Single-Payer Health Care Reform in South Korea

Single-payer Health Care Reform in South Korea:

Major actors behind the reforms

Chang-Bae Chun, Ph. D

Health Insurance Research Centre

National Health Insurance Corporation, South Korea

1. INTRODUCTION

During the 1990s many countriesexperienced rapid changes in health care. Particularly following the economic crisis of the 1970s, most developed European countries attempted to reduce health care expenditure by introducing competition mechanisms into health systems and putting private market elements into their public health sectors. However, the Republic of Korea (hereafter Korea) pursueda uniquely different path. The restructuring of health care in the 1990s followed an altogether opposite trend compared to other countries’ paths. Korea integrated multi-insurers into a single-insurer in July 2000 and thus reinforced income redistribution by enlarging risk pooling.

This paper begins with the question of why Korea proceeded along this unique path. To answer the question, it will first explore current fundamental reforms of health care that have taken place since the late 1990s. Then it will analyze the background to these reforms: that is, why these were possible in Korea at that time? In order to answer the question, this paperwill focus on two-key questions: firstly, what happened and secondly why this was.

The methodology of this paper is based on a case study, because this method can be convenient and relevant to analyze complex cases in greater depththan other research methods. A case study makes it possible to study all variables with relation to studying the content, and makes it possible to look at the internal relationships holistically. Besides, in order to analyze the equity in financing and redistribution after the reform in 2000, statistical approaches were adopted. For this, several data sets were used, and sample data was extracted from the total population data stored in the National Health Insurance Corporation (NHIC) database.

This paper consists of six chapters. Chapter II will briefly mention the theoretical background and analysis framework, covering hypothesis, and framework of this paper. Chapter III will describe the key features of the health care reforms achieved since the late 1990s to the present. This chapter will intensively discuss the major outcomes of reforms such as integration and income redistribution. Chapter IV will identify the underlying forces behind health care reform in Korea and thus this part will be a main discussion section of this case study. Chapter V will find policy implications from the outcomes of health care reform and analyze the main actors in the transformation of thehealth care system in Korea since the 1990s. The final chapter summarizes the outcomes associated with a single insurer and mentions the roles of major players in achieving this health care reform.

2. HYPOTHESIS AND ANALYSIS FRAMEWORK

To grasp the causes of the transformation from multi to single-payer, and from regressive to progressive in terms of income redistribution, this paper needs to set a hypothesis that can elucidate the causes of changes to the health care system which have occurred since the late 1990s. Especially in the midst of globalization and economic recession, all reforms represent a significant and meaningful development. As mentioned before, it was a very uncommon phenomenon, considering most countries experienced reductions in spending on health care and more dependence on private resources (Mishra 1999). Despite the difficult situation, the Korean health care system achieved a single payer model after almost 20 years of ‘big debate’. To explore the cause of these changes more thoroughly, it is meaningful to suggest an independent variable to explain the cause of the changes in the late 1990s and early 2000s. For this, this paper set hypothesis: the development of health care systems with a single insurer and the reinforced income redistribution scheme became possible with the emergence of power elites and the advent of civic groups.

Based on the above hypothesis the paper briefly features a framework of analysis to find the causal actors behind the health care reforms. So the framework of analysis in this paper starts with suggesting two independent variables: the emergence of new power elites and the activities of civic groups. Figure 2-1 shows the analysis framework for the causes of the Korean health care reform.

[Figure 2-1] Analysis framework

/ Emergence of Civic Group / /

Multi-payers

/

Single-payer

• Regressive income redistribution
• Inefficiency
• Residual Model

/ /

• Progressive income redistribution
• Efficiency
• Social-democratic Model

Emergence of Social-Democratically minded power elite

Pressure/Input Support/ Alliance

3. FROM MULTI-PAYERS TO AN SNGLE-PAYER

This chapter in general belongs to ‘what happened?’ It thus naturally relates to the discussion of integration of health care in 2000. Integration itself can be seen as beyond just achieving a single-payer insurance system. Perhaps to many Koreans, the integration of health care itself has great significance, both from political and social perspectives.

3. 1.Risk pooling

Since the introduction of compulsory health insurance for corporate employees and public servant/private school employees in 1977, many problems have been exposed. One of them was the problem of a weak risk pooling mechanism. This drawback had been derived from the structural weakness of the multi-fund systems, which resulted from the existence of many small societies. The following data shows that in 1980, when only 20 per cent of corporate employees were covered, the number of societies amounted to 602. Worse, among these corporate societies, 229 funds (38%) of total funds in 1980 would have less than 1000 people insured. Moreover, more than 75 % of societies insured less than 3000. In these circumstances, income redistribution under weak risk pooling structures was not possible.

[Table 3-1]The number of societies by size of the insured (1980, persons)

Total / Lessthan
1000 / Lessthan
3000 / Less than
5000 / Less than
10000 / More than
10000
No.of Societies / 602 / 229 / 221 / 65 / 52 / 35
% / 100 / 38 / 37 / 11 / 9 / 5
Accumulated % / - / 38 / 75 / 86 / 95 / 100

Source: MOHW(1980) “Internal report by the insurer integration and dismantling committee”

The problem derived from the weak risk-pooling structure, due to significant differences in membershipdidn’t disappear but rather worsened with the coverage expansions forthe self-employed in 1988 and in 1989 for ruraland for urban residents respectively. Because insurers for the self-employed were founded solely on basic local administrative units such as Gun and Gu, the gap in members, as table 3-2 shows, between the largest and smallest societies was significant. While the smallestsocieties are mostly located in rural areas and cover at best 3,912 households, the largest insurers in the large city number more than 121,975 households – i.e. a 3,118 times difference between the two insurers. Under these significance gaps between societies, risk pooling in health insurance was intrinsically impossible. In addition, considering the social demographic traits that two-thirds of the elderly live in the rural area (Anderson 1989), risk pooling through health insurance seemed rather contradictory.

[Table 3-2] Comparison of societies’ size for self-employed(Jun. 2000)

The smallest (Yang-Gu) / The largest (Goyang city) / Difference of No. of households
No. of household / No. of the insured / No. of household / No. of the insured
3,912 / 11,699 / 121,975 / 348,057 / 3,118 times

Source: Internal report from NHIC (2001).

However, with the reform of 2000, the problems of narrow and weak risk pooling disappeared. This single payer system made the risk pool nationwide by integrating all insurers into a single pool and by spreading individual risks across a pool of the entire population. As a result, the establishment of the single insurer was a way of combining risk pooling into one insurer and thus overcoming the previous weak risk pooling mechanism under the multi-payer schemes.

3. 2. Equity

As mentioned before, multi-payer schemes brought about financial imbalances between insurers. The fundamental gap in financing was caused by the deterioration of equity in financing, such as unfair contribution systems and different social demographic backgrounds. For example, small insurers located in rural areas consisting mainly of elderly members would likely fall under the structures of fundamentalfinancing instability, partly because the old experience increased illness and are thus likely to require more medical services. Moreover, since the elderly do not have regular incomes, it was common for monthly contributions to be late. Consequently, the small insurers in rural areas suffered chronic financial instability. However, so-called ‘rich insurers’, which are mainly located in urban areas and largely consisted of the younger generations, had better positions demographically and financially and therefore were financially stable. Contrary to the smaller ‘poor societies’, the insured of the rich societies were less likely to get treatment, because they were relatively young compared to those of the poor societies. More than that, they were working and earned regular incomes, so they could pay their monthly contributions on time. As the table 3-3 shows, financial disparity between rich and poor payers inevitably incurred.

[Table3-3] Number of deficit societies by years (1990-1997)

Years

/ 1990 / 1991 / 1992 / 1993 / 1994 / 1995 / 1996 / 1997
No. of societies / 254 / 266 / 266 / 266 / 266 / 227 / 227 / 227
No. of deficit / 194 / 1 / 0 / 18 / 28 / 26 / 147 / 59
Percent (%) / 76.4 / 0.4 / 0 / 6.8 / 10.5 / 11.5 / 64.8 / 30.0

Source: National Federation of Medical Insurance, “Balance Accounts Report by years”

Similarly, the financial status of corporate societies was also capricious. Although the finances of corporate societies were not so serious as for the self-employed, there were also significant disparities between rich and poor societies. In general, the societies who largely consisted of young employees in smaller work-sites kept sound finances, while societies with relatively older employees with more dependents in larger companies tended to suffer financial deficits. As the table 3-4 shows, the degree of financial disparity between insurers deteriorated to an easily distinguishable situation. That is, while some insurers were in danger of insolvency, others accumulated huge reserves.

[Table3-4] Numbers of deficit societies: corporate insurers (1995)

No. of societies / Size of the surplus / Size of the deficit
Less than 70 % / 71-79% / 80-89% / More than
90% / More than 100% / More than 110%
145 / 1 / 26 / 67 / 41 / 8 / 2

Source: NHIC (2001), Health Insurance White Paper, p 69.

Meanwhile, financial gaps between the self-employed and corporate society rapidly increased as well. While most of corporate society had sound financial status, most self-employed societies were in the crisis of insolvency during the 1980s - 1990s. Given this significant disparity, the government was able to do almost nothing, but depend on increase of contribution rate. As table 3-5 illustrates, the disparity between the two occupation-based societies was distinct in 1996. The percent of accumulated reserves was calculated by dividing the claimed amount for the current year against the total accumulated reserve.

[Table 3-5] The disparity of reserve between the corporate and self-employed societies (1996)

The corporate societies / The self-employed societies
Hwasung / Seoul 26 Unit / Hanil Synthetic / Jung-up City / Young-Dong Gun
701 % / 586% / 536% / 0% / 0%

Source: HIAIBE (2001), ibid., p. 217.

* Note: Per cent of the reserve = accumulated reserve/current year’ medical costs

The ultimate and best way to solve this fundamental problem is finding a way towards a single-payer scheme and a fair contribution method under which “contribution ability to payment” and, as a result, “better-off pays more and worse-off pays less” was established. In the end, the new contribution methods were introduced in 1998 and 2000, for self-employed and corporate insured respectively. This section looks at the result of the reforms from various equity viewpoints.

Benefit Ratios

The Benefit Ratio is calculated from total amounts of payment to total benefit amounts in order to see the extent or degree of benefit compared to payment of contribution. The formula is as follows:

-Benefit Ratio = Benefit amounts/Contribution amounts

If the benefit ratio is more than 1, according to the above calculation, it means that the amounts of benefit are larger than the amounts of contribution. By contrary, ifless than 1, it means the insured pays more contribution than the eventual benefit. Thus, if the benefit ratio of low-income classes is higher than that of higher income classes, or the amount of benefit is more than those of the contributions, it suggests that income redistribution effects exist from the rich insured to the poor insured.

As table 3-6 show, the benefit ratio for the self-employed shows that there was a lot of income redistribution between lowand high-income groups. While the benefit ratio of the insured that pay a contribution of more than 2 million Won a year was 0.59, that of the insured who pay a contribution of less than 100,000 Won a year was 5.89. Consequently, these figures support the fact that there was a significant income transfer from higher payers of contributions to lower payers. Meanwhile, in terms of the use of medical treatment, low-income groups visit medical institutions more often than high-income classes; the former group’s average frequency of medical treatments a year per capita was 17.52 and the latter was 14.48.

[Table 3-6] Benefit ratio by income brackets: Self-employed (2001)

Cont (in 1000Won) / Frequency / Ages / Cont.*
(yearly) / Cont.*
(capita) / Benefit
(yearly) / Benefit
(Capita) / Medical use
(Capita)** / Benefit Ratio
M / F / Total
<10 / 52 / 110 / 162 / 60.90 / 82822 / 71101 / 488193 / 406374 / 17.52 / 5.89
10-20 / 403 / 392 / 795 / 44.59 / 148353 / 116367 / 452717 / 276449 / 10.17 / 3.05
20-30 / 499 / 236 / 735 / 44.60 / 248501 / 135887 / 571708 / 242861 / 10.87 / 2.30
30-40 / 594 / 173 / 767 / 44.86 / 347435 / 145940 / 728301 / 246504 / 11.70 / 2.10
40-50 / 520 / 90 / 610 / 46.63 / 448953 / 165467 / 820316 / 271127 / 12.05 / 1.83
50-60 / 433 / 73 / 506 / 47.24 / 548187 / 187898 / 866599 / 258819 / 12.62 / 1.58
60-70 / 354 / 41 / 395 / 46.75 / 647158 / 205635 / 907365 / 267088 / 12.13 / 1.40
70-80 / 249 / 34 / 283 / 47.70 / 746816 / 238816 / 946814 / 258203 / 11.74 / 1.27
80-90 / 174 / 29 / 203 / 49.42 / 847732 / 284147 / 885801 / 243491 / 11.15 / 1.04
90-100 / 129 / 17 / 146 / 47.45 / 947992 / 301918 / 1188627 / 306007 / 11.45 / 1.25
100-150 / 262 / 32 / 294 / 49.82 / 1182229 / 378158 / 1119437 / 305589 / 12.87 / 0.95
150-200 / 67 / 4 / 71 / 51.27 / 1701431 / 507220 / 1428199 / 375172 / 14.05 / 0.84
>200 / 31 / 2 / 33 / 50.48 / 2371818 / 816991 / 1405764 / 409342 / 14.48 / 0.59
Total / 3767 / 1233 / 5000 / 46.75 / 491170 / 187316 / 762655 / 270439 / 11.79 / 1.55

* Excluding government subsidy per household.

** Cases of treatment times a year per Capita.

Table 3-7 below shows the analysis results of 2002 for the self-employed. There are almost identical trends and results both in medical use and benefit ratios; the lowest bracket visited 17.02 a year per capita, while the highest income group used 15.25. Undoubtedly, this result means income transference effects exist between high and low income groups. The benefit ratio also shows almost the same results as that of the previous year 2001, showing 7.69 of benefit ratio in the lowest earners and 0.37 in the highest earners.

[Table3-7] Benefit ratio by income brackets: Self-employed (2002)

Cont’(in 1000Won) / Frequency / Ages / Cont’
(yearly) / Cont’
(capita) / Benefit
(yearly) / Benefit
(capita) / Medical use
(capita) / Benefit Ratio
M / F / Total
<10 / 163 / 179 / 342 / 54.0 / 70,054 / 54,998 / 538,741 / 394,847 / 17.02 / 7.69
10-20 / 419 / 293 / 712 / 44.6 / 149,842 / 116,270 / 379,399 / 232,897 / 10.23 / 2.53
20-30 / 372 / 199 / 571 / 45.8 / 254,314 / 143,060 / 598,466 / 270,633 / 11.54 / 2.35
30-40 / 480 / 155 / 635 / 45.3 / 355,248 / 180,748 / 684,766 / 264,558 / 12.01 / 1.93
40-50 / 445 / 107 / 552 / 45.9 / 458,952 / 193,766 / 736,724 / 262,563 / 12.19 / 1.61
50-60 / 318 / 62 / 380 / 46.9 / 550,453 / 202,479 / 793,247 / 242,790 / 12.46 / 1.44
60-70 / 444 / 75 / 519 / 46.5 / 648,165 / 231,043 / 835,355 / 250,801 / 12.09 / 1.29
70-80 / 268 / 50 / 318 / 47.5 / 757,124 / 269,219 / 959,689 / 286,533 / 12.14 / 1.27
80-90 / 212 / 20 / 232 / 48.2 / 853,583 / 263,197 / 1000472 / 280,850 / 12.94 / 1.17
90-100 / 175 / 19 / 194 / 50.0 / 954,751 / 318,015 / 883,711 / 265,373 / 13.26 / 0.93
100-150 / 355 / 44 / 399 / 51.1 / 1,204,938 / 384,588 / 1231303 / 361,005 / 13.64 / 1.02
150-200 / 87 / 8 / 95 / 50.2 / 1,728,351 / 669,281 / 897,886 / 283,622 / 14.60 / 0.52
>200 / 48 / 3 / 51 / 54.3 / 2,451,798 / 928,975 / 910,808 / 311,158 / 15.25 / 0.37
Total / 3786 / 1214 / 5000 / 47.3 / 538,875 / 214,929 / 740,872 / 277,072 / 12.42 / 1.37

Looking at the benefit ratio for the corporate insured, similarly to the self-employed’s benefit ratio, there wasa high level of income redistribution between high-income and low-income groups. That is, the benefit ratio of lowincome groups who pay less than 100,000Won a year was5.96, while the benefit ratio of high income groups who pay more than 2 million Won a year was at best 0.31 (Table 3-8). In terms of frequency of medical use, however, low-earners use was less frequent compared to high earners (9.89 vs. 12.79 times). The result seemed to relate to the ages of employees and the size of enterprises. These figures might result from a general hypothesis that the relatively young and low earners enjoy better health and small-sized work sites mainly consist of blue-collar workers, for whom frequent medical treatment for their employees can be discouraged compared to larger companies with comparatively older white-collar workers. Like 2001, the result from 2002 shows similar trend (Table 3-9).

[Table 3-8] Benefit ratio by income level: Corporate insured (2001)

Cont(1000 Won) / Frequency / Ages / Cont
(yearly) / Cont
(capita) / Benefit
(yearly) / Benefit
(capita) / Medical
Use(capita) / Benefit Ratio
M / F / Total
<10 / 76 / 70 / 146 / 39.31 / 89,103 / 52,549 / 531,129 / 196,408 / 9.89 / 5.96
10-20 / 537 / 557 / 1,094 / 36.76 / 158,341 / 102,351 / 550,132 / 229,883 / 10.84 / 3.47
20-30 / 866 / 355 / 1,221 / 34.32 / 257,531 / 143,396 / 691,304 / 229,250 / 11.27 / 2.68
30-40 / 659 / 120 / 779 / 36.15 / 358,215 / 162,046 / 975,914 / 299,238 / 12.43 / 2.72
40-50 / 529 / 76 / 605 / 37.51 / 453,693 / 168,747 / 1,113,440 / 285,098 / 13.05 / 2.45
50-60 / 397 / 46 / 443 / 38.53 / 560,558 / 189,301 / 1,319,048 / 314,098 / 14.52 / 2.35
60-70 / 213 / 9 / 222 / 39.87 / 657,817 / 180,524 / 1,253,605 / 280,518 / 15.16 / 1.91
70-80 / 155 / 7 / 162 / 41.25 / 738,896 / 210,770 / 1,296,792 / 298,109 / 14.10 / 1.76
80-90 / 137 / 6 / 143 / 44.50 / 845,502 / 228,304 / 1,364,159 / 284,701 / 13.90 / 1.61
90-100 / 55 / 3 / 58 / 44.55 / 970,301 / 287,668 / 1,134,799 / 263,647 / 13.66 / 1.17
100-150 / 89 / 1 / 90 / 47.43 / 1,191,496 / 350,014 / 1,294,581 / 315,156 / 13.29 / 1.09
150-200 / 21 / 0 / 21 / 47.90 / 1,696,697 / 607,922 / 1,060,293 / 297,823 / 11.50 / 0.62
>200 / 15 / 1 / 16 / 46.88 / 2,760,630 / 830,266 / 865,033 / 235,843 / 12.79 / 0.31
Total / 3,749 / 1,251 / 5,000 / 37.26 / 386,499 / 157,604 / 888,714 / 261,957 / 12.23 / 2.30

[Table 3-9]Benefit ratio by income level: Corporate insured (2002)

Cont(1000 Won) / Frequency / Ages / Cont
(yearly) / Cont
(capita) / Benefit
(yearly) / Benefit
(capita) / Medical use(capita) / Benefit Ratio
M / F / Total
1 / 23 / 13 / 36 / 42.92 / 85,420 / 54,158 / 550,938 / 221,140 / 12.21 / 6.45
2 / 383 / 409 / 792 / 40.31 / 161,399 / 100,752 / 589,290 / 224,186 / 11.53 / 3.65
3 / 433 / 330 / 763 / 34.67 / 249,542 / 154,536 / 615,872 / 238,119 / 12.06 / 2.47
4 / 677 / 251 / 928 / 35.27 / 353,564 / 188,105 / 817,397 / 261,395 / 12.13 / 2.31
5 / 513 / 146 / 659 / 36.79 / 460,913 / 196,954 / 1,121,259 / 296,057 / 14.21 / 2.43
6 / 421 / 88 / 509 / 38.00 / 560,686 / 207,879 / 1,096,253 / 282,459 / 14.21 / 1.96
7 / 355 / 54 / 409 / 40.14 / 657,965 / 214,382 / 1,311,452 / 316,913 / 15.02 / 1.99
8 / 250 / 34 / 284 / 42.65 / 750,153 / 234,909 / 1,128,136 / 262,853 / 13.99 / 1.50
9 / 185 / 20 / 205 / 44.10 / 836,694 / 250,454 / 1,157,741 / 277,962 / 14.02 / 1.38
10 / 169 / 17 / 186 / 46.78 / 940,140 / 287,643 / 1,261,108 / 294,282 / 14.29 / 1.34
11 / 162 / 12 / 174 / 47.44 / 1,181,179 / 409,294 / 1,196,302 / 301,989 / 13.76 / 1.01
12 / 27 / 4 / 31 / 47.84 / 1,719,155 / 509,040 / 1,133,175 / 324,446 / 14.97 / 0.66
13 / 22 / 2 / 24 / 46.88 / 3,002,250 / 1,148,007 / 798,274 / 215,792 / 10.23 / 0.27
Total / 3,620 / 1,380 / 5,000 / 38.68 / 479,591 / 196,722 / 920,606 / 266,484 / 13.07 / 1.92

Income transfer ratio (ITR)

This section tries to establish the income transfer ratio, using contribution and benefit occupancy ratios. Occupancy ratio is the ratio of each group’s contribution and benefit ratio to total amount of contributions and benefits. This indicatoreasily shows contribution and benefit levels of each class to the total amount of contribution and benefits. Thus, the formula for ITR is as follows:

-Contribution occupancy ratio (COR) = Sum of contribution amount of each group/total contribution amount ×100

-Benefit occupancy ratio (BOR) = Sum of benefit amount of each group/ total benefit amount ×100

-Income transfer ratio (ITR) = Each class’s benefit occupancy ratio/each class’s contribution occupancy ratio

Based onthe above calculations, if the figure of the income transfer ratio is larger than 1, it means positive income redistribution. Therefore, if the income transfer ratio of low income classes is larger than 1, and if that of high-income class is less than 1, it showsthat there is income transfer between high and lowincome classes. The figures of Table 3-10 were calculated from the above tables and show the income transfer ratios. As the following table shows, the figures were similar between the two compared years. That is, the figures of income transference ratios of low-income classes, both in self-employed and corporate insured, were less than 1, while those of benefit occupancy ratios of low-income groups were more than 1. All the mentioned figures, therefore, suggest that income redistribution effects were reinforced by the reforms of NHI integration.

[Table 3-10] Income transfer ratios

Classifications / COR / BOR / ITR
2001 / 2002 / 2001 / 2002 / 2001 / 2002
Self-employed / Lowest-income group
Highest-income group / 0.81 / 0.67 / 4.13 / 5.15 / 5.10 / 7.69
23.10 / 23.49 / 11.90 / 8.72 / 0.52 / 0.37
Corporate / Lowest-income group / 0.82 / 0.78 / 3.95 / 4.31 / 4.82 / 5.53
Highest-income group / 25.71 / 27.40 / 6.43 / 6.25 / 0.25 / 0.23

3. 3. Efficiency

Inefficiency issues didn’t abate at all before the integration due to the multi-fund systems. Indeed inefficiency problems were so prevalent that almost all criticisms of health insurance tended to relate to inefficiency: from inefficiency in management due to the multi-payer structure to inefficiency in cost containment.