The Japanese Insurance System
This section will focus on health insurance as an expense, as it factors into our finances. In Japan, being enrolled in some form of it is required by law, regardless of your employment status. It should be emphasized that we will NOT be covering very much about how the system works in practice, how residents can use it, what it covers, etc. That’s beyond the scope of this series. Suffice it to say that its actually organized quite well, and is fairly high quality compared to some other countries (*ehem* ‘MURICA, sniffle). Instead, we’ll be looking at this system as it relates to our personal finances, as it makes up a large portion of our overall tax obligation.
The Japanese insurance system is what you’d call a “hybrid socialist system”. The national government pays for a large portion of it through our tax money, but still requires each resident to enrol and pay into some form of it. Apart from the main two types, there are actually several private insurance providers. However, they still trickle into the main system and are fairly obscure. For the purpose of this guide, we will focus on the two most common types:
- Shakai Hoken 社会保険, or “Social Insurance” for employees of a company and their dependents
- Kokumin Hoken 国民保険, or “National Insurance” for the self-employed and everyone else
Social Insurance — Shakai Hoken 社会保険
Social insurance is the umbrella term referring to various kinds of insurance that cover different needs of traditionally employed residents of Japan. Under this system, the bill for an employee’s premiums is split right down the middle between the employee him or herself, and the employer. The employee covers half, and the employer covers half — simple as that. Payments are drawn automatically from the employee’s salary every month, until which point the employee quits, or his or her contract expires or is terminated by the company.
Shakai Hōken is the amalgamation of three different types of insurance:
- Kenkō Hoken 健康保険 — Health Insurance, or specifically, Employee’s Health Insurance
- Kōsei Nenkin 厚生年金 — Pension, or specifically, Worker’s Pension, often just called “Nenkin”
- Koyō Hoken 雇用保険 — Unemployment Insurance, also referred to as Shitsugyō Hoken 失業保険
All three of these will be covered in detail in the sections below, but first things first, we have to address some important questions and common issues about eligibility. Within five days of your employment, your employer must submit a document called "Shikaku Shutoko Todoke" 資格取得届, and you will be enrolled.
Who is eligible for coverage under Shakai Hoken?
If you are employed by a company, and you meet the following requirements, then it is required by law that your employer enrols you in shakai hōken:
We can’t emphasize this enough:
Your employer is LEGALLY REQUIRED TO ENROL YOU IN SHAKAI HOKEN if you meet these basic requirements!
Yes, we are screaming — but not at you. Rather, we’re screaming for you. While there are many good, honest companies that take care of their employees in Japan, unfortunately there are a lot of snakes too. This especially applies to black companies and smaller, bootstrap companies with tighter margins and less cash flow. We’re looking at YOU, small English teaching chop shops!
A fair amount of employers will try to convince new hires that they are not obligated to cover their employees’ insurance premiums. They will insist that the employee needs to enrol in National Insurance for blah blah blah reasons. This is simply not true. If you meet the aforementioned requirements, then you have every right to insist that your employer enrols you into Shakai Hōken. They may try to skirt the issue. They may try to rationalize that it’s more expensive for both parties (it’s NOT, for you at least). They may feign ignorance of the law, or actually BE ignorant. It doesn’t matter. Know the laws, know your rights, and insist that they cover you. If they still don’t comply, harass you about it, or try to intimidate you, well… first of all that’s a big red flag right there that you might want to reconsider working for that company. But if the job is worth the aggravation, then you can contact the worker’s union, and they will be able to direct you further.
There is one caveat to this however. If your contract type is Gyōmu Itaku 業務委託 which is more or less an independent contractor, then your employer may NOT be legally required to enrol you in Shakai Hoken, in which case you are legally obligated to enrol yourself in the National Insurance scheme.
Employee’s Health Insurance (EHI) — 健康保険 “Kenkō Hoken”
The average premium rate for those enrolled in EHI is around 4.95%* of their salary. Remember that it’s actually double this, but the other half is covered by their employer.
The formula used to calculate your premiums is simply your monthly salary x 4.95% (roughly). On months that you receive a bonus, your base salary is calculated separately from your bonus, but both are charged.
Monthly salary x 4.95% (roughly) = EHI obligation
+ bonus, when applicable:
Bonus amount x 4.95% = EHI obligation applied to bonus amount
Worker’s Pension — Kōsei Nenkin 厚生年金
The average premium rate for those enrolled in worker’s pension is around 9.15%* of their salary. Remember that it’s actually double this, but the other half is covered by their employer.
The formula used to calculate your pension obligation is the same as the one used to calculate your EHI. Simply apply this formula to your pension to arrive at your projected obligation:
Monthly salary x 9.15% (roughly) = pension obligation
+ bonus, when applicable:
Bonus amount x 9.15% = pension obligation applied to bonus amount
*Rates referenced from Japan Tax Calculator and are subject to change. Please confirm with your employer for greater accuracy in calculating exact rates of your premiums, and be aware that under all circumstances, they are responsible for payment of 50%!
Unemployment Insurance — Koyō Hoken 雇用保険 / Shitugyō Hoken 失業保険
Unemployment insurance is the third obligatory payment included in the shakai hoken triad. It goes by two names in Japanese, most commonly “koyō hoken” 雇用保険, as well as “shitsugyō hoken” 失業保険. As the name suggests, it’s a monthly payment made for the purpose of collecting unemployment money in the unfortunate event that one suddenly finds oneself without a job. It’s administered by a governmental agency called “Hello Work”, through which all dealings regarding unemployment are handled. Payers contribute to the scheme and may receive up to around 3 to 6 months of 50-80% of their salary upon losing their jobs, provided that they have been paying into the scheme for 6 out of 12 fully employed months.
The logistics of how to collect this money and the follow up steps required to ensure payments continues up to the maximum limit are beyond the scope of this article. For our purposes, as with all other parts of our financial literacy guide, we will focus only on how it applies to us as an expense to be calculated into our yearly budgets.
The actual premiums are quite low compared to all other tax rates and insurance premiums, coming to about 0.3% of a worker’s salary, with the other 0.6% or so being covered by the employer. Freelancers may also apply for this program, but they are responsible for enrolling themselves and paying the full rate.
A quick note: you might have noticed a pattern emerge concerning an employer’s willingness and enthusiasm regarding their end of the shakai hoken obligation. Many of course are very responsible about this issue, but you MUST follow up with them and be very diligent in confirming that you are in fact enrolled, and that they are in fact holding up their end of the deal. You do NOT want to become one of the many horror stories about negligence, short falls, and conveniently feigned ignorance about the matter when it’s time to collect.
Front-End Fiona’s Shakai Hoken Obligations
Since we like to subject our (PERSONAS) to their corresponding financial obligations, let’s see how Fiona fares when subject to shakai hoken! Recalling that she makes ￥4,200,000 a year, let’s now give her a one time bonus of ￥600,000 to see what would happen on a bonus month. To begin, we'll divide her yearly income (minus the bonus we just gave her) by 12 months:
￥4,200,000 / 12 months = ￥350,000 / month
Ok, Now we'll apply this number to each part of shakai hoken and its corresponding rate:
￥350,000 x 4.95% (EHI) = ￥17,325
￥350,000 x 9.15% (Pension) = ￥32,025
￥350,000 x 0.3% (Unemployment) = ￥1,050
When we add them all together, we arrive at her monthly shakai hoken premium:
Rates Applied to Her Bonus
￥600,000 x 4.95% (EHI) = ￥29,700
￥600,000 x 9.15% (Pension) = ￥54,900
￥600,000 x 0.3% (Unemployment) = ￥1,800
When we add them all together, we arrive at her bonus shakai hoken premium:
National Insurance — Koku-min Hoken 国民保険
National Insurance, or “Koku-min Hoken” (国民保険), was originally created for freelancers, students, part timers, and the self-employed. At first, this was a relatively small portion of the population compared to company workers. In recent years however, more people have opted out of full time company work and the stability it provides in exchange for flexibility and freedom. Because of this, Koku-min Hoken has gained a lot of traction.
Unlike social insurance, the entirety of the financial burden falls on the individual who is enrolled. It is required by law for anyone not enrolled in social insurance to be enrolled in the national insurance scheme. In many ways, it’s much more straightforward than social insurance, if for no other reason then that there’s no need to rely on your employer as a third-party “middleman” whose compliance is required. Enrolling is as simple as going to your local municipal office and talking to the appropriate sectors in charge of health insurance and pension.
In the following section, we’ll dive into the specifics of how rates are calculated, annual payment cycles, and so on.
National Health Insurance (NHI) — 国民健康保険 “Koku-min Kenkō Hoken"
Although it’s referred as “National Health Insurance”, this is a bit of a misnomer. Rates for insurance premiums are decided and implemented on the municipal level, and do vary. Thus, there is no catch-all formula that can be applied to determine every resident’s individual rate on the national level. The basic structure of insurance premiums remains more or less the same though, and there are (CALCULATORS) that help an individual determine his or her rates. The following is a breakdown of the structure of National Health Insurance premiums:
The Annual Cycle of NHI
So first and foremost, much like how residence taxes are calculated, there is a predictable cycle that is used to determine any given year’s insurance premiums. For those enrolled in the national health insurance scheme, their rates are predictably determined by the previous year’s income. The formula for these rates will be elaborated on below, but for now, understand that payments are broken down into 10 installments. They are mailed out in June of every year, and continue monthly through the following March. This means that you won’t see any bills during April or May! So don’t panic when they don’t come in the mail. There’s no mistake here. This is merely the beginning of the new (NENDO), or fiscal year in Japan! Remember?
Breakdown of Insurance Premiums
Insurance premiums are the sum of two to three basic parts depending on age:
- Health insurance premiums — the portion that covers actual medical benefits
- Senior citizen support premiums — the portion that feeds into the support of the elderly who no longer work
- Nursing care premiums — the portion that specifically covers nursing care
Numbers 1 and 2 are included in every resident’s premium structure. Number 3 is only required to be paid by members between the ages of 40 - 64. The following formula is applied to each of the above parts individually, and then combined to determine the final premium. This might be a bit abstract, we will provide examples to illustrate what we mean.
The basic formula for how rates are calculated:
Base fee (per capita) + Income-based charge (per income) = Insurance premium
Per capita, Per income
Each of the following figures is calculated on a per capita, or “per person” basis. As we will see, there is a base fee for each part of the whole insurance premium + a calculated portion based on each enrolled individual’s income of the last calendar year. Premium rates for each enrolled member of a household are calculated separately. Each member’s final premium is then added to the bill of the designated head of the household, who is responsible for paying the premium on a monthly basis. Even if, for whatever reason, the head of the household is enrolled in a form of insurance other than the NHI, he or she is still legally responsible for anyone within the same household enrolled in NHI.
Base fee (per capita)
This is the basic fee that is baked into the insurance premium. The actual amount varies slightly between municipalities, but not between income levels within each municipality. In other words, someone making ¥2,500,000 a year pays the same base fee as someone making ¥7,000,000 a year, as long as they live in the same town.
Again, these rates are fluid, and differ between municipalities. The only way to determine your own individual rate is to research what the rates of your resident municipality are. The rates are usually listed on each local government’s website, or in a pamphlet provided in a PDF file updated with changes to the tax and premium laws. Obviously, you could always just go ask the government workers at your local ward or city office as well.
To get an idea of what an average base fee charge might be, let’s take a look at what they are in Shibuya-ku, Tokyo, the municipality that Freelance Fred is responsible for paying. Rates are drawn directly from the official Shibuya-ku NHI guide of 2020.
Shibuya-ku Base Fee Charge:
- Health insurance premiums: ¥39,900
- Senior citizen support premiums:
- Nursing care premiums: ¥15,600 *
Income-based charge (per income)
Just like income tax and residence tax, part of your insurance premiums are determined by your income of the previous year. Fortunately, there’s a ceiling to how much an individual can be charged in a year, and that includes the aforementioned base fee charge. The ceiling exists by bracket however, so be aware of this when calculating our own personal NHI rates.
Additionally, as with the base charge fee, the rates differ slightly between municipality, so a bit of research on your part is necessary. Sampling from the Shibuya-ku NHI guide, these are the rates by which Freelance Fred’s income is subject to:
Shibuya-ku Income-Based Charge:
- Health insurance premiums: last year’s gross income - ¥330,000 basic deduction x 7.14%
- Senior citizen support premiums:
last year’s gross income - ¥330,000 basic deduction x 2.29%
- Nursing care premiums: last year’s gross income - ¥330,000 basic deduction x 1.94% *
Below this are upper limits of how much Fred can be charged. Even in the event that he has a really good year monetarily, his premiums would not exceed with following figures pertaining to each bracket.
Shibuya-ku Premium Ceiling:
- Health insurance premiums: ¥630,000
- Senior citizen support premiums: ¥190,000
- Nursing care premiums: ¥170,000 *
*Remember, as our self-employed protagonist is still in his early 30s, he is not yet responsible for paying any of the nursing care premiums. Between the ages of 40 and 64 however, he will be.
Calculating Freelance Fred's Total Premium
To see what this might look like when applied, we'll use Freelance Fred's 2019 income of ¥2,800,000, and base our calculations on Shibuya-Ku's 2020 rates. Fred has to file his taxes between February 16th and March 15th of 2020, the end of the 2019 Japanese fiscal year (or "nendo" 年度, covered in depth in the next section). His taxes will then be calculated by the Shibuya Ward Office in April. Finally, he'll receive the results along with the first of his monthly bills in June.
Freelance Fred’s income of 2019: ¥2,800,000 - ¥330,000 basic deduction = 2,470,000
Health Insurance Premiums
¥39,900 (base fee charge) + ¥176,358 (Income-based charge of 7.14% x ¥2,470,000) = ¥216,258
Senior Citizen Support Premiums
¥12,900 (base fee charge) + ¥56,563 (Income-based charge of 2.29% x ¥2,470,000) = ¥69,463
Nursing Care Premiums *
¥15,600 (base fee charge) + ¥47,918 (Income-based charge of 1.94% x ¥2,470,000) = ¥63,518
Keep in mind that in our narrative Freelance Fred is only 31 years old, so he’s only responsible for the summation of the first two premiums. His health insurance costs from June 2020 to March 2021 would look like this:
¥216,258 (health insurance premiums) + ¥69,463 (senior citizen support premiums) = ¥285,721
When Fred Turns 40…
…He'll be responsible for the nursing care premiums as well for a solid 15 or so years, until he turns 65. His premiums will increase as this cost will be added to his overall bill. Now at this point, hopefully he's increased his income earning capacity with time, age, and experience. But again, for the sake of keeping things simple, let’s add this premium in at the same ¥2,800,000 (¥2,470,000 after the basic deduction) rate as above:
¥216,258 (health insurance premiums) + ¥69,463 (senior citizen support premiums) + ¥63,518 (nursing care premiums) = ¥349,239
When Fred gets a bit long in the tooth, he’ll be eligible to join a kind of late stage care system for the elderly, called by different names in Japanese depending on who you ask. The two most common names are 後期高齢者医療制度 “kōki kōrei-sha iryō siedo”, and 長寿医療制度 “chōju iryō seido”. There’s actually no direct translation for this form of healthcare because it’s apparently still a bit all over the place. In any case, those who have made it to the ripe old age of 75, or those 65 and older with recognized disabilities are eligible for this system. It’s beyond the scope of this financial literacy guide, and frankly, probably not very relevant yet to the majority of our audience. But if you’re curious, we encourage you to plug any of the above words into the google search bar.
National Pension — Koku-min Nenkin 国民年金
So national pension is really, really easy to understand and calculate — probably the easiest out of everything covered thus far. The reason for this is that it’s a flat rate, across the board. The exact rate is likely to change a tiny bit every year, but it hovers around the ￥16,500 range. It’s a monthly payment, so it’s about ￥198,000 a year. Plain and simple.
Truth be told, there’s actually a much bigger conversation regarding the national pension that’s just too big to delve into just yet. We’ll explore it in subsequent posts on the subject. For now, just understand that it’s a bit of a controversial subject, and often the invisible elephant in the room. Some people agree with it, and stand by the simple fact that every resident is required by law to be enrolled in some form of a pension plan (it’s true; they are). Others reluctantly pay to avoid any possibility of trouble, but cash in as soon as possible. Yet others outright refuse to pay and accept the (often minimal) risks that come with dodging this controversial financial obligation, and purposely go delinquent.
We at Risu Press are neither here to moralize, nor to encourage delinquent or dishonest (let alone illegal) behavior. We prioritize providing as much objective, unbiased information as possible on a variety of subjects, to empower our readers with knowledge and insight on being financially and professionally successful as foreigners in the Japanese culture. With that said, we’ll leave this subject alone for now, and highlight that the people within the group that supports the pension scheme are 100% right, that it IS a legal requirement to pay into it, and thus should be calculated into one’s personal finances as such.
So to reiterate, enrollment in the National Pension scheme is legally required if you are not formally employed (and thus enrolled in shakai hoken), and costs:
￥16,500 a month (roughly)
￥198,000 a year (roughly)
The Finer Details
Basically, that's the nuts and bolts of how insurance premiums are calculated. It's a whole lot of numbers, but breaking it down into small parts hopefully provides some good insight, and demystifies the process. Please keep in mind that as complex as this may or may not have been, we only covered the basic underlying structure. We have yet to go into the minutia of claiming dependents, deducting insurance payments from taxes, and a variety of other factors. Clearly the word "simple" is all relative when dealing with taxes and insurance, but we did our best to keep it that way nonetheless.
In the next section, we'll take a look at the all powerful residence taxes, or"jūminzei" 住民税, and why ignoring it is a very bad idea.