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 1
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 2
I. Health Insurance System before the Merger S. Kwon: Merger of HI Funds in Korea 3
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 4
Population Coverage of Health Insurance 50,000 45,000 40,000 93.7% 97.6% 97.6% 98.5% 98.2% 35,000 30,000 Unit:Thousand person 25,000 20,000 15,000 10,000 5,000 0 8.8% 24.2% 44.1% 1977 1980 1985 1990 1995 2000 2005 2006 year Population coverage Employee Regional 5 S. Kwon: Merger of HI Funds in Korea
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 Self Employed Depend ents 15,163 14,503 14,247 14,393 14,914 15,136 15,281 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 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) No. of physicians per 10,000 persons 38 (average over 1970-75) 12 3.5 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 7
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 8
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 9
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 S. Kwon: Merger of HI Funds in Korea 10
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 S. Kwon: Merger of HI Funds in Korea 11
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 12
II. Efficiency and Equity Concerns in the Fragmented Health Insurance System S. Kwon: Merger of HI Funds in Korea 13
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 14
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 15
Source of Revenue in Health Insurance for the Self-Employed (%) 100% 80% 60% 40% 20% 0% 1988 1989 1991 1993 1995 1997 1998 (Y ear) Contribution Government Subsidy Revenue Sharing Others S. Kwon: Merger of HI Funds in Korea 16
Fiscal Status of Health Insurance (Unit: 100 Million Korean Won) 1988 1989 1990 1995 1999 2000 2001 Reve nue Total 12,833 17,838 24,321 54,354 86,923 95,294 116,423 Contribution (Employee Ins) Contribution (Se lf Employed) 9,790 11,325 12,814 22,767 35,789 41,289 52,408 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 Total 10,345 15,459 21,641 50,537 95,614 105,384 140,511 Expe nditu re 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
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 18
III. Health Care Reform: Merger of Insurance Funds S. Kwon: Merger of HI Funds in Korea 19
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 20
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 21
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 22
IV. Major Stakeholders of the Merger Reform S. Kwon: Merger of HI Funds in Korea 23
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 24
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 25
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 26
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 selfemployed) -> social movement S. Kwon: Merger of HI Funds in Korea 27
V. Impact of the Merger Reform S. Kwon: Merger of HI Funds in Korea 28
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? S. Kwon: Merger of HI Funds in Korea 29
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
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 31
Fiscal Status of Health Insurance (Unit: 100 million won) 160,000 140,000 120,000 100,000 80,000 60,000 40,000 21,640 50,764 56,144 64,642 77,951 66,309 75,542 141,075 147,985 106,735 143,053 96,101 87,876 117,885 97,570 88,924 82,297 20,000 0 24,320 2,680 5,380 1,667-2,409-5,579-7,177-9,165-4,932-20,000-40,000-23,190 1 9 9 0 1 9 9 5 1 9 9 6 1 9 9 7 1 9 9 8 1 9 9 9 2 0 0 0 2 0 0 1 2 0 0 2 Revenue Expense Surplus S. Kwon: Merger of HI Funds in Korea 32
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% S. Kwon: Merger of HI Funds in Korea 33
Effect of the New Contribution Schedule on Contribution of Employee H Ins (Simulation), 2000 Standardized Rate of Average Amount Monthly Income: Change in of Change in Monthly Contribution Base Contribution (%) Contribution (won) (10,000 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 Old New Change Amount of Change Rate of Change Total 170,169 (100.0) 1,467,074 40,132 40,132 Small- Sized Firms Medium- Sized Firms Large 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 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 Subtotal 1,614 (0.9) 301~500 757 1,539,102 38,835 42,017 3,182 8.2 employees 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
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 S. Kwon: Merger of HI Funds in Korea 36
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
VI. Lessons and Policy Implications S. Kwon: Merger of HI Funds in Korea 38
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 39
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 40
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 41
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? S. Kwon: Merger of HI Funds in Korea 42