long-term financing paper

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Long-term financing paper sample two column cover letter

Long-term financing paper

Financial leverage tries to estimate the percentage change in net income for a one percent change in operating income. It involves the use of debt instruments over equity instruments to acquire additional assets, therefore keeping stakeholders at a minium and per share profits at a maximum. It is possible to over-leverage, which is incurring a huge debt by borrowing funds at a lower rate of interest and using the excess funds in high risk investments in order to maximize returns.

The most obvious risk of leverage is that it multiplies losses. A corporation that borrows too much money might face bankruptcy during a business downturn, while a less-levered corporation might survive. There is an important implicit assumption, though, in evaluating the risk of leverage, which is that the underlying levered asset is the same as the unlevered one. If a company borrows money to modernize, or add to its product line, or expand internationally, the additional diversification might more than offset the additional risk from leverage.

In short, while adding leverage to a given asset always adds risk, it is not the case that a levered company or investment is always riskier than an unlevered one. For example, many highly-levered hedge funds have less return volatility than unlevered bond funds, and public utilities with lots of debt are usually less risky stocks than unlevered technology companies.

There is a popular prejudice against leverage rooted in the observation that people who borrow a lot of money often end up in unfavorable situations. However, individuals who undertake such positions are not typically undertaking leverage. Instead, they are borrowing money for personal consumption. In finance, the general practice is to borrow money to buy an asset with a higher return than the cost of borrowing.

There also exists the risk of involuntary leverage. This is a situation in which a company or individual enters into financial distress and is forced to enter into a higher leveraged position. This multiplies losses as things continue to go downhill. This can lead to rapid ruin, even if the underlying asset value decline is mild or temporary. Debt is a way for firms to access capital for operations or investment with various terms and agreements for future repayment.

A company uses various kinds of debt to finance its operations. The various types of debt can generally be categorized into:. Debt : A company uses various kinds of debt to finance its operations. A debt obligation is considered secured, if creditors have recourse to the assets of the company on a proprietary basis or otherwise ahead of general claims against the company.

Unsecured debt comprises financial obligations, where creditors do not have recourse to the assets of the borrower to satisfy their claims. Private debt comprises bank loan sorts of obligations, whether senior or mezzanine. Public debt is a general definition covering all financial instruments that are freely trade-able on a public exchange or over the counter, with few if any restrictions.

It consists of an agreement to lend a fixed amount of money, called the principal sum, for a fixed period of time, with the amount to be repaid by a certain date. In commercial loans interest, calculated as a percentage of the principal sum per year, will also have to be paid by that date, or may be paid periodically in the interval, such as annually or monthly.

A syndicated loan is a loan that is granted to companies that wish to borrow more money than any single lender is prepared to risk in a single loan, usually many millions of dollars. In such a case, a syndicate of banks can each agree to put forward a portion of the principal sum. Loan syndication is a risk management tool that allows the lead banks underwriting the debt to reduce their risk and free up lending capacity.

A bond is a debt security issued by certain institutions such as companies and governments. A bond entitles the holder to repayment of the principal sum, plus interest. Bonds are issued to investors in a marketplace when an institution wishes to borrow money. Bonds have a fixed lifetime, usually a number of years; with long-term bonds, lasting over thirty years, being less common. Interest may be added to the end payment, or can be paid in regular installments also known as coupons during the life of the bond.

Bonds may be traded in bond markets, and are widely used as relatively safe investments in comparison to equity. This is because the debt and interest are highly unlikely to be defaulted. A good example of such risk-free interest is a US Treasury security — it yields the minimum return available in economics, but investors have the comfort of the almost certain expectation that the US Treasury will not default on its debt.

A risk-free rate is also commonly used in setting floating interest rates, which are usually calculated as the risk-free interest rate plus a bonus to the creditor based on the creditworthiness of the debtor in other words, the risk of him or her defaulting and the creditor losing the debt.

In reality, no lending is truly risk free, but borrowers at this rate are considered the least likely to default. Debt allows people and organizations to do things that they would otherwise not be able, or allowed, to do. Commonly, people in industrialised nations use it to purchase houses, cars and many other things too expensive to buy with cash on hand. This leverage, the proportion of debt to equity, is considered important in determining the riskiness of an investment; the more debt per equity, the riskier.

For both companies and individuals, this increased risk can lead to poor results, as the cost of servicing the debt can grow beyond the ability to pay due to either external events income loss or internal difficulties poor management of resources. The equity, or capital stock or stock of a business entity represents the original capital paid into or invested in the business by its founders.

It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors. Stock is different from the property and the assets of a business which may fluctuate in quantity and value. The stock of a business is divided into multiple shares, the total of which must be stated at the time of business formation.

Given the total amount of money invested in the business, a share has a certain declared face value, commonly known as the par value of a share. The par value is the minimum amount of money that a business may issue and sell shares for in many jurisdictions, and it is the value represented as capital in the accounting of the business. Shares represent a fraction of ownership in a business. A business may declare different types or classes of shares, each having distinct ownership rules, privileges, or share values.

Ownership of shares is documented by the issuance of a stock certificate. A stock certificate is a legal document that specifies the amount of shares owned by the shareholder, and other specifics of the shares, such as the par value, if any, or the class of the shares. Stock typically takes the form of either common or preferred. As a unit of ownership, common stock typically carries voting rights that can be exercised in corporate decisions. Preferred stock differs from common stock in that it typically does not carry voting rights but is legally entitled to receive a certain level of dividend payments before any dividends can be issued to other shareholders.

The owners of a private company may want additional capital to invest in new projects within the company. They may also simply wish to reduce their holding, freeing up capital for their own private use. They can achieve these goals by selling shares in the company to the general public, through a sale on a stock exchange.

By selling shares they can sell part or all of the company to many part-owners. The purchase of one share entitles the owner of that share to literally share in the ownership of the company, a fraction of the decision-making power, and potentially a fraction of the profits, which the company may issue as dividends. Public companies may issue additional shares thus diluting current equity holders to raise money to fund operations or capital investments.

Financing a company through the sale of stock in a company is known as equity financing. Alternatively, debt financing for example issuing bonds can be done to avoid giving up shares of ownership of the company. In finance, the cost of equity is the return, often expressed as a rate of return, a firm theoretically pays to its equity investors, i. Firms need to acquire capital from others to operate and grow. Individuals and organizations who are willing to provide their funds to others naturally desire to be rewarded.

Just as landlords seek rents on their property, capital providers seek returns on their funds, which must be commensurate with the risk undertaken. Firms obtain capital from two kinds of sources: lenders and equity investors. This theory is linked to observation of human behavior and logic: capital providers expect reward for offering their funds to others. Such providers are usually rational and prudent preferring safety over risk.

They naturally require an extra reward as an incentive to place their capital in a riskier investment instead of a safer one. Long term loans are generally over a year in duration and sometimes much longer. Three common examples of long term loans are government debt, mortgages, and bonds or debentures. Different Financial Instruments : Long term loans are generally over a year in duration and sometimes much longer.

Government debt also known as public debt or national debt is the debt owed by a central government. Government debt is one of numerous methods of financing government operations. Governments may create money to monetize their debts, thereby removing the need to pay interest. This practice, also known as quantitative easing, reduces government interest costs but does not actually cancel government debt.

Governments usually borrow by issuing securities, government bonds, and bills. Less creditworthy countries sometimes borrow directly from a supranational organization e. Government bonds are issued by a national government. A comparative study of shadow banking activities of non-financial firms in transition economies. View 1 excerpt, cites background. The provision of long-term credit and firm growth. Banking market structure and industry growth in the Central-East Europe region.

Term structure of bank flows to emerging countries: what effects of short- vs. Highly Influenced. View 3 excerpts, cites background. Long-term finance and entrepreneurship. Role of financial development in economic growth in the light of asymmetric effects and financial efficiency. View 2 excerpts, references background. Institutional uncertainty and the maturity of international loans.

Transition Countries. Uncertainty and international debt maturity. View 2 excerpts, references methods and background. Liquidity, Banks, and Markets. View 1 excerpt, references background. Related Papers. By clicking accept or continuing to use the site, you agree to the terms outlined in our Privacy Policy , Terms of Service , and Dataset License.

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Advantages of Short-Term Financing. Disadvantages of Short Term financing. Purpose of Short-Term Financing. What is Trade Credit? Reasons for the use of Trade Credit. Factors determining the amount of Trade Credit used Cost of Trade Credit Who bears the cost of Trade Credit? What is Bank Credit? Distinction between Bank Credit and Short Term credit.

Characteristics of Short Term financing Meaning and nature of short-term financing: Short Term financing is that from of financing which embraces borrowing or lending of funds for a short period of time. It refers to the finance obtained on short term basis, usually one year or less in duration. Short term finance is secured for financing the current assets, for example, inventories.

Short term finance is also known as working capital which is the excess of current assets over current liabilities. Current liabilities become due within one year and indicate the amount of short-term credit being utilized by the business. Practically all enterprises use the short-term credit as sources of finance. We find in the balance sheets of almost all the companies some kinds of current liabilities which are the indicator K Jahalani Agm —Appraisal , Mr.

Chhabra Sr. Dgm-Finance , Mr. Limba Dgm-Appraisal ,Mr. Sharma Dgm ,Mr. Sources of financing a business are classified based on the time period for which the money is required. Capital expenditures in fixed assets like plant and machinery, land and building etc. Lawrence Sports Working capital management is very important in running a business because it involves managing all current assets and liabilities. Working capital management involves making appropriate investments in cash, marketable securities, receivables, and inventories, as well as the level and mix of short-term financing Emery, Finnerty, Stowe, , p.

Management can solve this issue with working capital policies that reduce future difficulties. Alternative Working Capital Policies As the newly appointed finance manager, one must be fully aware of the companies operating expenses, principal source of finance, suppliers and current financial stance and process with the lending bank. Understanding how all of these relationships can cohesively work together is key to being a success in this new role. This type of communication and action plan will result in optimizing revenue, decreasing cash borrowed turn-around time, positive business relations and maintaining positive cash balance thus Looking at the long-term trend XYZ Corporation assets are likely to increase over time.

The key to current asset planning is the ability of management to forecast sales accurately and match the production schedules with the sales forecast. The process of forecasting forces a business to consider seasonal and other effects on cash flow. The financial manger's selection of external sources of funds to finance assets may be one of the firm's most important decisions. According to our resources, XYZ Corporation is experiencing an average collection period of days.

The industry average is about 75 days. The corporation has also experienced an increase in its business in Alternate Capital Policies Current Policy Conservative Approach The current policy in place at Lawrence is one that can be considered a conservative approach. Simply put; Lawrence has predominantly financed all of its current assets using long-term sources of financing where only a small portion of its assets sing short-term financing. In addition, When we think about short term financing we refer to any investment, financial plan, or anything else lasting for one year or less.

Short term investment and financial plans usually involve less uncertainty than long term investments and financial plans, reason being market trends are more easily predictable for one year than for any longer period. Short term financial plans are more easily amendable as a result of the short time frame. A short term financial plan usually involves investing in short term securities, such as T bills or commercial paper. When we are discussing long term financing we are describing a plan, strategy, security, or anything else with a term longer than one year.

The exact number of years varies according to the usage. A long term financial plan outlines investment and other financial goals for any time more than one fiscal year, while a long term bond has a maturity of 10 or more years.

Anything long term involves more uncertainty than anything short term because market trends are more easily predict able in the short term. Home Page Other Topics. Premium Essay. Show More. Our essay writers are graduates with diplomas, bachelor's, masters, Ph.

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You also get a plagiarism report attached to your paper. Previous Post. Next Post. Skip to content I just need a term paper around 7 or 8 pages talking about a popular company that has gone through long term financing excercise And the key areas to focus on , you find them in the image uploaded below but i need a popular company not an unknown company like a fashion or electrnoica company for example Get Professional Assignment Help Cheaply Are you busy and do not have time to handle your assignment?

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Figure shows the long-run view of short- and long-term interest rates. Normally, short-term rates are much more volatile than long-term rates. What is the significance to working capital management of matching sales and production? Howorth[1]; M. Narasimhan[2] and R.

Most firms have an important amount of cash invested in current assets, as well as substantial amounts of current liabilities as a source of financing. This paper therefore analyses the working capital structure and financing pattern of small to medium-sized Mauritian manufacturing firms, using primarily secondary data.

Structural differences in working capital and the financing pattern of the sample firms are analysed and the results showed significant structural changes over the study period. The research finding revealed disproportionate increase in current asset investment in relation to sales resulting in sharp decline in working capital turnover. The analysis also revealed an increasing trend in the short-term component of working capital financing; in particular trade credit and other payables have financed the major part of working capital.

This over-concentration on short-term funds is a reality of the SMEs as they often faced difficulties in raising finance and they are viewed to be informationally opaque Cash is obtained through a short-term bank loan. Cash is obtained through a long-term bank loan.

A cash dividend is declared and paid. Accounts receivable are collected. Merchandise is purchased on account. Cash advances are made to employees. Minority interest in a firm is acquired for cash. Equipment is acquired for cash. Reconstructing a balance sheet.

Meaning and nature of short-term financing. Sources of Short Term Financing. Advantages of Short-Term Financing. Disadvantages of Short Term financing. Purpose of Short-Term Financing. What is Trade Credit? Reasons for the use of Trade Credit. Factors determining the amount of Trade Credit used Cost of Trade Credit Who bears the cost of Trade Credit?

What is Bank Credit? Distinction between Bank Credit and Short Term credit. Characteristics of Short Term financing Meaning and nature of short-term financing: Short Term financing is that from of financing which embraces borrowing or lending of funds for a short period of time. It refers to the finance obtained on short term basis, usually one year or less in duration.

Short term finance is secured for financing the current assets, for example, inventories. Short term finance is also known as working capital which is the excess of current assets over current liabilities. Current liabilities become due within one year and indicate the amount of short-term credit being utilized by the business.

Practically all enterprises use the short-term credit as sources of finance. We find in the balance sheets of almost all the companies some kinds of current liabilities which are the indicator K Jahalani Agm —Appraisal , Mr.

Chhabra Sr. Dgm-Finance , Mr. Limba Dgm-Appraisal ,Mr. Sharma Dgm ,Mr. Sources of financing a business are classified based on the time period for which the money is required. Capital expenditures in fixed assets like plant and machinery, land and building etc. Lawrence Sports Working capital management is very important in running a business because it involves managing all current assets and liabilities.

Working capital management involves making appropriate investments in cash, marketable securities, receivables, and inventories, as well as the level and mix of short-term financing Emery, Finnerty, Stowe, , p. Management can solve this issue with working capital policies that reduce future difficulties. Alternative Working Capital Policies As the newly appointed finance manager, one must be fully aware of the companies operating expenses, principal source of finance, suppliers and current financial stance and process with the lending bank.

Understanding how all of these relationships can cohesively work together is key to being a success in this new role. Although men are providing more care than in the past, women still constitute the majority of caregivers.

One in 25 caregivers said they had become economically inactive because of their caring responsibilities. A mix of programs and policies is in place at federal, provincial, and territorial levels to support caregivers. One of the main ways of providing support is through provision of home care services, whether direct to care receivers or specifically to meet the needs of caregivers through, for example, respite services.

These programs are largely the responsibility of provincial departments of health or social services, with the exception of veterans and members of First Nations, who fall under federal jurisdiction. While there have been calls for the development of a universal home care program, current federal health policy does not provide standards or guidelines for the development or delivery of home care services. As a result, home care programs vary widely across the country and meet the needs of caregivers with varying degrees of success.

One emphasis in Canada has been to use the tax system to provide financial support to those providing care to disabled or elderly relatives. While many caregivers meet some of the eligibility criteria for most tax deductions and credits, they rarely meet all, and so do not benefit from financial compensation policies. The complexity is also said to put off some potential beneficiaries. The other national program offering financial compensation to caregivers is the Compassionate Care Benefit, an element of the Employment Insurance program.

It came into effect in and provides temporary income support for eligible workers who need to take leave from work to provide care to a family member who is likely to die within the next 6 months. There are many significant restrictions on eligibility for receipt of this benefit: It is available, for example, only to close relatives who are eligible for employment insurance so that, for example, self-employed persons are ineligible.

The provinces and territories have also used the tax system to provide financial assistance to caregivers. But tax credits available at this level, where they exist, largely parallel those found at the federal level, although amounts and eligibility criteria vary. There are also some sales tax exemptions for respite care.

Many of the needs of older people stem from deterioration in their health and are most usually appropriately met by health-care services. Other needs are more appropriately met by social care providers. But the boundaries between these sets of needs are hard to draw, and different patterns of service provision have grown up in different countries, influenced by national culture, financing arrangements, availability of skilled professionals and the caprices of day-to-day decision making.

The distinction between health and social care has potentially important implications both for the level of cost for example, needs may be excessively medicalized or specialist treatment underprovided and for the balance of funding if different eligibility criteria influence threshold levels of dependence, for instance. In turn, these could create perverse incentives: Cost-shifting is a problem in some countries, as is the risk of people falling between two separate care systems. Sweden is one country that appears to have solved long-standing problems such as hospital bed blocking and nursing home funding responsibilities, but new boundary issues have arisen there, concerning rehabilitation, home nursing, assistive technology and so on.

Although there are many differences between countries, there is a common core of non-family services that can be said to comprise long-term care, including needs assessment, counselling and advice, self-help support groups, respite care, crisis management, support centers, day programs, support for people in their own homes so-called home care, including home help, meals, and community nursing , residential and nursing home provision, and — increasingly — a range of housing-with-support services such as sheltered housing, extra-care housing and some retirement communities.

The long-stay hospital ward for older people is gradually being phased out in many Western countries, although it remains an unwelcome feature of care systems in parts of Eastern Europe. More policy attention in Western countries has therefore turned to the balance between institutional care which now usually means residential and nursing home care and home care. Countries with an above-average level of bed provision were generally trying to reduce it and those below the average were generally trying to expand provision.

One consequence of this shifting balance between institutional and other forms of care is that older people tend to get admitted to care homes when already quite dependent, for example at later stages of dementia. This can leave families carrying a heavy burden, and caregiver-related factors are common reasons for admission. Another consequence is that a high proportion of residents in care homes and other highly staffed congregate care settings today have dementia.

Decisions on what is an appropriate balance of provision need to be thought through. The OECD found a great deal of intercountry variation in the provision of home care. There was no evidence of movement toward a similar proportion. Notwithstanding this difficulty, the extent and nature of development of what are sometimes called intermediate care arrangements housing with various levels of care support also vary considerably. A common phenomenon has been the transformation of most home care services from the traditional home help, focused on household chores, to services that concentrate on personal care.

This transformation has often gone hand in hand with the development of intensively supported home care, often costing as much as a place in a care home. It is becoming increasingly common to find long-term care systems targeting available resources on people with the greatest needs hence the development of intensive home care, for example , at the expense of low-level care for people with fewer needs. Indeed, collectively financed low-level support has virtually disappeared in some countries such as England.

Provider pluralism is another pervasive and increasingly visible feature of many long-term care systems. Responsibility for strategically coordinating or commissioning care still rests predominantly with public sector bodies, but increasingly it is nonpublic bodies that actually deliver services in the field. Policy debates in some countries have kept services and financing distinct when discussing the future of long-term care such as in the UK , although the two are obviously closely connected in practice.

The sectoral balance of provision affects the balance of funding responsibilities: For example, charitable donations can be used to subsidize state or individual funding of services. Good interagency coordination of long-term care is imperative if individual and family needs are to be met, which requires collaborative approaches to financing. Without effective coordination, yawning gaps could open up in the spectrum of support: Even in well-resourced care systems there are large numbers of people whose long-term care needs go unrecognized or unmet.

Wasteful duplication of effort is another possibility. Countries, states, and municipalities differ in their service and agency definitions, responsibilities, and arrangements, and therefore in their interagency boundaries and the kinds of connected action that spans them.

One of the major organizational resource challenges, therefore, is to coordinate service funding in ways that are effective, cost-effective, and fair. Cost shifting and problem dumping between agencies will not help individuals or families, but recognition of economic symbiosis could help decision makers fashion improved responses to needs through pooled budgets, jointly commissioned programs and other whole system initiatives.

Concern has been widely expressed about quality of care, how to improve it and how to assure it through appropriate regulatory mechanisms. There are inherent difficulties in measuring some aspects of quality, and service users with a moderate or high degree of cognitive impairment, for example, are unlikely to be able to participate as informed consumers using their voice to bring about change.

One factor working against quality improvements is the low status and high rate of turnover of staff. A number of countries are experiencing shortages of qualified or skilled staff for long-term care services, and particularly to work in services for people with dementia. One of the reasons is undoubtedly that rates of pay seem to be universally low, hindering recruitment and fostering turnover.

The main approaches to funding long-term care are out-of-pocket payments; voluntary insurance sometimes called private insurance ; tax-based support from general tax revenue; and social insurance. The last of these includes social health insurance but could be broader to include social care. All but the first are prepayment arrangements. They differ one from another in the personal—collective funding balance, extent of risk pooling, and nature of government intervention.

Policy instruments applied to potentially any of these funding approaches include providing information and advice, regulation, subsidies, tax raising, transfer payments, and direct provision of services. All financing arrangements involve some redistribution over the life cycle, whether explicitly through contributions to long-term care or other insurance policies during the working years, or through tax or social insurance contributions linked closely to employment or through investment in housing equity.

Prepayment contributions pool risks, and therefore redistribute benefits toward people with greater needs. They also have the potential to redistribute in favor of poorer individuals, either because need is inversely correlated with income, or purposively by making arrangements progressive so that poorer individuals pay proportionately less than wealthier individuals for equivalent care.

Out-of-pocket payment systems from private savings, equity release and so on generally do not have these same advantages. Although prepayment systems dominate, in many countries there are out-of-pocket charges for some services, whether as co-payments a specific amount is paid for a service , co-insurance an agreed percentage of cost is charged or deductibles an agreed amount is paid before insurance kicks in.

There are various rationales for introducing out-of-pocket payments, including to raise revenue if wealthier individuals can afford to pay, why not charge them? But out-of-pocket payment mechanisms usually have undesirable impacts on access and equity, discouraging the use of essential as well as nonessential services, and delaying demand and utilization that might later mean substantially increased costs.

Voluntary insurance is taken up and paid for at the discretion of individuals hence the label voluntary or perhaps by employers on behalf of individuals. Insurance policies might be offered by public, quasi-public, for-profit or nonprofit organizations. Generally speaking, voluntary insurance is less important in European health-care systems than in the U. However, long-term care insurance has failed to establish itself even in the U.

People individually purchasing insurance have lower bargaining power than when insurance arrangements are made by employers or the state, which in turn could affect the benefits covered. Inherent in voluntary prepayment systems are disadvantages such as adverse selection and cream skimming, where higher risk groups such as those with chronic conditions may find insurance unaffordable and lower risk groups may feel that their own premiums are too high.

Insurance plans may also exempt existing conditions from the benefit packages, which could be a difficulty for long-term care. If there is no charge at the point at which a service is used there may be excessive utilization, the so-called moral hazard problem that might be addressed by introducing co-payments at point of use.

Many health and social care systems are funded from national, regional, or local taxes. If the tax that generates the revenue is progressive as with income tax and eligibility for benefits is not income-related, then long-term care financing will also be progressive. But long-term care financing could be regressive if financed from indirect taxes such as sales or value-added tax , because poorer individuals often contribute larger proportions of their incomes.

Generally, however, at least in discussions of health-care financing in high-income countries, tax-based systems are seen as the most progressive and equitable of all arrangements Mossialos et al. Payments are mandatory, and scale economies can be achieved in administration, risk management, and purchasing power.

Services or cash payments in some countries — see the section on self-directed services below are provided on the basis of need, and there is obviously also the potential to allocate or distribute services or their cash equivalents under self-directed care arrangements on the basis of income or assets. For those who advocate health or long-term care as a right, tax-based systems fit the bill, while those with conservative leanings might view such arrangements as erosions of personal responsibilities and freedom.

Tax-based systems have limitations. Funding levels may fluctuate with the state of the national economy: When an economy is not doing well, there is a tendency to cut back on publicly funded programs. Competing political and economic objectives make a tax-based system less transparent, and bureaucracy can add to inefficiency, perhaps reflected in long waiting lists although there is also symptomatic underfunding.

Service users may view tax-based systems as offering them limited choice, but uninsured individuals in an alternative financing system might argue that they face no choice whatsoever. Care systems based on social insurance generate their revenues from salary-based contributions administered and managed by quasi-public bodies. Employers also make contributions, and transfers are usually made from general taxation to sickness funds to provide cover for unemployed, retired, and other disadvantaged or vulnerable people.

One of the most interesting financing arrangements is the system introduced in Japan in , which have attracted worldwide attention. Mandatory long-term care social insurance was introduced in , operated by the more than municipalities under central government legislation. The decision was made to go with a social insurance rather than tax-based model on a number of grounds; see Ikegami, For people in employment, the premium is equivalent to 0. For older people, premiums are deducted from pensions and are also income-related Campbell and Ikegami, Eligibility is based solely on need for everyone aged 65 and over and those aged 40—64 with aging-related disabilities.

Insured people in need of care are assessed on application and classified into one of six care levels according to need. A fee schedule is set nationally according to the level of need. The role of a care manager was newly created with the introduction of the insurance system to draw up care plans reflecting individual needs.

The scheme covers residential and home care services. Cash benefits are not paid — unlike in Germany, for example — partly to move care away from the traditional heavy reliance on female carers particularly in a context of a declining ability and willingness of families to provide support; Ikegami, , partly to help long-term care provision to expand Campbell and Ikegami, Tax revenues may also be called upon to cover deficits in social insurance funds, especially if the working population is too small to generate sufficient revenue to cover the population eligible to receive benefits.

Enrollment is usually mandatory, and although premiums are not risk-adjusted, they tend to be linked to income so that pooling allows for redistribution according to both need and income. A disadvantage is that the link between financing and employment may constrain job mobility and hence economic competitiveness at the national level. Both tax-based and social insurance-dominated systems take account of ability to pay and cover vulnerable and low-income groups.

A number of criteria have been alluded to in describing the relative advantages of the different financing methods.