Encouraged by the electoral success of its free school meal program last year, the main opposition Democratic Party has recently unveiled a plan to offer free medical services for the entire population. The scheme, together with the party’s proposals for free child care and halved college tuition fees, is fueling a growing debate on welfare.
The DP’s health care plan calls for raising the coverage of medical bills by the National Health Insurance from the current 62 percent to 90 percent over the next five years. It would also lower the ceiling for out-of-pocket payments by patients from the current 4 million won to 1 million won, while extending the NHI’s reach to cover some 2.4 million low-income people who are currently excluded from it.
The DP projected its new proposal would increase the NHI’s annual expenditure by 8.1 trillion won. This spending growth, it said, can be covered by collecting more premiums from employees at companies and by expanding the government’s fiscal support.
The opposition party’s scheme comes at a time when calls for health care reform are growing. Korea’s health insurance system has been touted as an efficient, low-cost program to provide health care to the public. But it has limitations, including high patient co-payments, a wide range of non-covered services, and the exclusion of low-income people who cannot pay into the insurance scheme.
The DP’s proposal is intended to address these weaknesses. But the problem is that the sustainability of the health insurance system is in question even at the current level of coverage. On Jan. 3, the National Health Insurance Corp. reported it ran a 1.3 trillion won deficit last year.
This year’s deficit is expected to be cut to 500 billion won thanks to a 5.9 percent increase in contributions. But budget shortfall is forecast to snowball down the road due to rapid population aging, expansion of coverage, introduction of expensive medical equipment and demand for better health services. According to a recent study, the NHI’s annual deficit would reach 22 trillion won in 2030 if the current income and expenditure structure is maintained ― even without factoring in the accelerating pace of population aging.
Hence, the current health care system needs reform to curb the rapid rise in spending. The biggest challenge facing policymakers is to reform the current fee-for-service payment system that encourages hospitals to increase the volume of services to patients, even by inducing unnecessary treatments, to maximize profits.
To correct this incentive structure, policymakers need to adopt the “diagnostic-related group” approach that classifies patients according to illness and applies standard treatment charges to patients in the same category. This approach has been found to reduce unnecessary treatment and the length of hospital stays. Currently used for eight illnesses, the DRG payment system needs to be more broadly used to achieve cost savings.
The main hurdle to the shift in payment system is the Korean Medical Association’s opposition to it. The doctors’ organization is concerned that the DRG approach could lower hospital revenues and thereby their incomes. Here the government and the ruling Grand National Party can expect cooperation from the DP because the opposition party’s proposal also calls for a transition to the DRG approach.
Together with the payment system reform, policymakers need to implement other steps that can help curb health spending. For instance, they need to reduce expenditures on drugs, shift long-term care from hospitals to less expensive care, promote healthy aging, and introduce the general practitioner system.
DP leaders need to realize that these spending cut measures need to be implemented first before raising the NHI coverage. Otherwise, the expenditure increase would go out of control, making the health insurance system unsustainable. Focusing on free medical services without seeking to enhance the health care system’s efficiency would be nothing more than a populist policy.