Linkage between benefit expenditure and premium burden: Long-term care insurance in Japan

This study considers the discretionary premium-setting behavior of municipalities in the Japanese system of long-term care insurance (LTCI). Although, the LTCI system is managed by the municipality, but the financial system is controlled by national health insurers, and the municipality seems to have no discretion in managing it. However, we find that the premium-setting forecast of each municipality is different, contrary to the intention of the LTCI system. Adjustment subsidy does not function in line with the intention of the system, affecting the standard premium-setting process. Moreover, our empirical results show that municipalities seem to have discretion in premium setting. Cities, in particular, set premiums low, reflecting elderly political power. In addition, premiums are influenced elderly political power when few neighboring municipalities are available for reference. Municipalities do have leeway in premium setting, contrary to the intention of the LTCI system.