Health Care Financing in Korea

1. Health Care Financing in Korea April 2010 Soonman KWON, Ph.D. Professor Department of Health Policy and Management Seoul National University, South Korea (http://plaza.snu.ac.kr/ S. Kwon: Health Care Financing

2. ROAD MAP 1. Fundamentals of Health Care Financing 2. Major Source of Financing 3. Population Coverage and Benefit Coverage 4. Single Scheme vs. Multiple Schemes 5. Governance 6. Purchasing and Regulation S. Kwon: Health Care Financing

3. I. Fundamentals of Health Care Financing 1. Amount of Resources Health expenditure per capita % of government budget to health care: government commitment to health care % of GDP (Gross Domestic Product) on health: 2.4% (Pakistan), 3% (Indonesia, Lao PDR, Philippines), 4% (Malaysia, Thailand), 4.8% (India), 5.4% (Vietnam), 5.6% (China), 6% (Mongolia, Korea, Taiwan), 8% (Japan) S. Kwon: Health Care Financing

4. Per Capita Health Expenditure at average exchange rate (WHO SEARO data, 2007) S. Kwon: Health Care Financing

5. Health care resources/expenditure depends on • Income or economic development • Political will and commitment • System of resource allocation (health care financing mechanism) -> Not only how much, but also how (how effectively) to spend on health care (or invest in health) S. Kwon: Health Care Financing

6. S. Kwon: Health Care Financing Data: WORLD HEALTH STATISTICS 2009, WHO

7. 90 Japan Australia Singapore New Zealand 80 Republic of Korea Brunei Darussa China Cook Islands Maldives Philippines Malaysia Viet Nam Sri Lanka 70 Thailand Tonga Fiji Vanuatu Indonesia Samoa Solomon island North Korea Bangladesh India Mongolia Bhutan Nepal Papua New Guin Lao People's D Cambodia 60 Myanmar 50 2 4 6 8 10 health E as % of GDP life expectancy at birth Data: WHO, WORLD HEALTH STATISTICS 2009 S. Kwon: Health Care Financing

8. 2. Source (Mix) of Financing Redistribution across health risks (between the sick and the healthy) Redistribution across income groups (between the poor and the rich) 1) Public financing: pooling over income and health risks Taxation: - Progressive (tax ‘rate’ increases with income, i.e., higher tax rate for higher income groups, e.g., income tax); - Regressive (tax ‘rate’ decreases with income, e.g., consumption tax) SHI (Social Health Insurance): insurance contribution (premium) proportional to income in general S. Kwon: Health Care Financing

9. 2. Source of Financing (continued) 2) Private Financing Private health insurance: pooling over health risks, but no income re-distributive effect due to risk-based premium (premium is based on risk, or the sick pay higher premium) Out-of-pocket (OOP) payment: no risk pooling, regressive S. Kwon: Health Care Financing

10. 2. Source of Financing (continued) • Evaluation Criteria (which type of financing is better?) - Efficiency in risk spreading/sharing (financial protection against medical expenditure) -> Prepaid scheme (tax, SHI, private insurance) is more efficient than OOP payment at the point of service - Equity in payment for health care (the better off should pay more for same benefits, protecting the poor) -> Public source of financing is more equitable than private source S. Kwon: Health Care Financing

11. Health Expenditure as a % of GDP S. Kwon: Health Care Financing

12. X: Public Exp on H/THE (Total H Exp); Y: OOP/THE india Viet nam Philippines China Republic of Korea Thailand Japan Mongolia S. Kwon: Health Care Financing

13. Japan Republic of Korea Mongolia China Viet nam Thailand Philippines india X: Tax/THE (Tot H Exp); Y: SHI/THE S. Kwon: Health Care Financing

14. 3. Two Additional Source of Financing in Low-income Countries • CBHI (Community Based Health Insurance) Not-for-profit insurance, targets informal sector, community participation • Advantages • Responsive to community needs • Improved awareness on prepaid financial scheme • Potential to develop into larger arrangements S. Kwon: Health Care Financing

15. 3. Two Additional Source of Financing in Low-income Countries (continued) • CBHI (continued) b. Limitations • Limited risk pooling and low financial sustainability -> may need re-insurance or risk adjustment • Limited impact on health care delivery: limited financial leverage of an insurer • Financial barrier for the poor to join • Voluntary enrollment: adverse selection, but may not be a serious problem • Can be a barrier to be integrated into a bigger risk pool in the long-run S. Kwon: Health Care Financing

16. 3. Two Additional Source of Financing in Low-income Countries (continued) 2) Donor Funding Substantial in some low-income countries Bangladesh (16.1%); Cook Islands (22.6%); Lao PDR (19%); Myanmar (8.5%); Nepal (15.2%) General budget support (compared to ear-marked project or those directly implemented by donors) can be more efficient because recipient country can make a decision on allocation S. Kwon: Health Care Financing

17. 3. Two Additional Source of Financing in Low-income Countries (continued) 2) Donor Funding (continued) Challenges • Absorptive capacity: capacity and infrastructure in policy and management of recipient countries • Uncertainty/Predictability: political and economic situation of donor countries • Sustainability of health care system (when the donor funding ends) • Challenges for the health sector in case of general budget support (GBS) instead of support for health projects: MoH needs capacity for public financial management because GBS is funded through the MoF S. Kwon: Health Care Financing

18. 3. Two Additional Source of Financing in Low-income Countries (continued) Health Equity Fund in Cambodia (and Lao PDR) (Bigdeli and Annear, 2009) - Reimbursement for poor patients for transport and food costs and free care at government health facilities - Fund management at district level by a local agent (independent NGOs, local HEF committees or local social institutions such as faith-based organizations) - Facilities are reimbursed monthly by the HEF scheme for forgone user fees for poor patients. - Funding from donors and government funds, pooling at district level to purchase public health services for the poor: Mix of tax and donor support S. Kwon: Health Care Financing

19. II. Major Source of Financing 1. Mixed Financing No pure SHI or pure Tax-based financing in Asia - Contribution-based scheme for employees - Tax financing for the poor Question: how to cover the informal sector? Should consider • nature of the informal sector • cost of assessing income and collecting contribution • fiscal burden on government (social cost?) S. Kwon: Health Care Financing

20. 2. Health Care Financing in Korea • Contribution of employees: proportional to income, and contribution is shared equally by the employer and employee (Employees in small business with less than 5 workers were enrolled in self-employee health insurance scheme until 2000) • Contribution of the self-employed - Property part: property and vehicle - Income part: taxed income or estimated income (property, vehicle, age, sex) S. Kwon: Health Care Financing

21. Mixed systems of health care financing in Korea - Partial subsidy to the self-employed (started with the half of their contribution, but reduced incrementally) -> no pure contribution scheme for the informal sector in Asia - Full subsidy to the poor: Medical Aid Program Mixture of SHI and NHS in Korea - Single payer (uniform benefits, uniform payment to providers and centralized claim review) - Contribution as an ear-marked proportional income tax, with exemption for the poor Limited role of the public sector in health care delivery in Korea affected the decision to choose the model of SHI rather than NHS S. Kwon: Health Care Financing

22. III. Population Coverage and Benefit Coverage • Population Coverage • Incremental Approach In 1977, firms with > 500 employees In 1979, public employees and teachers and firms with > 300 employees In 1981, pilot program for the self-employed in 3 rural areas In 1982, pilot program for 1 urban and 2 rural areas In 1983, firms with > 16 employees In 1988, all rural self-employed In 1989, all urban self-employed (Universal Coverage) S. Kwon: Health Care Financing

23. b. Family-based membership: dependents of industrial workers are covered by employee health insurance -> squeeze from the top 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 Capacity for premium assessment and collection and system administration: - Contribution of the self-employed is based both income and asset (wealth) - Capable and hard-working bureaucrat S. Kwon: Health Care Financing

24. 2. Benefit Coverage Need to start with basic benefit package and incrementally expand benefits Policy Priority on extending population coverage in Korea: too extensive benefit coverage and high premium can be a barrier to the extension of population coverage Coverage of outpatient care from the beginning in Korea: provided enrollees with more opportunities to experience the benefits of SHI -> Can minimize drop outs and maximize social marketing on SHI S. Kwon: Health Care Financing

25. IV. Single Scheme vs. Multiple Schemes • Comparative Advantages a. Single scheme • Better risk pooling and financial sustainability • Potential inefficiency or lack of responsiveness ? (but there is rarely consumer choice among plans in multiple schemes in low-income countries, anyway) b. Multiple schemes - Inequity and social stratification in case of different benefit coverage across schemes: benefit coordination can be difficult due to oppositions by enrollees (who enjoy generous benefits) - Difference in risks and fiscal capacity of schemes -> need risk adjustment across funds S. Kwon: Health Care Financing

26. 2. Single Payer in Korea a. Before the merger of plans in 2000, three types of schemes (about 350 insurance societies) existed for Public employees and teachers; Private-sector (industrial) workers; Self-employed Risk adjustment across schemes based on catastrophic expenses and the proportion of the elderly, but some (especially rural) insurance societies experienced fiscal instability and chronic deficits b. Even before the merger in 2000, Korean SHI functioned as a single scheme - Uniform statutory benefit coverage across plans - Uniform payment system to health providers - Claim review by a central agency S. Kwon: Health Care Financing

27. V. Governance • Specialization and Coordination a. Social Security Agency covering all types of SHI: efficiency in premium collection, but with limited capacity and expertise to deal with medical providers -> leads to limited capacity of purchasing -> independent SHI agency can be a better option (premium collection can be contracted out) b. Health insurance governed by multiple government ministries such as Ministry of Health, Ministry of Labor, Ministry of Family, or Ministry of Finance -> can lead to coordination failure and bureaucratic politics S. Kwon: Health Care Financing

28. 2. Governance of Health Insurance in Korea a. In Korea, social health insurer is an independent quasi-public organization, under strong supervision by the Ministry of Health and Welfare (MOHW) b. Strong role of a single ministry, MOHW, can avoid the potential coordination problem across ministries, and help health insurance serve the goal of health policy (health insurance as an essential tool of health policy in Korea) c. Social health insurer in Korea is divided into two organizations based on their functions: NHIC (National Health Insurance Corporation) and HIRA (Health Insurance Review and Assessment) -> pros and cons S. Kwon: Health Care Financing

29. VI. Purchasing and Regulation • Role of Purchasing and Regulation a. Regulation, purchasing and payment (fee regulation) to health care providers is critical for financial sustainability and quality of care: information asymmetry and consumer ignorance in health care b. For effective purchasing, health insurer (purchaser) needs to increase its bargaining power through - Increase in population coverage and benefit coverage - Pooling of funds (e.g., reducing the role of state budget allocation to public providers, and instead channeling it to the health insurer in the form of premium contribution) S. Kwon: Health Care Financing

30. 2. Health Care Delivery in Korea • Characteristics of health care delivery (Problems of private-dominated delivery) • For-profit nature: most hospitals are profit- making and owned by physicians (KMA and KHA are strong allies) • Physician clinics have inpatient facilities and hospitals have huge outpatient clinics <- competition and duplication <- both paid by fee-for-service • No gate-keeping, most practicing physicians are specialists S. Kwon: Health Care Financing

31. Problems of Fee-for-service payment (for providers) with fee scheduling a. Increase in volume and intensity b. Substitutions (due to uneven margins) of - drugs and medical supplies for physician’s own services - more profitable services (e.g., C-section rather than normal delivery) - uninsured for insured services (e.g., high-technology medical equipment) - distortion in the physician supply by specialty S. Kwon: Health Care Financing

32. 3. Purchasing and Regulation and Korea a. Korea used single (pooled) purchasing even before the merger of insurance schemes in 2000 thanks to centralized claim review and uniform fee schedule to providers, enforced by the Ministry of Health, Welfare and Family b. Korean government mandated all health care providers to participate in health insurance program (providers cannot deny SHI patients) -> contributed to better access for patients But SHI may now need to consider selective contracting with providers based on their performance of cost and quality (Korea has enough supply of health providers now) S. Kwon: Health Care Financing

33. c. Fee regulation to all (public and private) health care providers in Korea contributed to - overall health care cost containment - rapid extension of population coverage At the beginning of health insurance, health providers in Korea accepted fee regulation because they were able to charge market (unregulated) price to the uninsured -> should adopt fee regulation at an early stage of health insurance development d. Regulated fee-for-service system is still inefficient because of its volume effect Pilot programs of DGR-based prospective payment system showed positive results on cost and quality, but strong oppositions by providers has been a stumbling block to its extension to all providers S. Kwon: Health Care Financing

34. <READINGS on Health Care in Asia> Dorjsuren Bayarsaikhan, Soonman Kwon and Aviva Ron, “Development of Social Health Insurance in Mongolia: Successes, Challenges and Lessons,” International Social Security Review (58:4), 2005. Robin Gauld, Michael D Barr, Tung-liang Chiang, Derek Gould, Naoki Ikegami and Soonman Kwon, “Advanced Asia’s Health Systems in Comparison,” Health Policy, Vol. 79, 2006, 325-336. Jui-fen Lu, Gabriel M Leung, Soonman Kwon, Keith YK Tin, Eddy van Doorslaer, and Owen O’Donnel, “Horizontal Equity in Health Care Utilization – Evidence from Three High-income Asian Economies,” Social Science and Medicine (64:1), 2007. O'Donnell, O., E. van Doorslaer, R. Rannan-Eliya, S. Kwon, et al. ,“Who Pays for Health Care in Asia?”Journal of Health Economics (27:2), 2008, 460-475. S. Kwon: Health Care Financing

35. <READINGS on Korean Health Care System> Soonman Kwon, “Thirty years of National Health Insurance in Korea: Lessons for achieving universal health care coverage,” Health Policy and Planning (24:1), 2009. Soonman Kwon, “Future of Long-term Care Financing for the Elderly in Korea,” J. of Aging and Social Policy (20:1), 2008. Soonman Kwon, “Fiscal Crisis of the National Health Insurance in Korea: In Search of a New Paradigm,” Social Policy and Administration (41:2), 2007. Soonman Kwon and Ian Holliday, “The Korean Welfare State: A Paradox of Expansion in an Era of Globalization and Economic Crisis?” International J. of Social Welfare (16:3), 2007. Soonman Kwon and Michael Reich, “The changing process and politics of health policy in Korea,” J. of Health Politics, Policy and Law 30:6, 2005. S. Kwon: Health Care Financing

36. Soonman Kwon, “Payment system reform for health care providers in Korea,” Health Policy and Planning 18:1, 2003. Soonman Kwon, “Pharmaceutical reform and physician strikes in Korea: Separation of drug prescribing and dispensing,” Social Science and Medicine 57:3, 2003. Soonman Kwon, “Health care financing reform and the new single payer system in Korea: social solidarity or efficiency?” International Social Security Review 56:1, 2003. Soonman Kwon, “Quality of life associated with health and health care in Korea,” Social Indicators Research 62-63, 2003. Soonman Kwon, “Globalization and health policy in Korea,” Global Social Policy 2:3, 2002. Soonman Kwon, “Economic Crisis and Social Policy Reform in Korea,” International Journal of Social Welfare (10:2), 2001. S. Kwon: Health Care Financing

37. THANK YOU ! Prof. Soonman KWON kwons@snu.ac.kr (Seoul National Univ.) http://plaza.snu.ac.kr/~kwons (Homepage) S. Kwon: Health Care Financing