By law in Japan every person must pay into the government health insurance and pension scheme unless exempted. These are arguably large financial obligations. They cost a typical worker hundreds of thousands of yen per year, and the premiums are increasing. During Fiscal Years 2013-2017, premiums for Social Insurance (including health care and pension) increased, on average, ¥58,690 per person per year. However, at the same time, annual salaries only rose by ¥160,000. Many people are feeling squeezed, and 2.89 million households are delinquent (i.e non paying) on their premiums. Some people choose not to pay because they do not trust the system to pay them back in the future- the Japanese Government Pension Fund is scheduled to fall short of meeting its payout obligations based on its investment performance without a rigorous overhaul. Others simply cannot afford to pay. Unfortunately, it’ll probably get worse before it gets better. In 2022, the first baby boomers will turn 75 and begin to place new strains on the system. Regardless of which group you find yourself in, your question will still be “How can I reduce my health insurance or pension premiums in Japan?”. Part one will give you the facts on the system and how it works….
For Health Insurance And Pension, There Are Those Who Receive “Social Insurance” And Those Who Don’t
Employees: Social Insurance
“Social Insurance” (社会保険, Shakai Hoken) is for employees. It includes Health Insurance (健康保険, kenkō hoken) and Pension (a multi-layered system consisting of Basic Pension and “Welfare Pension” (厚生年金, kōsei nenkin). Social Insurance comes out of each month’s salary; it’s a percentage. The employee pays half, and the employer pays half. The specific percentages vary depending on where and which year. For example, in Gunma Prefecture, Health Insurance is 9.93%. Pension is 18.3%. For example, for someone making ¥400,000 per month:
¥400,000 per month salary × 9.93% for Health Insurance = ¥39,720 in Health Insurance premiums per month
¥39,720 in Health Insurance premiums ÷ 2 = ¥19,860 that the employee pays, and ¥19,860 that the employer pays
¥400,000 per month salary × 18.3% = ¥73,200 in Pension premiums
¥73,200 in Pension premiums ÷ 2 = ¥36,600 that the employee pays, and ¥36,600 that the employer pays
Self-Employed And Contractors: National Health Insurance and National Pension (Easier To Reduce Or Eliminate)
However, some people don’t receive Social Insurance. The typical examples are the self-employed or contractors. Such people still must join government schemes; they just can’t join the Social Insurance scheme. Instead, they sign up for alternatives for the self-employed or contractors. For health insurance, there is National Health Insurance (国民健康保険, Kokumin Kenkō Hoken). For pension, there is National Pension (国民年金, Kokumin Nenkin). Unlike Social Insurance, these do not come out of one’s monthly salary. This is because as a self-employed person or contractor, there is no guaranteed monthly salary. Instead, those who join these schemes receive a hefty bill in the mail each year. These bills have a barcode and look similar to an electric or gas bill (but are typically much, much larger). Those who receive them can choose whether to pay them all at once, or a little bit at a time.
A key point is that the company assumes no burden; the worker (or the unemployed, perhaps) pays 100%. Therefore, most consider this less desirable than receiving Social Insurance.
Employees Who Can’t, Or Don’t, Receive Social Insurance
Those Who Are Not Ineligible
Then, there’s a third category of people. They’re employees, but for whatever reason, they aren’t eligible for Social Insurance. They have to join National Health Insurance and National Pension even though those systems aren’t really for them. Such employees include those who work at companies with five or fewer employees. Part-time workers also may not be able to join Social Insurance. For companies of 500+ people, they don’t have to enrol employees who work less than 20 hours per week.
The government has also issued an “advisory statement” (not a law) about any company, regardless of size. The government will not prosecute companies that don’t enrol their employees, who work less than 30 hours per week, in Social Insurance. Therefore, many companies, especially in the English education industry, only count teaching hours as “work hours”. They claim “the job requires no preparation time” and don’t pay for it. This is even though the vast majority of their teachers do spend time on preparation. They have their employees sign 29.5-hour contracts.
Those Who Opt Out
Some people don’t want to pay into Social Insurance, and opt out. The reason is that in certain cases (especially when the person has no dependants), it might be less expensive. For example, for someone with a ¥400,000-per-month salary, Social Insurance Pension would cost ¥19,860 per month. By contrast, if opting out of Social Insurance and joining National Pension, each payment would only be ¥16,410. The retirement benefits if paying into Social Insurance Pension are much, much better, but… perhaps he opts out because he doesn’t trust the government. Maybe he thinks he could invest the extra ¥3,450 better if he did it himself. Or maybe he sees it as less of a burden to his employer, and is trying to keep his job. Generally, workers see Social Insurance as superior, but there are cases in which a worker might choose to opt out.
In Most Cases, Social Insurance Is Better
For example, imagine a worker is a member of Social Insurance and he gets sick. The insurance will cover 90% of the medical expenses. Only 10% will be out-of-pocket. By contrast, National Health Insurance only covers 70%, with the patient paying 30% out-of-pocket.
The difference becomes especially stark when there are dependants (a family). The household pays, typically, 30%-70% more if on the National Health Insurance plan than it would with Social Insurance. The difference can be even greater than that. Take a family of four with an income of ¥4 million. Premiums are ¥198,000 per year with Social Insurance, ¥426,000 without.
For the Social Insurance-based Pension, retirement benefits are relatively generous. What about those who only paid into National Pension? The maximum benefit, for those who paid in for 40 years, is only ¥780,000 a year (far below the poverty line).
So What Are Your Health Insurance And Pension Premiums Based On, And Can You Reduce Them?
First of all, for Social Insurance, they’re a fixed percentage of your monthly salary. In contrast, for those consigned to a life of National Health Insurance/National Pension, there is a silver lining. For those who don’t get Social Insurance, National Health Insurance/National Pension are based on the previous year’s taxable income. This means that using legal tax avoidance strategies, they can reduce, or even exempt themselves from, some of these payments.