Growing Crisis in Korean Health Insurance System

Posted on Jan 19, 2011 by Sergio Ulloa (G+)

A recent report conducted in Korea has indicated that the outlook for the near future of the Korean Health Insurance system is rather grim. The Health Insurance Policy Institute under the National Health Insurance Corp. (NHIC) estimated that by 2020, there will be a 16 trillion won (US$ 14 billion) annual deficit in this sector. This figure already assumes a steady increase in the insurance premium payments of salaried workers. Indeed, this is a red flag for the authorities to come up with some kind of radical reforms without further delay. Korea's universal health insurance system was started initially in 1977 and has been internationally recognised as the role model for public healthcare. However, the system has encountered some stumbling blocks, namely on the lack of financial support and an increasing number of old people in the country, hence a growing demand on medical care. Moreover, the local community has developed some bad habits in their use of the system, for example, too many people visit the clinics or hospitals even for common colds, causing doctors to over prescribe excessive medication as part of the treatment. In 2009, there was a 3.2 billion won (US$ 2.9 million) deficit in the national health insurance account. By 2010, the gap has grown to 1,299 billion won (US$ 1.1 billion), 400 times greater than the previous year. According to the NHIC, the main reason being that they have included broader coverage of more illnesses and their treatment methods. The research centre of the insurance corporations estimated that such deficits will only continue to grow as the costs charged by the medical service providers are rising at a pace where the incoming revenue cannot come close to covering them. It is estimated that by 2030, the expenses will increase 3.3 times, from 41 trillion won (US$ 37 billion) to 137 trillion won (US$ 123 billion) while the income from insurance premiums will rise about only 2.1 times during the same period. Insurance payments for people at the age of 65 or above will increase from 13.4 trillion won (US$ 12 billion) in 2011 to 32 trillion won (US$ 29 billion) in 2020 and eventually to 70.3 trillion won (US$ 63 billion) by 2030. This equates to 50% of the total healthcare expenses. These estimates are based on the assumptions that the current coverage of illnesses by insurance, insurance premiums and payments to medical institutions remain the same. If the payments to medical institutions for treatment increase by 2.5% annually, then by 2030 the total healthcare payments are estimated to increase from 137 trillion won to 180 trillion won. Taking into account the current 20% subsidy from the Government, by 2030, employees contributions towards insurance premiums will increase to 11.7% of their salary. To put a stop on the financial burden of Korea's insurance system, the following solutions were proposed for consideration by the research institution:- i) Put in place regulations to ensure that it is mandatory for an individual who earned income to make contributions to their own insurance premiums. Review the criteria on the dependents of insurance policyholders, to ensure that there are no loopholes in avoiding making premium payments. ii) Increase taxes on the sales of tobacco and liquor. iii) Review the investigation process and take preventive measures to stop dishonest medical service personnel from defrauding the system. iv) The Ministry and Health and Welfare should expedite the development of better payment systems for medical institutions, as well as improving the allocation of insurance income resources, in order to avoid unnecessary spending on excessive and redundant treatments. v) Rationalise the medical insurance business by using the DRG (diagnosis-related group) system more broadly and efficiently. This is to ensure similar illnesses use the same level of hospital resources, to avoid incurring high medical expenses. Similar to Korea, the healthcare system in Hong Kong is also facing the challenges of a rapidly ageing population and rising medical costs. There is an imminent need to ensure its sustainable development in order to provide the public with adequate protection. In 2008, the Hong Kong Government embarked on healthcare reform, putting forward a package of reform proposals through the first stage consultation entitled "Your Health, Your Life". In 2010, the Government rolled out the second stage consultation on healthcare reform and proposing a voluntary Health Protection Scheme. The Government has promised to draw HK$50 billion (US$ 6.41 Billion) from the fiscal reserve to support healthcare reform after the supplementary healthcare financing arrangements are finalised for implementation. The aim of the proposed scheme in the long run is to offer incentives to encourage people to move away from the public system and to participate in the highly competitive private medical system, thus relieving the long-term demand for public healthcare services. The population in Hong Kong continues to grow, and is approaching 8 million people. Of this number, it is estimated that about 3.8 million people have access to the low cost Government funded public healthcare system. However, more programs are being developed that will cater to citizens' needs. One such example is the Voluntary Health protection scheme, which is proposed to provide subsidies to the most at risk patients, such as people who have reached the age of 65 or above, individuals with pre-existing conditions as well as incentives for the younger generations of society by offering limited co-payments for treatments. In other words, on top of the universal healthcare that is already in place, this proposed healthcare reform will be an added financial burden to the Hong Kong Government's health budget. Given that the Korean's universal healthcare is running at a deficit, it is important that the Hong Kong Government learn from its neighboring countries in the Asia Pacific region to avoid suffering a similar fate.