S. Kwon: Merger of HI Funds in Korea 1
Merger of Statutory Health Insurance Funds in Korea
WHO meeting, Oxford Dec 16-18, 2014
Soonman Kwon, Ph.D.
Professor and Former Dean, School of Public Health Director, WHO Collaborating Centre For Health System and Financing Seoul National University, KOREA
S. Kwon: Merger of HI Funds in Korea 2
ROAD MAP
1. Health Insurance System before the Merger
2. Efficiency and Equity Concerns in the Fragmented Health Insurance System
3. Health Care Reform: Merger of Health Insurance Funds
4. Major Stakeholders of the Merger Reform
5. Impact of the Merger Reform
6. Lessons and Policy Implications
S. Kwon: Merger of HI Funds in Korea 3
I. Health Insurance System before the Merger
S. Kwon: Merger of HI Funds in Korea 4
1. Development of Health Insurance toward UHC
a. Incremental extension of population coverage
In 1977, firms with > 500 employees In 1979, public employees and teachers and firms with >
300 employees Pilot programs for the self employed In 1988, all rural self-employed In 1989, all urban self-employed (Universal Coverage of
population)
S. Kwon: Merger of HI Funds in Korea
5
Population Coverage of Health Insurance
98.2%98.5%97.6%
97.6%
93.7%
44.1%
24.2%
8.8%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
1977 1980 1985 1990 1995 2000 2005 2006year
Unit:Thousand person
Population coverage Employee Regional
Number of the Insured 1988 1989 1990 1995 1999 2000 2001
Total 33,196 44,168 44,110 45,429 46,821 47,466 47,882
Health insurance 28,906 39,922 40,180 44,016 45,184 45,896 46,379
Employee Sub Total
22,129 20,982 20,759 21,559 21,717 22,404 23,167
Insured 6,966 6,479 6,511 7,166 6,803 7,268 7,885
Dependents
15,163 14,503 14,247 14,393 14,914 15,136 15,281
Self Employed
Insured 6,777 18,940 19,421 22,457 23,467 23,492 23,213
Medical Aid 4,290 4,246 3,930 1,413 1,637 1,570 1,503
Source: NHIC, Health Insurance Statistics in various years. 6
Economic and Health Indicators in Korea
7
1977 1989 2008
GDP per capita (in USD) 1,042 5,430 20,591 (2010)
Life expectancy 64.8 71 79.9
Mortality (per 100,000 persons) 690 542.3 497.3 (2009)
Infant mortality (per 1,000 births)
38 (average over
1970-75) 12 3.5
No. of physicians per 10,000 persons 5 (1981) 8 19 (2009)
No. of beds per 10,000 persons 17 (1981) 30 78
No. of physician visits per capita 3.7 6.2 13
No. of admissions per capita - 0.06 (1990) 0.13
No. of hospital days per admission 12 14 14.6 (2009)
S. Kwon: Merger of HI Funds in Korea
S. Kwon: Merger of HI Funds in Korea 8
b. Family-based membership in Korea: dependents of industrial workers are covered by employee health insurance
c. Political and Economic Environments in Korea
Mandatory enrollment enforced by authoritarian political regime
Political will, and need for political legitimization
Economic growth: export-driven economic development rapidly increased the employment in the formal sector and reduces the size of the informal sector to be subsidized
S. Kwon: Merger of HI Funds in Korea 9
2. Health Insurance System before Merger
1) Insurance Organization
Before the reform, over 350 not-for-profit Health Insurance Societies for
- Industrial workers HI (36.0% of pop) - Self-employed (regional) HI (50.1%) - Public and school employees HI (10.4%)
Industrial workers: based on employment But employees in small business with less than 5 workers
were enrolled in self-employee schemes until 2000 - To ease the financial burden on the employers
Self-employed: based on regions (residence)
S. Kwon: Merger of HI Funds in Korea 10
2) Contribution
HI societies under heavy regulation by Ministry of Health and Welfare (MOHW): Each fund can determine contribution rate within the range, set by MOHW
Contribution of industrial workers: proportional to income and shared equally by the employer and employee
Contribution of the self-employed: estimated by
property, taxed income, age, number of dependents -> Government provided (partial) subsidy Risk pooling across HI societies based on catastrophic
expenses and elderly population -> Self-employed HI are beneficiaries
Government Subsidy for the Self Employed
Incentive for the informal sector to join - Thanks to the subsidy, contribution of the self
employed was lower than that of employees When health insurance was extended to the self employed
in the late 1980s, government subsidy amounted to the half of financing for the self employed
Over the years, health expenditure increased at a higher
rate than government subsidy - Currently, government subsidy accounts for about 25-
30% of financing for the self employed
11 S. Kwon: Merger of HI Funds in Korea
S. Kwon: Merger of HI Funds in Korea 12
3) Purchasing No competition among insurance societies (each covered
a well-defined population group) HI does not exercise (selective) contracting with
providers: providers are mandated to participate in health insurance
Pooled purchasing (although there are multiple insurers) - No difference in statutory benefit coverage - Uniform payment system (fee schedule) for providers - Centralized claim review agency
S. Kwon: Merger of HI Funds in Korea 13
II. Efficiency and Equity Concerns in the Fragmented
Health Insurance System
S. Kwon: Merger of HI Funds in Korea 14
1. Inequity in Economic Burdens
Different method of setting contribution - between industrial workers and the self-employed - among industrial workers
(difference in contribution base)
Same (statutory) benefit package but different contribution rate across insurance societies
2. Diseconomies of scale (too small in size)
- Inefficient risk pooling - High administrative costs
S. Kwon: Merger of HI Funds in Korea 15
3. Chronic fiscal instability of rural HI for the self employed
- Decreasing population, poor health, increasing proportion of the elderly 4. Heavy regulation and influence of MOHW - Pros: contributed to minimum difference (in
contribution, benefits, payment) across funds - Cons: little role of self-governance (participation of
members), revolving door for senior officers
S. Kwon: Merger of HI Funds in Korea 16
Source of Revenue in Health Insurance for the Self-Employed
0%
20%
40%
60%
80%
100%
1988 1989 1991 1993 1995 1997 1998(Year)
(%)
Contribution Government Subsidy Revenue Sharing Others
Fiscal Status of Health Insurance
(Unit: 100 Million Korean Won)
1988 1989 1990 1995 1999 2000 2001
Revenue
Total 12,833 17,838 24,321 54,354 86,923 95,294 116,423
Contribution (Employee Ins)
9,790 11,325 12,814 22,767 35,789 41,289 52,408
Contribution (Self Employed)
1,165 3,001 6,021 13,240 27,267 30,999 36,154
Gov Subsidy 946 2,205 3,639 7,553 11,656 15,527 26,250
Other Revenue 932 1,307 1,847 11,188 14,213 7,921 1,657
Expenditu
re
Total 10,345 15,459 21,641 50,537 95,614 105,384 140,511
Expenditure 9,175 12,784 19,314 40,209 78,406 90,321 132,447
Admin Costs 1,170 2,675 2,327 4,488 6,795 7,503 7,101
Other Expenses 0 0 0 5,840 10,413 7,560 963
Annual Surplus 2,488 2,379 2,680 3,817 △8,691 △10,090 △24,088
Accumulated Surplus 5,540 6,571 7,326 41,200 22,425 9,189 △18,109 17
S. Kwon: Merger of HI Funds in Korea 18
Proportion of Administrative Expenses (Unit: 100 Million won, %)
1994 1995 1996 1997 1998
HI, Self-Employed 11.7 10.5 10.3 10.4 9.5
HI, Ind. Workers 9.8 8.1 8.0 7.9 7.4
HI, Gov/School
Employees* 5.5 5.0 5.1 4.6 4.8 * Single insurance society Source: National Health Insurance Corporation, Health Insurance Statistics, Various Years (in Korean)
S. Kwon: Merger of HI Funds in Korea 19
III. Health Care Reform: Merger of Insurance Funds
S. Kwon: Merger of HI Funds in Korea 20
1. Merger Process
- In 1999, merge of HI societies for the self-employed
and that for public & school employees
- In July 2000, merge with HI societies for industrial workers -> Completion of administrative merger
- Finances for industrial workers and the self-employed were merged in 2003 -> Fiscal merger
- Nationwide contribution formula: employee contribution is based on income and self-employed contribution is based on income and property
S. Kwon: Merger of HI Funds in Korea 21
2. Insurer Organization a. Social health insurer, National Health Insurance Service
(NHIS), is an independent quasi-public organization - From 2011, contribution of all social security programs
(pension, unemployment insurance, work-place injury) is collected by NHIS
b. Health insurer in Korea is divided into two agencies
based on their functions
- NHIS: premium collection, fund management, reimbursement to providers
- HIRA (Health Insurance Review and Assessment): claim review, assessment of appropriateness of health
care -> Purchaser
S. Kwon: Merger of HI Funds in Korea 22
3. Health Insurance Policy Making
a. Health Insurance Policy Committee
Major decisions on premium contribution, pricing (medical care, pharmaceuticals), benefit packages, etc.
25 members, Vice Minister of HW as the chair - 8 from payers (labor unions, employer associations,
civic groups, etc) - 8 from providers (physician, hospital, dentist,
pharmacist, etc) - 8 from the public interests (MoHW, MoPF, NHIS, HIRA,
4 experts) b. Strong role of a single ministry, MOHW (and its Bureau of Health Insurance), can avoid the potential coordination problem across ministries, and help health insurance serve the goal of health policy
S. Kwon: Merger of HI Funds in Korea 23
IV. Major Stakeholders of the Merger Reform
S. Kwon: Merger of HI Funds in Korea 24
1. President
Critical window of opportunity for policy change opened
1) Change in governments Progressive political ideology of the new president - Emphasis on social policy and redistributive issues - Preferred unified HI system for social solidarity - HI merger was included in presidential campaign agenda
2) Strong presidency - President’s party as the ruling party in National Assembly - Strong party discipline
S. Kwon: Merger of HI Funds in Korea 25
2. Employers and Industrial Workers - Opposition: potential cross subsidy to the self employed
as employee income is more easily assessed - Not active opposition in the reform process due to
economic crisis and corporate restructuring in the late 1990s
3. Self-employed - Farmers have been active supporters of the merger
since HI started - Due to increasing gap between insurance societies in
wealthy and poor areas
S. Kwon: Merger of HI Funds in Korea 26
4. Labor Unions - Labor unions of the HI societies for industrial workers -> opposition to the reform - Labor unions of the HI societies for the self-employed -> support the reform (support the insured in their HI, better prospect for promotion in a nation-wide big organization) 5. Medical Providers - More bargaining power of the insurer -> bad news - Lower possibility of financial insolvency of HI societies
for the self employed in rural areas -> good news
S. Kwon: Merger of HI Funds in Korea 27
6. Academics and Civic Groups Ideology conflict - Progressive academicians in public health and social
welfare: focus on solidarity - Conservative academics in medical care and
economics: focus on efficiency & competition Coalitions of progressive academics, civic groups,
farmers, labor unions (in HI societies for the self-employed) -> social movement
S. Kwon: Merger of HI Funds in Korea 28
V. Impact of the Merger Reform
S. Kwon: Merger of HI Funds in Korea 29
1. Efficiency Decrease in personnel, but less than expected due
to oppositions of labor union
Savings in administrative costs of HI system: decline in the % of administrative costs
Single insurer would have a greater bargaining power as a monopoly purchaser (monopsony) relative to health care providers
- Pooled purchasing even before the merger (identical statutory benefits and provider payment)? - Willingness and incentive of the new single purchaser?
Proportion of Administrative Costs of Health Insurance System
Year 1996 1998 1999 2000 2001 2002 2004 2006 2008
Total Exp.
6,379 8,701 9,610 10,744 14,108 14,798 17,330 22,818 28,273
Admin. Costs
502 639 571 696 629 598 693 779 672
% of Admin. Costs
7.87% 7.34% 5.94% 6.48% 4.46% 4.04% 4.00% 3.41% 2.38%
Source: Health Insurance Statistics (2012) S. Kwon: Merger of HI Funds in Korea 30
S. Kwon: Merger of HI Funds in Korea 31
1. Efficiency (continued) Increased efficiency in risk pooling - Single fund or a small number of larger funds? - Threshold (size) for efficiency gain in risk poling? Arguments of the opponents of the merger: Moral Hazard? - Staff in HI: less effort to collect contribution and to
reduce expenditure - Insured: loss of ownership, less effort to minimize
health care utilization/cost - More difficult to raise contribution in the single insurer -> Little evidence Controversy over fiscal crisis of HI I 2000
S. Kwon: Merger of HI Funds in Korea 32
Fiscal Status of Health Insurance
24,320
56,14466,309
75,54282,297
88,92497,570
117,885
143,053
21,640
50,764
64,64277,951
87,87696,101
106,735
141,075147,985
2,680 5,380 1,667 -2,409 -5,579 -7,177 -9,165
-23,190
-4,932
-40,000
-20,000
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
1990 1995 1996 1997 1998 1999 2000 2001 2002
(Unit: 100 m
illion w
on)
Revenue Expense Surplus
S. Kwon: Merger of HI Funds in Korea 33
2. Equity
Equity in health insurance contribution improved among the self employed after the merger (Park and Park, 2001)
62.2% of the households nationwide experienced a decrease in monthly contribution (on average, by 4,574 Korean won), and 37.8% did an increase in contribution (on average, by 6,749 Korean won) (NHIC, 2000). Merger in the H.I. for industrial workers - 57% pay less: Workers in small firms with less than 10
employees experienced 17% decrease in contribution, while contribution in large corporations with more than 1,000 employees increased by 19.4%
Effect of the New Contribution Schedule on Contribution of Employee H Ins (Simulation), 2000
Standardized
Monthly Income:
Contribution Base
(10,000 won)
Rate of
Change in
Contribution (%)
Average Amount
of Change in Monthly
Contribution (won)
- 52 -41.0 -7,934 52-75 -24.2 -5,588 75-100 -17.6 -5,082 100-126 -11.5 -3,999 126-154 -6.1 -2,492 154-199 3.0 1,371 199-249 9.6 5,311 249-303 15.9 10,232
303- 33.9 29,455 Source: National Health Insurance Corporation, Internal Report, 2000. This table is from p. 82 of Kwon (2003a)
34
Effect of the New Contribution Schedule on Monthly Contribution of Employee Health Ins by Firm Size
(Simulation), 2000 (unit: Korean won, %)
Number of
Firms (%)
Contribution
Base
Contribution Change
Old New Amount of
Change Rate of Change
Total 170,169 (100.0) 1,467,074 40,132 40,132
Small-Sized Firms
Subtotal 145,302 (85.4)
-10 employees 89,082 1,191,643 39,193 32,531 -6,662 -17.0
11~30 employees 56,220 1,182,092 38,515 32,270 -6,245 -16.2
Medium-Sized Firms
Subtotal 23,253 (13.7)
31~100 employees 18,221 1,207,162 37,046 32,955 -4,091 -11.0
101~300 employees
5,032 1,291,921 36,535 35,269 -1,266 -3.5
Large Firms
Subtotal 1,614 (0.9) 301~500
employees 757 1,539,102 38,835 42,017 3,182 8.2
501~1000 employees
482 1,650,426 41,446 45,056 3,610 8.7
1001- employees 375 2,025,506 46,303 55,295 8,992 19.4 35
S. Kwon: Merger of HI Funds in Korea 36
2. Equity (continued) Kakwani index: progressivity of payment Payment of health insurance contribution in 1996-2000 is
regressive (with minus Kakwani index value) but the degree of regressivity decreased over the years (Yang, Kwon, et al., 2003)
In 2006-2100, payment of health insurance contribution is
still regressive but less regressive than the pre-merger years (Choi, 2012)
-> The merger had a positive effect on equity in contribution payment
Trends in Kakwani Index
year General Tax Social Insurance 1996 0.11200 -0.21660 1997 0.11530 -0.22980 1998 0.13650 -0.21210 1999 0.14410 -0.18400 2000 0.15590 -0.16340 2006 Employee 0.13846 -0.00074
Self-employed 0.06665 -0.01741
2007 Employee 0.16250 -0.01259
Self-employed 0.04421 -0.01845
2008 Employee 0.14840 -0.01530
Self-employed 0.02941 -0.01483
2009 Employee 0.15387 -0.01131
Self-employed 0.01878 -0.02219
2010 Employee 0.15986 -0.00828
Self-employed 0.03528 -0.03373
Kakwani Index measures the progressivity of financing. Source: Yang, Kwon, Lee, et al., 2003 (Kakwani index from 1996-2000); Choi, 2012 (Kakwani index from 2006-2010). Both studies used the data of household survey of National Statistical Office. 37
S. Kwon: Merger of HI Funds in Korea 38
VI. Lessons and Policy Implications
S. Kwon: Merger of HI Funds in Korea 39
1. Context of the Merger of HI Funds in Korea
Although it was useful for incremental extension, the
health insurance system based on fragmented insurance funds with limited risk pooling was vulnerable to fiscal instability, and the differential financial capacity among funds harmed social solidarity.
New president with a keen interest in social policy reform,
with alliance of labor unions and progressive civic groups, opened a policy window for the health care financing reform.
S. Kwon: Merger of HI Funds in Korea 40
1. Context of the Merger of HI Funds in Korea (continued)
Health insurance development was driven by the
government from design to implementation -> Lead to minimum difference across insurance funds (in terms of contribution, benefits, provider payment) Rapid extension of population coverage and relatively
short history contributed to the merger -> vested interests associated with different schemes
were still not so strong
S. Kwon: Merger of HI Funds in Korea 41
2. Discussions Efficiency in risk pooling can be achieved not necessarily
by a single insurer but also by reasonably big insurers, say, those based on regions
Technical efficiency (minimization of administrative cost)
but a potential allocative inefficiency (little incentive to be efficient) as a monopoly insurer?
Equity can also be achieved by uniform benefit packages,
contribution setting and provider payment system across insurance funds
- Political feasibility? Pooling of tax and health insurance
S. Kwon: Merger of HI Funds in Korea 42
2. Discussions (continued) Culture and history of decentralization Politics of Change: Political leadership, policy process,
political actors, political costs of reform e.g., Vested interests: enrollees in insurance funds with
generous benefits coverage will oppose the merger of funds toward a single insurer system
e.g., Comprehensive change vs. incremental change:
merging into larger funds with the goal of a single fund in the long run?