Learning from Japan: Study on long-term care systems published in the Review of Economics

Germany can learn from Japan. Segmenting the nursing home market according to different comfort levels reduces the demand for inpatient nursing home places and improves the care efficiency of providers. These are the findings of the study by Danny Wende, Alexander Karmann and Shinya Sugawara entitled "Does the Design of Welfare Programs Stipulate Nursing Home Utilization? A Comparative Analysis of Long-Term Care Systems in Japan and Germany", which will be published in a forthcoming issue of the Review of Economics.

A comprehensive comparison of long-term care systems in Germany and Japan shows that both countries face very similar framework conditions of an ageing population and social insurance-based long-term care systems. Nevertheless, the utilization and costs of inpatient care are significantly higher in Germany. The article describes the reasons for this using an economic decision model and provides evidence through regression analysis, Blinder-Oaxaca decomposition and data envelopment analysis.

According to this, the extensive German welfare system leads to stronger incentives for inpatient care among households with people in need of care, the lower the income situation and the higher the state cost coverage ('assistance for care'). Inpatient care is therefore comparable to an inferior good with incomplete internalization of costs. Moreover, the resulting inelastic demand leads to less competitive pressure and lower efficiency on the part of German providers. In Japan, this situation is avoided by a comfort segmentation of the care market. The costs for older facilities with predominantly multi-bed rooms (juurai-gata) are almost completely covered by the Japanese state for those in need, whereas the hotel costs for modern facilities (unit-gata) are not.

This incentive situation - and thus also the consequences of demographic change in Germany - could be mitigated by reorganizing access to so-called hotel services in care homes along the lines of the Japanese model, namely by charging additional fees for greater comfort. The concept of a care support allowance as a wage replacement benefit for informal care, which is being promoted by politicians, also appears to be suitable for reducing the inferior nature of the demand for formal care and thus reducing the German incentive problem.