01/10/1999

A Profit Simulation of Long-term Care Businesses

Koji Kishida 

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Introduction

Ahead of the public long-term care (LTC )insurance system ’s implementation next year, cer-tificationwill begin this autumn for persons who need care. While the long-term care insur-ancesystem has attracted attention as a new form of welfare service, several major issues arestill pending, including whether the supply of care services will be adequate, and at whatlevel long-term care insurance premiums will be set.

Regulations have been eased to promote the entry of private companies and assure that thesupply of care services is adequate. As a result, companies are entering not only from themedical and pharmaceutical businesses but from unrelated businesses as well. The long-termcare business is expected to create new jobs amid the prolonged recession.

Despite widespread social interest and the mass media ’s focus on the LTC business as apotential source of new jobs, the response of large capital has been subdued. They have madesome moves quietly, but appear on the whole to be waiting to see where the long-term caremarket is headed.

Given that the insurance system ’s implementation in April 2000 comes less than three yearsafter its enactment in December 1997, this cautious stance by companies may be inevitable.The biggest problem is that too many pieces are missing from the puzzle to allow meaningfulcalculations of profitability. One of the most critical pieces, the publicly set prices for long-termcare services, will not be decided until immediately before the system is launched. Thisforces private companies to postpone their evaluation of the long-term care business, therebydelaying their market entry.

In view of these reservations, this paper attempts to simulate the business results of privateproviders (including social welfare corporations )who would enter the long-term care busi-ness.We then examine a key issue of the public long-term care insurance system - whether anadequate supply of care services can be secured, based on the potential attractiveness thelong-term care business - by simulating business results for home care and short-stay ser-vices.Unfortunately, the simulation is tentative at best because long-term care service priceshave yet to be determined. The business simulation is based on two different surveys thatreach similar conclusions.

Koji Kishida

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