At first glance, Japan’s health care system, like its people, seems to be in remarkably good shape. The country’s National Health Insurance (NHI) plan provides generous, universal coverage. The Japanese suffer relatively low rates of disease and have among the highest life expectancy in the world. And spending on health care is lower than in most Organisation of Economic Co-operation and Development (OECD) countries, thanks to strictly controlled reimbursement levels.
But Japan, like many other economically advanced countries, faces mounting health care expenses that will be difficult to support using current methods. The most important cause isn’t Japan’s much-discussed aging population. Instead, new research from the McKinsey Global Institute (MGI) indicates that most of the increase will result from technological advances in medical care, which drive up the cost of treatment, and from rising wealth levels, which lead individuals to seek care with greater frequency as well as making them more willing to pay for higher-quality treatment. These factors, combined with changes in demographics and treatment patterns, present a challenge so large that the conventional levers used to finance health care, such as increasing copayments1 or insurance premiums, can’t overcome it.
Three other options offer promise: restructuring the reimbursement...