The health care sector has become a major component of the contemporary econo­ mies of Japan and the United States. It absorbs significant proportions of the GDP in both countries and places increasing stress on private, government and corporate budgets. As their income rises, the citizens ofJapan and the United States choose to allocate increasing portions of it on health care services because ofthe direct contri­ bution of health care services to prolonged life expectancy, reduced morbidity, or other indicators of improved health and well-being. The health care sector is a ma­ jor source ofemployment and affects the lives of all citizens. Adequate health care services are expected to have an important contribution to the quality of human life in any society. With so much at stake, arrangements for planning, financing, and operating health care service systems have increasingly come to be regarded as im­ portant economic and political issues. The political importance of health care is evidenced by the health care reform proposals of the Clinton administration in the United States and the deep involve­ ment of the government in the medical care security system in Japan. As policy­ makers in both countries look ahead to the coming decades, they realize that the imperatives of economic restructuring, globalization, and their rapidly aging socie­ ties will affect the way in which health care is organized, delivered, and financed.

1 Overview.- 1.1 Decomposition of Health Care Expenditures.- 1.2 Related Literature.- 1.3 Objective of this Study.- 1.4 Organization of the Monograph.- 2 Demographic Changes in Japan and the United States.- 2.1 Decreasing Fertility Rates.- 2.2 Increasing Life Expectancy.- 2.3 Dependency Ratio.- 2.4 Per Capita Utilization of Health Care Services.- 3 Health Care Services Utilization Profiles Among the Elderly.- 3.1 A Behavior Model of Health Care Services Among the Elderly.- 3.2 The Impact of Need Factors in Services Utilization.- 3.3 Predisposing Factors in Services Utilization.- 3.4 Income of the Elderly as Enabling Factor in Health Care Services Utilization.- 4 Paternalism in Health Care for the Elderly.- 4.1 Case of the U.S. Government.- 4.2 Case of the Japanese Government.- 4.3 Paternalism in the Medical Community.- 5 Trends in Health Care Expenditures and Financing.- 5.1 Trends in Health Care Expenditures.- 5.2 Financing Health Care Expenditures.- 5.3 Financing Health Care for Elderly Japan.- 5.4 Financing Health Care for Elderly U.S.A..- 5.5 Health Care Price Inflation.- 5.6 Financing of Rising Health Care Prices.- 6 Our Approach to the Problem.- 6.1 Productivity and Wages.- 6.2 The Source of Health Care Inflation.- 6.3 Technological Improvements in the Medical Industry.- 6.4 Empirical Estimates of Productivity Growth Rates in the United States and Japan.- 7 The Simulation Model.- 7.1 Simplified Version of Model.- 7.2 Some Basic Concepts.- 7.3 Variables.- 7.4 General Assumptions.- 7.5 Data-specific Initial Conditions.- 8 Simulation Results.- 8.1 The Japanese Case Simulation 1.- 8.2 The Japanese Case Simulation 2.- 8.3 The United States Case Simulation 3.- 8.4 The United States Case Simulation 4.- 9 Alternate Set of Assumptions.- 9.1 Japan: Simulation 5.- 9.2 Japan:Simulation 6.- 9.3 The United States: Simulation 7.- 9.4 The United States: Simulation 8.- 10 Concluding Remarks and Policy Recommendations.- Appendix A Mathematical Specification of the Model.- 1.1 Assumptions.- 1.2 The Model.- 1.3 Simulation Equations.- Appendix B Proof that Income Elasticity is Greater than One.