Japan implemented a mandatory social long-term care insurance (LTCI) system in 2000, making long-term care services a universal entitlement for every senior. Although this system has grown rapidly, reflecting its popularity among seniors and their families, it faces several challenges, including skyrocketing costs. This article describes the recent reform initiated by the Japanese government to simultaneously contain costs and realize a long-term vision of creating a community-based, prevention-oriented long-term care system. The reform involves introduction of two major elements: “hotel” and meal charges for nursing home residents and new preventive benefits. They were intended to reduce economic incentives for institutionalization, dampen provider-induced demand, and prevent seniors from being dependent by intervening while their need levels are still low. The ongoing LTCI reform should be critically evaluated against the government's policy intentions as well as its effect on seniors, their families, and society. The story of this reform is instructive for other countries striving to develop coherent, politically acceptable long-term care policies.