Elsevier

Health Policy

Volume 108, Issue 1, November 2012, Pages 76-85
Health Policy

Private health insurance in South Korea: An international comparison

https://doi.org/10.1016/j.healthpol.2012.08.011Get rights and content

Abstract

Objectives

The goal of this study is to present the historical and policy background of the expansion of private health insurance in South Korea in the context of the National Health Insurance (NHI) system, and to provide empirical evidence on whether the increased role of private health insurance may counterbalance government financing, social security contributions, out-of-pocket payments, and help stabilize total health care spending.

Methods

Using OECD Health Data 2011, we used a fixed effects model estimation. In this model, we allow error terms to be serially correlated over time in order to capture the association of private health insurance financing with three other components of health care financing and total health care spending.

Results

The descriptive observation of the South Korean health care financing shows that social security contributions are relatively limited in South Korea, implying that high out-of-pocket payments may be alleviated through the enhancement of NHI benefit coverage and an increase in social security contributions. Estimation results confirm that private health insurance financing is unlikely to reduce government spending on health care and social security contributions. We find evidence that out-of-pocket payments may be offset by private health insurance financing, but to a limited degree. Private health insurance financing is found to have a statistically significant positive association with total spending on health care. This indicates that the duplicated coverage effect on service demand may cancel out the potential efficiency gain from market initiatives driven by the active involvement of private health insurance.

Conclusions

This study finds little evidence for the benefit of private insurance initiatives in coping with the fiscal challenges of the South Korean NHI program. Further studies on the managerial interplay among public and private insurers and on behavioral responses of providers and patients to a given structure of private–public financing are warranted to formulate the adequate balance between private health insurance and publicly funded universal coverage.

Introduction

How to balance private–public finances to promote financial sustainability of a health care system has been a major component in many health care reforms. In particular, countries with universal coverage perceive private insurance as a complementary resource to assist public funding [1], [2], [3], [4], [5]. Although there is considerable cross-country variation in the way that private health insurance functions within the publicly funded system, the rationale for these countries to include a role for private health care stands firm on the common ground: private health insurance may create market incentives for providers, patients and insurers to be more concerned with cost and quality of care than would otherwise be the case [6], [7], [8], [9]. On the other hand, it is plausible that private insurance may undermine equity of access to care, which is the essential value of universal coverage. Thus, in countries with universal coverage, such as South Korea, private insurance markets operate in a heavily regulated fashion. There is, however, no solid evidence to substantiate whether private insurance involvement produces a net benefit or loss in terms of quality of care, equity, and most controversially, cost efficiency [10], [11].

The goal of this study is to examine the balance of private–public funding in health care financing, with a special focus on the South Korean National Health Insurance (NHI) system. Using the Organisation for Economic Co-operation and Development (OECD) Health Data from 2011, we empirically test the impacts of private health insurance payments on different funding sources: government spending on health care, social security contributions, and out-of-pocket payments. We further examine whether the private health insurance payment helps mitigate the burden of total health care expenditure increase. To control for country-specific heterogeneities, we apply the panel fixed-effects model with the serial correlation correction. From these empirical analyses, we aim to draw policy implications on the recent debates about the expansion of private health insurance in South Korea.

The remainder of this paper is organized as follows: Section 2 introduces the institutional background of the South Korean health insurance system. The historical and policy frameworks of private health insurance in South Korea are presented within the context of the South Korean National Health Insurance (NHI) program. Section 3 describes data, hypotheses and estimation methodology. Section 4 reports empirical findings and Section 5 concludes with suggestions for further studies and implications on the public–private partnership in the South Korean health care financing.

Section snippets

Institutional system of the South Korean health insurance

The primary frame of the South Korean (henceforth, Korean) health insurance system is the National Health Insurance (NHI) program. The NHI program was launched in 1963 by the Medical Insurance Act for the purpose of building up a social safety net for the health care needs of all Korean citizens. In 1977, mandatory participation in the NHI program was applied to firms with 500 or more employees, forcing firms to subsidize half of the NHI contributions for their employees. The remaining half of

Estimation methods

To evaluate possibilities of how the expansion of private health insurance may alter the shape of Korean health care financing, we used the OECD Health Data 2011, the information of thirty member countries over the period of 1980–2007. In specific, we identify four questions to be tested, as follows: whether private payers may crowd out public financing, either (1) government spending or (2) social security contributions; and whether private health insurance may help (3) counterbalance

Findings

Table 3 presents the results from the panel fixed effects estimation of the relationships between PHI and government spending on health care (GOV_HC), showing no statistically significant10

Discussion

In this study, we empirically examine the validity of arguments on the expansion of private health insurance in the Korean NHI system. Hypothetically, the expansion of private insurance may provide various benefits to the public insurer and the general population. The insufficient ranges of benefit coverage, high proportion of out-of-pocket payments, and fiscal challenges of the Korean NHI plan seem reasonable bases to favor the empowerment of private insurers.

This study, however, finds limited

Acknowledgments

I thank the Center for East Asian Studies at Stanford University for its generous support of this research. I am especially indebted to Karen N. Eggleston, Asia Health Policy Program director at the Walter H. Shorentein Asia-Pacific Research Center, Stanford University, for her insightful comments and encourgement.

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