The health status of the Japanese is one of the best in the world. The healthcare system has no doubt contributed to this, though the current state of research in health economics does not permit the determination of the extent of such contribution. The Japanese system, based on social insurance, has provided both basic care and free choice of doctors to every citizen at affordable costs. It has, however, become increasingly clear that the Japanese system has failed to allocate resources properly, ensure financial equity and adapt to changing patterns of demand. This paper first explains how a system that once seemed to function well has become inappropriate, then how policies have tried to overcome some of the problems. The paper concludes with key considerations shaping future reform ...