Korean Health Care System and the Evolution of National Health

Insurance by

Bong-Min YANG, Ph.D

Professor of Health EconomicsDirector, Center for Economic Evaluation

Seoul National University

April 23, 2010

Welcome!

Visitors from Indonesia

Welcome to Korea• Country with clearly distinct four seasons

– Antonio Vivaldi (1678-1741) might have composed a much higher dimensioned ‘the Four Seasons’ if he had had a chance to visit Korea during his time

• Surrounded by three oceans, East Sea, West Sea, and South Sea– A lot of fishes – And dishes with raw fishes, you got to taste

• Populated by very diligent people, who transformed the war-devastated country to one of the most prosperous countries in Asia in just four decades– In 1963, Korea’s real per capita GDP was still under US$1,600, which

was only two-thirds of that of the Philippines, and was about the same level of Mozambique, Niger, Sri Lanka, and Cameroon (Penn Table, various years)

– It is now over US$20,000

• Peoples’ enthusiasm on human capital investment is one of the top, if not THE highest, in the whole world– Most elementary school kids take extra curriculum lessons –

music, art, foreign language, math, science, …..– No need to ask about junior high and high school kids – Many of them go to English speaking foreign countries

eventually to enter Ivy-league schools, Stanford, Berkeley, Chicago, Juilliard, Harvard, ….. . They go abroad with mom only, while dad working at home

– Parents sacrifice nearly everything for kids on receiving good education. The level of their passion is beyond one’s imagination

• “Two South Korean high schools score high on ivy league acceptances” (Newsweek, August 25, 2008)

• A country with little natural resources, but with abundant high skill human capitals

Korea, South

• The only country in the globe ………..• A country with

– 48 million population (12 million in Metro Seoul)– Many popular soap operas (beauties with ………)– Culture of Ppali Ppali– Multiple social classes: businessmen at the top, …., and

politicians at the bottom (perception by the general public, but completely reversed perception by the politician themselves)

Do not go back home!

• Without shopping at Dong-dae-moon Market, Nam-dae-moon Market

• Without seeing the Kyung-bok National Palace• Without eating Kim-chi and Dyun-jang Chi-gae

(only $5 at local restaurants)• Without seeing the Sorak Mountain and the East

Sea (1N 2D excursion, total costs about US$100, including bus transportation & motel sleeping)

Beginning of Modern Health Policy

• Modern HP(health policy) was conceived by a blue print for the Korean health insurance system, the Health Insurance Act of December 1963

• When Korea’s per capita GDP was still under US$1,600 • as said, was about the same level of Mozambique,

Niger, Sri Lanka, and Cameroon (Penn Table, various years)

Evolution of Modern KHCS (Korean Health Care System)

• Introduction of first SHI (social health insurance) program for corporate employees, 1977

• National health insurance (NHI) achieved, covering the whole population, July 1989

• Various policy measures taken in financing, service delivery, and cost (fee schedule and administration costs) control by the K-NHI

• That is, HPs have been continuously evolved in the process of K-NHI development and maturity

• People’s access to health care has been continuously improved

Health Care System

• Social health insurance (SHI)– covers 96% of population: premium financed– rest 4% by Medicaid: tax financed

• Dominant method of payment/reimbursement– fee-for-service

• Almost free choice of providers– weak referral channel

• Dominant private sector– share of private hospitals: >90% of all hospitals– share of private beds: 77% of all beds– clinics: all private

Discussion

• Unlike other industrialized countries, there has not been much planning of public’s health at the government side over the last five decades

• The only exception was the evolution of NHI• Korean HCS is shaping up through the experiences

of NHI• Partially thanks to the NHI and related HPs, the

public is in better health, and is better aware of the health issues now than ever before

Korean NHI (KNHI)

• Single payer system: NHIC

• Financing by premiums (partially by government general revenue)

• Limited coverage of services: MRI (covered by case by case), Ultrasono, some expensive therapies not covered by NHI

• Abundance in new medical technologies– per capita possession of medical equipments among the

countries in the world (OECD, September 2004)

– CT 2nd, MRI 8th, Lithotripters 3rd, Mammographs 6th, Haemodialysis 5th , over 40 PETs

Characteristics of Korean System

• Under the social health insurance framework

• While some (needed but expensive) services are not covered

• Dominant profit-seeking private sector is

• Reimbursed by the FFS

• Under the environment of – weak referral channel &– abundant new medical technologies

Health Insurance Policy Reforms

• Facing equity and efficiency issues in health service delivery, four major health policy reforms had been introduced over the years – Separation of prescribing and dispensing of drugs (SP:

Separation Policy), January 2001

– Consolidation of insurance funds, July 2000

– Use of economic evaluation evidence in NHI’s drug reimbursement decisions: January 2007

– Long-term care social health insurance, July 2008

• However, many health care financing/delivery issues still remain

A Tale of South Korea

• South Korea achieved NHI in 1989, covering the whole population

• NHI based on the solidarity principle• Korean experience leads us to a conceptual

framework that a developing country may consider to use

• It is an experience-based conceptual framework, rather than a concept-based theoretical framework

Three Questions

• What made the country go for the SHI?

• How did the process toward universal coverage go?

• Was achieving universal coverage the end?

Factors Contributing to SHI

Korea

Stimuli for the Initiation of Social Insurance

• Social factor– Social equity concern from unequal distribution of

wealth– With sustained economic growth, labor’s growing

demand for financial protection from illness• Government factor

– Existence of strong public executive– Public trust on bureaucratic leadership

• Market factor – Sustained economic growth– No dominating private insurance existed

• Political will

Political Will: Confluence of Other Factors

• Peoples demand for improved access to health care• Peoples demand for financial protection in health

spending• Philosophy of solidarity, influenced by society’s

growing concern on social equity• Transition to democracy forced political leaders (both

leading and opposition parties) to advocate the establishment of universal coverage

The Process

Expansion of SHI Programs to Get to NHI

• The first social insurance program (Employee Scheme) began in 1977 – with per capita income of about US$2,500– Stewarded by then President Park, Jung-hee– For firms with more than 500 employees

• Civil Servants/School Employee Scheme started in 1981• Having seen the substantial financial protection benefits by

Employer Scheme and Civil Servant Scheme, the rest of population were eager (motivated) to join the SHI

• Civic societies demanded expansion of insurance coverage for the self-employed and made strong voice

Process and Political Decision

• During the 1988 presidential election campaign, then the leading party candidate, Mr. Noh, T-W, promised to cover the self-employed by 1989– The self-employed was planned to be covered by 1991 – Major hurdle was collection of contributions from those

without solid income base– Mr. Noh was elected, and pushed for the coverage of the

self-employed– Self-employed became covered from 1989 on, and the NHI

achieved

• NHI born in July 1989

Political Will in the Process

• With strong political will to advocate SHI as a means to social stability, universal coverage achieved even ahead of original schedule: 1991 1989

• Democratization process and public’s demand functioned as a basis

• Political leaders in Korea– Understood the value of universal coverage– Recognized the opportunity– Seized it boldly

Government Commitment

• Assumes organizational responsibility

• Pays half of the contributions of the civil servants

• Pays about half of the contributions of self-employed (not well-followed in practice)

• Responsible for contributions of the poor

• Take actions on financial deficits in case of emergency

Establishing NHI, Was it the end?

• No, it was not. It is like a never ending story

• Gaps and problems, in terms of achieving system objectives, encountered

• Health insurance reforms to improve care quality, equity and efficiency initiated

Gaps and Problems Encountered

• Korean NHI system, however, was embedded with many problems with respect to equity and efficiency

• In financing modality– High copayments/coinsurance rates– Many services excluded from SHI coverage– Low level of equity in insurance financing: regressive (Yang et al,

2004)• In administration structure

– High level of administrative inefficiency– Low level of risk pooling with many small sickness funds

• In resource allocation modality (service delivery modality)– Cost escalation with open-ended payment-reimbursement method:

predominantly FFS– Roles of physicians and pharmacists undivided– Extensive adoption/use of new medical technologies

Health Insurance Reforms Followed

• All the problems tackled one by one over time, and some remain in the reform agenda

• Expansion of coverage and lowering copayment rates continuously pursued (change in financing modality)– Copayment rates declining ever since 1989

• Moved from multiple fund system to single payer system for improved risk pooling and greater administrative efficiency, in 2000 (change in administration structure)

• Up to 1998, low economies of scale with large number of small funds (374 funds, each fund covering less than 200,000 beneficiaries)

• To enhance efficiency on insurance management, all funds were merged into a single fund

• Inequity with different premium levels among funds was another reason for consolidation of funds

A Major Reform: Consolidation of Insurance Funds

Consolidation of Insurance Funds : Two Stages

Before Oct. 1998Oct. 1998 – June 2000

(stage one) July 2000(stage two)

Regional HI (227 funds)

CS/SE HI (1 fund)

Corporate HI (145 funds)

NMIC (National Medical

Insurance Corporation)

Corporate HI(145 funds)

NHIC(National

Health Insurance

Corporation)

A Single Payer System Established

• NHIC, a monopsonist with big bargaining

power

• Better risk pooling

• Improved administration efficiency

Proportion of Administration Costs Out-of Total Expenditure

• Corporate insurance program: 5.6% in 1999

• NMIC (Regional & Civil Servant/School

Employee Programs): 7.2% in 1999

• With single payer (NHIC) in 2002-2009,

the average figure is down to 3.3%

Features of Consolidation Process

• Driven by labor unions & consumer organizations

• Government bureaucrats were reluctant in the beginning

• The FKI(Federation of Korean Industry) was against

• The parliament were persuaded by the labor unions and civic

groups, passed the consolidation bill unanimously• Under the pressure of the labor unions and NGOs, the former

president Kim agreed to push the process of consolidation• The process of consolidation is complete

Further Reforms Tried

• Claims review and auditing of providers strengthened

• Area of health promotion, education, and case management added into the health insurance domain in 2004

• Separation Policy implemented in 2001: drug prescription by physicians and dispensing by pharmacists separated (change in resource allocation modality)

Another Major Reform: Separation Policy (SP)

• Separation of prescription and dispensing of

drugs– Law passed in 1994– Planned to be implemented in July 1999– Actually implemented in July 2000

Problems

• lack of safety monitoring in dispensing, no

cross checking

• misuse and excessive use of drugs

• unproductive competition strategy for the

industry-spend a lot for product promotion,

not for R&D

Reform: Single Prescribing-dispensing System (Separation Policy)

• physicians prescribe

• pharmacists dispense

• separation is mandatory for all outpatient

services (including hospitals)

Interesting Features of SP

• Driven by consumer organizations• Providers, pharmaceutical companies,

government, and the parliament not sure if it would happen

• Unprecedented physician strikes• Although further refinements required, physicians

came back & consumers go along with the new rule

• Separation policy is in place

Additional NHI Reforms Considered and Suggested

source: Health Insurance Reform Committee (2004)

• Structure reform: macro reform– Change in reimbursement method: Global budgeting

targeted (in 2012)– Design a separate elderly care system (Long Term Care

Insurance from July 2008)– Change in referral system– Strengthening government role in health care delivery

• Micro reform: management of utilization of new medical technologies– Through the introduction of economic evaluation into

reimbursement decisions (underway from January 2007) (to be studied in a separate session)

Discussion

• The principal implementation approach taken by Korea was– Start the universal coverage first

– Identify the gaps and problems in achieving equity and efficiency

– Try to fill the gaps and solve the problems through reforms

• Korea would not have achieved even the universal coverage (not alone the various reforms that followed) if we were to meet all the pre-requisites for universal coverage in advance

Political Economy of Universal Coverage

• Health reforms are often very difficult– Due mainly to the presence of empowered provider groups

• However, universal coverage and the single payer system work as a leverage in bringing about desirable changes in health care system

• With substantial amount of resources being poured into NHI – The insurer (health authority) now possess monopsonistic

power – This provides NHI system with a reasonable bargaining

position against monopolistic organized medicine (medical professionals)

– Which enables the system move forward for health system reform

Political Economy (2)

• In the absence of universal coverage, successive reforms taken after universal coverage would not have been possible

Remaining Issues with Korean Health Care System

• Reform in payment-reimbursement method

• Strengthening public provider capacity

• Establishing patient referral channel - family doctor

program

Elements of Universal Coverage:Summary

• First, political will toward universal coverage• Second, government financing commitment for the

vulnerable population• Third, technical support in planning and

implementation, and effective administrative capacity• Fourth, followed by amendment and refinement of

the system for expansion of coverage • Fifth, as health care becomes costly under universal

coverage, various structure reforms for long-term sustainability are being tried

Lessons

Possible Lessons Drawn for DCs• Once a society realizes that societal health goals

(better health status, financial risk protection, health equity) can be achieved through SHI (as a means)– Such a concept has to be shared among the public– Has to be expressed as strong political will

• Start with a firm political will• For developing countries, government commitment in

terms of financing is a pre-requisite, particularly for the vulnerable population groups

• Even low income countries can go to universal coverage with – strong political commitment – government financing for vulnerable population groups– administrative capacity

Lessons (2)

• Important to have technical support in planning and implementation– Government bureaucrats– Researchers in academia– Foreign experts

• For example, technical experts examine financing context in planning– income distribution, tax base, proportion of the poor, HH

distribution of employment status, and government ability to collect tax (contributions)

• Technical experts help design financing model, service delivery model, and administrative capacity

Lessons (3)

• Determine financing and service delivery modality of your own– Modalities of two nations would hardly be the same

• Establish implementation strategies. For example, – Gradual approach (employment sector first, then the self-

employed)

– Motivate people to join (make people willing to make voice and to pay)

– Use general revenue as a reserve for incentive offering and equity promotion

• Should achieve universal coverage before the development of private health insurance in the system

Lessons (4)

• Could have changes in service delivery and/or financing modality (if necessary, for sustainability) when time is ripe, i.e., when SHI possesses reasonable bargaining power against professional provider groups, a strong stakeholder in health care delivery– Often countries begin SHI with existing structure (for

example, FFS) which is hardly suitable for accommodating universal coverage in the long run

– Various reforms need to follow • Along with the stages of SHI development, a

fundamental base is the existence of firm political will toward SHI and universal coverage, which is necessary to overcome various obstacles during the course