Population and the Old Age Social Security System

Abstract

This chapter reviews the history of China’s old-age social security system, both before the policy of Reform and Opening-up was adopted in 1978 and afterwards. The review covers the basic pension system in urban areas, the integration of the rural and urban pension systems as well as the construction of the old-age service system. It also looks are the challenges facing the pension and the old-age service systems from the perspective of financial sustainability and equity as well as institutional barriers and offers some suggestions on how to deepen reform and develop a sustainable old-age security system in China.

Appendices

Appendix: International Experience

In order to meet the demands of an increasingly aging population and to develop an old-age service and insurance system which adapts to China’s socio-economic development, we need to learn lessons from both the positive and negative experiences of different international communities, especially those of developed countries.

Appendix 1: Japan’s Long-Term Care Insurance Scheme

The current system consists of the National Pension Scheme and employment-related pensions for public and private sector employees. Japan’s first health insurance system was introduced in 1922. It took effect in 1927 to cover labourers and in 1938 was extended to cover farmers and fishermen. In 1958, the National Health Care Act was passed. In 1962, Japan achieved universal pension coverage by introducing the national pension scheme. It is mandatory for all residents between 20 and 60 years old and financed by individuals, sectors and the state. In 1963, the Elderly Welfare Act was passed to ensure the rights and interests of the elderly, pushing forward public awareness of the need for elderly support. In 1982, the Elderly Medical Services Act was introduced, turning the focus of elderly welfare policies towards home-based elderly support and care services. The mandatory universal pension coverage ensured that all Japanese who have contributed for more than 25 years to the pension plan will receive benefits after reaching the age of 65. With the acceleration of population aging, the Japanese government has enacted a series of laws and systems and constantly improves these in order to build a better social security system. Japan has always attached great importance to issues such as pension systems, public elderly support, employment, medical care, nursing care, education and living conditions. With the advance of population aging, the proportion of the elderly who cannot take care of themselves is increasing. The increase of the number of nuclear families has also undermined the elderly support function of the family. At the same time, due to the high cost of nursing services and a lack of nursing staff, many elderly cannot receive the necessary care services. The medical expenses of the elderly are increasing and a large part of this growth comes from care expenses. How best to solve this problem and find new financial sources for care services is a question which needs to be answered by society.

In December 1997, the Public Long-term Care Insurance Act was approved in the Japanese Diet (parliament) and became effective on 1 April 2000. According to the Act, municipal governments must insure all registered residents aged 65 or over (Category I insured persons) and all persons covered by health insurance aged 40–64 years who reside in the municipality (Category II insured persons). Half of the cost incurred by long-term care insurance is financed by government subsidy (12.5% by municipalities, 12.5% by prefectures and 25% by the state) and 50% by premiums (17% by Category I, 33% by Category II). Category I insured persons have the premium deducted from their pension while Category II insured persons have the premium deducted from their pension or salary. The insured persons should first apply for services and the long-term care approval board will investigate the mental and physical condition of the insured person to see if they meet the eligibility criteria and then determine their eligibility level and the limit of the benefits. There are seven eligibility levels for in-home care services which cost from 379,500 to 643,000 yen a month. There are also institutional facility services and those who are eligible can be admitted to nursing homes. Japan is one of the five countries in the world with a long-term care insurance scheme. The scheme is an important social security system in Japan alongside the national pension and health care systems. The long-term care insurance system mainly provides the insured with care services instead of cash benefits. Users of the care service will pay a 10% charge for the service and the rest will be covered by insurance. It took Japan over 10 years to prepare for the system before the enactment of the Long-term Care Insurance Act in 1997.

Service providers of Japan’s long-term care insurance scheme are mainly private organizations such as enterprises or non-profit agencies, which can help ensure efficiency and service quality. Services provided include in-home care, day care and short-stay daily-life services. In-home care services include: (1) services assisting people with activities of daily living, such as eating, bathing, dressing and using the bathroom; (2) services assisting people with household chores such as cooking and cleaning, as physical exercises at home; and (3) services combining both the aforementioned services. Day care services are those delivered in community-based day service centres, where the elderly are provided with personal care for bathing, eating, physical examination and physical exercises. The elderly will go to a service centre accompanied by nursing staff and return home the same day. This kind of service is mainly provided to the elderly aged 65 or above. They can enjoy the exercise service after going through simple formalities and paying a little sum of money every month. Short-stay services are those provided by some elderly care facilities where the elderly can stay for a short period of time. In addition, the long-term care insurance system in Japan also provides allowances for family caregivers, thus integrating public support with family support. The long-term care insurance system alleviates people’s worries about elderly life and ensures that the elderly, especially the oldest-old, can live a good life.

Appendix 2: Long-Term Care Insurance in the United States

The private long-term care insurance scheme in the US involves voluntary participation by the insured through the purchase of a care insurance policy from the insurer. Care insurance can be purchased either as part of a life insurance policy or independently, but those with serious preexisting health conditions are excluded. The system is financed mainly by the premium payments by the insured. The premium standard takes into consideration the age of the insured, maximum benefit, the length of the period covered and the elimination period. The higher the maximum benefit, the longer the benefit period, the shorter the elimination period, the higher the premium. The benefits are usually provided in cash, yet the care benefits have been developing rapidly in recent years, which is because many insurance companies are now beginning to carry out business in the care service market.¹⁴

Appendix 3: The Reform of Homecare Services in Europe

As early as the 1980s, the Northern European countries recognized the role of informal (family) caregivers and provided them with preferential policies. With non-profit organizations and enterprises joining the elderly care market, elderly care services were no longer provided solely by government departments.

In 1988, it was proposed in France that state finance shall pay more attention to homecare services. In 1991, the government’s report further pointed out that France should integrate the medical health and social service systems since the two of them did not coordinate with each other. In addition, the government should support informal (family) care and make it the third method of care alongside institutional care and in-home care.

From the 1980s, the German government has attached great importance to long-term elderly care. From 1988 to 1991, the German government reformed the medical care service system and introduced medical care insurance which covers homecare services. In 1995, a mandatory care insurance was introduced which covered the homecare, daily and rehabilitation services.

In the 1970s, the aging process in most countries began to advance and the elderly began to rely more on social services and medical care, so the policymakers started to pay attention to the high cost of care services. At the same time, with the decrease in family size, as well as increases in the divorce rate, population migration and women’s salaries, homecare became more and more difficult to get. Furthermore, medical care services and social services were provided separately since people did not have a full understanding of homecare services. The separation of the medical care and social services was a problem to be solved by countries adopting a welfare regime.¹⁵

Discussion

Considering Chinas realities, we think China can learn more from Japan’s long-term care insurance system. Japan’s elderly support system and elderly service industry have exerted much influence on its socio-economic development. First, they have boosted market demand and economic development. The increasing demand for care services has helped boost demand for elderly support products, facilities, housing services, financing and insurance products and education services, thereby stimulating economic growth. Second, they have provided a large amount of job opportunities. It is estimated that 1785 job opportunities will be created as the demand for elderly care services increases by 10 billion yen, higher than 994 job opportunities created by the 10 billion yen investment in public utilities such as infrastructure construction. By 2025, the overall number of employees in Japan will decrease by 5%, yet the number of employees within the senior care industry will increase with, for example, the number of employees in the elderly service industry increasing by over 200%, which will reduce the impact of layoffs within other sectors on society. Third, they have boosted local economic development and the development of communities. The elderly care and institutional care services, as well as housing services for the elderly, have had a long-term lasting impact on the local economy and the development of communities.¹⁶

Japan is the first developed country in Asia that is becoming an aging society. After World War II, family structure, economic resources and concepts of life have changed significantly. This has caused the collapse of the traditional household economic system and the rise of the modern household economic system. Families have become smaller and live on salaries and investment incomes. The traditional family support system has been undermined and public support for the elderly has started to grow. What we can learn from Japan includes:

First, creating laws and regulations for elderly support. Commencing with the 1959 National Pension Law, and followed by the 1963 Elderly Welfare Act, the 1982 Elderly Medical Services Act and the 1997 Public Long-Term Care Insurance Act, the old-age security and elderly care systems have been implemented effectively under the legal framework.

Second, professional standards for professional nursing staff. Japan holds the idea that care services can only be provided by those who have received professional training. In Japan, training is required to become a certified care worker (CCW), which is a national qualification and can only be obtained after 1650 h of college education and training plus passing a national exam. The nursing colleges offer a variety of disciplines including: humanities; social sciences; natural sciences; foreign languages; introduction to social welfare; introduction to the welfare of the elderly; introduction to the welfare of people with disabilities; rehabilitation sciences; social welfare assistance skills; practice on social welfare assistance skills; psychology; nursing; domestic science; basic medical science; etc. The Public Long-Term Care Insurance Act regulates that there must be one certified care worker for every three elderly in elderly care facilities. Being a certified care worker is different from being a nurse. Most of them are graduates from nursing departments of colleges or junior colleges, so the quality of the care service is ensured.

Third, making agreements for elderly care services. Those who are in need of the elderly care services in Japan should first sign an agreement with a ‘homecare service centre’ on services that are provided to them. This will help the elderly who live alone and need the care services to know exactly what kind of service they will receive.

Fourth, creating diversity in the elderly service agencies. he implementation of the long-term care insurance system made many private enterprises enter into the elderly care service market, creating a lot of private for-profit or non-profit old-age support agencies. The involvement of non-government run organizations has helped solve the problem of elderly care. It is clearly stated in the related regulations that the service providers of the long-term care insurance system include private non-profit organizations, private for-profit organizations, etc. In 1995, the number of elderly care facilities in Japan reached 5522, and then increased to 8650 by 2000, up by 56.65%. Later in 2005, the number had become 13,882, an increase of 60.49% compared with the total in 2000.¹⁷ The rapid development of care service agencies ensures the healthy development of Japan’s long-term care insurance system.