997 the Balanced Budget Act stipulated temporal financial control measures and various reform measures. During the first period of Clinton Administration, President Clinton attempted to establish the National Health Insurance system to be subscribed by all citizen to resolve the issue of having more than 43 million people without subscribing medical insurance, but the proposal did not gain the national support.

Regarding OASDI system, it has been concerned that the Social Security Fund will reach the exhaustion in about year 2030. President Clinton who was born in 1946, the first year of the baby-boomer generation, spared a large portion of the State of the Union Address in January 1999 for the issues on the social security system, and declared that he would enhance the financial foundation to achieve long-term stability by putting the fiscal surplus into the social security fund and Medicare, etc.

Thus, the maintenance of the balance between the social security system, economy and finance in aged society has been a common issue for developed nations. However, when we examine individual nations, the specific areas for revision and improvement are different according to the development and the historical background of their systems as well as the current political and economic conditions (See Table 4-1-2).

2-2. International Efforts

Regarding the issues on the social security system, the importance of information exchange and mutual learning has been emphasized among developed nations beyond the issues of their own nations.

One of recent actions the Japan took was the proposal for "the Initiative for a Caring World" in the Summit Meeting held in Lyon, France, in June 1996, and it won the support from the representatives of member nations. This initiative aims to mutually contribute to the creation of improved society for the next generation by sharing the knowledge and experiences in the area of social security measures in a broad sense including public health, medical insurance, pension, etc. In the Denver summit held in June 1997, the issue of aging was discussed directly, and the communique (joint communique) included the statement that individual nations would make efforts toward the promotion of "Active Aging". The Communique of the Birmingham summit held in May 1998 presents the commitment to pursue "Active Aging" through the promotion of international parasite measure and the actions for economic growth and increasing employment opportunities.

In addition, the 3rd OECD Ministerial Conference on social security systems (the 1st conference was in July 1998, and the 2nd was December 1992) was held in June 1998 with the discussion themes including impartiality and efficiency in social measures, potential for long lasting social security systems, the implication of aged society, and measures for world welfare. The Communique states that structural reform of the social security system to aim for the assurance of further impartiality and efficiency, employment oriented social measures to be promoted to combat against poverty, to propel family support measures for the healthy growth of children, to ensure that the retirement pension system to maintain its potential for longevity while securing sufficient income and the necessary reform to be placed without delay, etc.

The progress of aging population, expansion of the scale of social security system and the needs to maintain the balance with the economy, are common issues for developed nations and they also share many common issues on social security systems. International exchanges of information and mutual learning will become much significant in the future for the discussions on social security systems.

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