[Special Feature: Cancer and Society] Yoko Ibuka: A Health Economics Perspective on the High-Cost Medical Expense Benefit System

2025/07/07

The "High-Cost Medical Expense Benefit System" is a vital mechanism that economically supports cancer treatment in Japan. Between 2024 and 2025, a proposal to reform this system was presented and deliberated; however, the implementation of the original plan was ultimately frozen. This article examines the validity and limitations of the impact estimates essential for policy formation in light of scientific knowledge.

Since the establishment of the National Health Insurance system in 1961, all residents in Japan have been guaranteed the right to receive medical care through public health insurance. However, with the exception of preschool children and some elderly individuals, the co-payment is generally 30%, which can leave a significant financial burden on households for advanced medical care. The "High-Cost Medical Expense Benefit System" is the mechanism that alleviates this. If the out-of-pocket expenses in a single month exceed a "maximum out-of-pocket limit" based on income, the public insurance covers the excess, serving as a safety net to prevent excessive spending.

As of June 2025, the maximum out-of-pocket limits applied to the working-age generation are divided into five categories based on annual income. The limits decrease according to income levels to adjust the burden: 252,600 yen per month for the highest income bracket (annual income over approx. 11.6 million yen), 167,400 yen for the 7.7–11.6 million yen bracket, 80,100 yen for the 3.7–7.7 million yen bracket, 57,600 yen for those under 3.7 million yen, and 35,400 yen for households exempt from municipal residents' tax.

Furthermore, considering the continuous burden associated with long-term treatment, a "frequent-use" rule applies if the limit is reached three or more times within the most recent 12 months, lowering the limit from the fourth time onwards. This reduces the out-of-pocket burden to 140,100 yen per month even for the highest income bracket, and to 24,600 yen for tax-exempt households. In recent years, a succession of cancer drugs that are extremely expensive yet highly effective has appeared, and treatment periods are tending to lengthen. The High-Cost Medical Expense Benefit System is an indispensable institutional foundation for ensuring access to such advanced medical care regardless of income and for protecting patients and their household finances.

In November 2024, the Medical Insurance Committee of the Social Security Council (an advisory body to the Minister of Health, Labour and Welfare) began a full-scale review regarding raising the maximum out-of-pocket limits for the High-Cost Medical Expense Benefit System. The committee stated the purpose of the reform was to "reduce the burden on insured persons of all generations while maintaining the function as a safety net" *1. The two pillars of this reform were: (1) a gradual increase in the maximum out-of-pocket limits, and (2) a further subdivision of income categories (expanding the current 5 categories to 13).

Regarding the former, a gradual increase over three years starting from fiscal year 2025 was proposed to mitigate sudden impacts on households. Particularly for the newly established highest income bracket (annual income of approx. 16.5 million yen or more), the current monthly limit of 252,600 yen was scheduled to increase significantly by approximately 200,000 yen—to 290,400 yen in the first year, 367,200 yen in the second year, and 444,330 yen in the third year. On the other hand, by making the income categories more granular, the intention was to ensure out-of-pocket payments correspond to the ability to pay while taking care not to place an excessive burden on low-income groups.

However, during the Diet deliberations in early 2025, a series of strong opposing opinions were voiced by patient groups and related academic societies based on concerns about the disruption of continuous treatment. In response to these voices, the government announced a policy to freeze the increase in maximum out-of-pocket limits that had been scheduled for August of the same year.

In the discussions surrounding this freeze, issues inherent in the policy-making process itself, such as the lack of stakeholder participation during deliberations, have been pointed out. In this article, I would like to shift the perspective and focus on the challenges regarding the estimation of the impact of institutional reforms, which is crucial when considering policies.

The proposed increase in the maximum out-of-pocket limit lists the reduction of the burden on insured persons—specifically, the suppression of insurance premiums—as its primary objective. Given the current situation where total medical expenses are increasing annually due to advances in medical technology, this reform is positioned as an attempt to reduce benefit amounts—in other words, to suppress total medical expenses. In fact, the aforementioned materials from the Ministry of Health, Labour and Welfare provide estimates for the reduction in the financial burden on medical insurance due to the reform of the High-Cost Medical Expense system, and the resulting reduction in premiums per insured person. Conversely, raising the maximum out-of-pocket limit is a measure that imposes the "pain" of a burden on the target individuals. Evaluating whether the objectives of the insurance system can be achieved in a way that justifies that pain is important as a starting point for discussing institutional reform.

Raising the maximum out-of-pocket limit potentially leads to improvements in medical insurance finances for two reasons. First is the reduction in insurance expenditures caused by shifting the cost of receiving treatment to the individual patient. Taking the highest income bracket, which sees the largest change in co-payment, as an example, the current monthly limit of 252,600 yen would be raised to 290,400 yen in the first year of the reform, and the difference of 37,800 yen would shift from insurance expenditure to the patient's burden. This is a reduction in expenditure that occurs because the party bearing the medical costs changes from the insurer to the patient, and the estimate can be obtained through simple arithmetic. Second is the pathway where the increase in out-of-pocket costs suppresses healthcare-seeking behavior, resulting in a decrease in medical expenses themselves. Because this second pathway depends on the degree to which human behavior changes in response to changes in co-payments, its estimation involves uncertainty. In the Ministry of Health, Labour and Welfare's estimates, this effect of reducing medical expenses through increased out-of-pocket costs is called the "Nagase Effect," and it is stated to be included in the current estimates *2.

Research has been conducted in the field of health economics regarding this second pathway *3. Whether the level of co-payment influences medical utilization is the core of medical insurance system design, and empirical research has been accumulated for half a century. To put it simply, if co-payments go up, medical utilization decreases—this relationship has been observed across countries and systems.

A symbolic preceding study is the RAND Health Insurance Experiment (RAND Experiment) conducted by the RAND Corporation in the United States in the 1970s. In this experiment, co-payment rates were randomly assigned to four levels ranging from 0% (completely free) to a maximum of 95%, and changes in medical utilization, including outpatient and inpatient care, were tracked. As a result, as the co-payment rate increased, not only the number of outpatient visits but also the probability of hospitalization and total medical expenses decreased. In particular, the result that a 10% increase in co-payment leads to an approximately 2% decrease in medical utilization (in technical terms, the price elasticity of demand for medical care is -0.2) is still frequently cited as a benchmark value today.

Effects of a similar scale have been observed in Japan. A representative example is a quasi-experimental study utilizing the reduction in the co-payment rate upon reaching age 70 (from 30% to 10% at the time) *4. Here, too, when converted to price elasticity, it was at the same level as the RAND Experiment. Although the healthcare delivery systems and medical payment mechanisms differ greatly between the U.S. and Japan, the conclusion that "a 10% increase in co-payment brings about a decrease in medical utilization of around 2%" almost overlaps.

Although the estimation formula for the Nagase Effect used by the Ministry of Health, Labour and Welfare in this estimate is not explicitly stated in the aforementioned materials, in an estimate previously conducted by the authors using other publicly available materials, it was confirmed that the price elasticity shown in these preceding studies and the Nagase Effect are roughly of the same magnitude *5. However, is it appropriate to apply this elasticity (i.e., the Nagase Effect) as is to estimate the effect of raising the maximum out-of-pocket limit for high-cost medical expenses? Assuming it can be applied, if the limit is raised by about 15% from 252,600 yen to 290,400 yen in the first year, the calculation using estimates from existing research would project a decrease in medical utilization of roughly 3%. However, there is a significant difference in nature between a change in a fixed-rate co-payment for small-scale medical care that occurs daily and an increase in the monthly limit for high-cost medical expenses, even if both are an "increase in out-of-pocket costs." High-cost treatment arises from necessity and has limited alternatives, so the reaction to out-of-pocket costs may be small. In this case, the estimation of the improvement effect on insurance finances using values from existing research would be an overestimate. In fact, there is a lack of empirical research both domestically and internationally on the extent to which changes in the maximum burden for high-cost medical care affect medical utilization, and the quantitative understanding of this part is still in progress.

A further point to note is that the evaluation of this financial impact likely implicitly assumes that there is "no impact on health." However, the indicator that should be monitored most closely when changing the maximum burden for high-cost medical care is precisely that impact on health. While the RAND Experiment targeting the general population and preceding studies in Japan report that the average health improvement from lowering co-payment rates is small, the application of high-cost medical expense benefits targets the treatment of serious diseases. In the RAND Experiment, health improvements from reduced co-payments were confirmed when limited to groups in poor health, a point that cannot be overlooked. If the maximum amount for high-cost medical care is raised and healthcare-seeking behavior is actually suppressed, there is a significant possibility that the loss of treatment opportunities will lead to serious health damage. Parallel to the estimation of financial effects, careful evaluation of the impact on health outcomes is a prerequisite for system design.

What specifically can be done to link such scientific knowledge with policy decisions? First, when conducting financial simulations like those in these materials, it is desirable to disclose the estimation formulas (models) used for the evaluation. This leads to sharing the assumptions of the estimates and understanding their limitations. Furthermore, it will increase the verifiability for outsiders and lead to constructive future discussions. Second, in the longer term, it is necessary to further prepare the ground for building scientific evidence. For example, the current proposal to revise the limit sets the maximum amount according to income brackets based on the principle of "ability to pay." For this discussion, it is urgent to match databases of income levels and medical utilization to verify changes in utilization trends by income bracket.

Japan's medical expenses are covered by a social insurance system, funded by premiums contributed by insured persons and public funds. The essential function of insurance is to level the risk of expenditures that, while low in probability, become enormous once they occur, and to mitigate sudden income fluctuations for households. Automobile insurance for car accidents and fire insurance for house fires are typical examples. Therefore, preparing for high-cost medical expenses is one of the most important functions of health insurance, and from this perspective, the setting of the maximum out-of-pocket limit, which determines the actual upper limit of the co-payment, can be said to be an issue that should be handled with the utmost care when discussing the medical insurance system.

Regarding the increase in the high-cost medical expense limit, which has now been frozen, a decision on the direction is scheduled to be made around autumn 2025. To deepen this discussion, a "Special Committee on the State of the High-Cost Medical Expense Benefit System" is expected to be established under the Medical Insurance Committee to proceed with intensive deliberations. As a specialist in health economics, I intend to closely monitor future discussions to ensure that the voices of those affected are sufficiently incorporated and that scientific knowledge is appropriately reflected in policy.