Japan Grapples with Long-Term Care Crisis. Like U.S., Aging Population and Labor Shortages Strain System.

According to Tokyo Shoko Research, Japan's long-term care industry is grappling with a severe labor shortage and rising costs, leading to 81 nursing homes declaring bankruptcy in the past six months. The 81 bankruptcies are the highest number recorded for the first half of the year since the nursing care insurance system was introduced in 2000, marking a 50% increase from the same period last year.

The previous highest number of bankruptcies was 58, recorded in 2020 during the COVID-19 pandemic. This year, 27 more nursing care providers with liabilities exceeding ¥10 million ($62,000) went bankrupt compared to last year's first half, highlighting the industry's worsening financial strain.

Unlike in the United States, Japan's nursing care insurance system, also known as Long-Term Care Insurance, is a public program designed to help citizens afford the costs of long-term care services.

Japan's system is mandatory for all residents aged 40 and over, which ensures a broader risk pool and facilitates long-term sustainability. The program has two categories:

• Category 1: Everyone aged 65 and over automatically qualifies for benefits regardless of their need for care.
• Category 2: Individuals aged 45-64 require a specific assessment to determine their need for care and receive benefits accordingly. This assessment typically considers factors like age-related illnesses and functional limitations.

Japan's public LTC Insurance program covers a range of long-term care services, including:

• Home Care: Services like bathing, dressing, and medication management provided by visiting nurses or home aides.
• Facility Care: Support in nursing homes, assisted living facilities, or other institutions offering long-term care services.
• Day Care: Structured programs within facilities that provide social interaction, basic care, and activities for seniors during the day.

Premiums are shared between individuals and the government. The amount individuals pay varies based on factors like age, income, and employment status. Generally, those with higher incomes pay more.

Users are expected to contribute a portion of the care costs through copayments. The percentage copayment may vary depending on the service, facility type, and the recipient's income level.

Challenges Facing the Nursing Industry

Poor sales performance was the main reason behind 64 bankruptcies, accounting for around 80% of the total. One persistent challenge is the aging labor force, with difficulties in attracting new hires exacerbated by low wages in the industry. Although the health ministry raised nursing care fees by 1.59% this fiscal year, wage increases in other sectors have made the nursing care industry less appealing.

The types of services most affected include home care (40 bankruptcies), day care and short-term stays (25 bankruptcies), and elderly care homes (9 bankruptcies). The competition has intensified as more operators enter the market, including Nippon Life Insurance's acquisition of Nichii Holdings.

Most of the bankruptcies involved small businesses with fewer than five employees, representing 60% of the total. Regionally, the Kanto area had the highest number of bankruptcies at 25, followed by Kinki with 19 and Kyushu with 11.

Comparing Japan to the United States

Although the context differs, the United States also faces challenges in its long-term care industry. The U.S. is experiencing a growing demand for long-term care services due to an aging population, similar to Japan. However, the U.S. has seen a significant rise in labor costs and staffing shortages, which have driven up the costs of care.

Long-term care facilities in the U.S. are facing significant financial challenges. A report by the American Health Care Association (AHCA) released in March 2022 highlights the ongoing struggle with financial sustainability. This strain is attributed to a combination of factors, including:

• Rising Labor Costs: Hourly wages for nurses (certified nursing assistants, licensed practical nurses, and registered nurses) have increased significantly. The AHCA report cites a rise of 28% to 34% from 2020 to 2022 alone. Competition for qualified staff and an overall shortage of healthcare workers further exacerbate this issue.
• Increased Staffing Needs: New regulations aimed at improving the quality of care often necessitate higher staffing levels, particularly registered nurses and nurse aides. While these regulations aim to ensure better resident care, facilities struggle to absorb these additional costs without sufficient financial resources.

Mounting Pressure on an Already-Strained System

These financial pressures come when long-term care facilities face other challenges, such as occupancy decline and potential cuts to Medicare and Medicaid funding. The combined effect can threaten the accessibility and quality of care for residents who rely on these facilities.

Private Long-Term Care Insurance will pay benefits for all types and levels of care, but not everyone has an LTC policy. Medicare and Medicaid have lower reimbursement rates.

In both countries, the aging population and rising costs are pressing issues that demand urgent attention. However, Japan's situation is particularly acute due to its rapidly aging population and a labor market that struggles to attract younger workers into the nursing care sector.

The median age in Japan is 49.1 years, compared to 38.3 in the United States. Longevity is also greater in Japan than in the U.S.

Looking Forward

Tokyo Shoko Research states:

With the outlook for resolving labor shortages and rising prices remaining uncertain, the number of bankruptcies among nursing care providers is likely to keep increasing for the time being.

The ongoing challenges underscore the need for comprehensive strategies to address labor shortages and financial sustainability in the nursing care industry in Japan and globally.