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The Official News & Technical Journal Of The International Society For Pharmacoeconomics And Outcomes Research

Health Care System and National Health Insurance of South Korea

Bong-min Yang PhD, Professor, Seoul National University, Seoul, South Korea
(Bong-min Yang PhD, was the program chair of the ISPOR 3rd Asia-Pacific Congress, 7-9 September 2008, Seoul, South Korea)

over the last four decades. The unprecedented high economic growth rates from the 1960s through the 1990s have been accompanied by industrialization, urbanization, and most conspicuously, democratization. A blueprint for the Korean health insurance system was initiated by the Health Insurance Act of December 1963, when Korea's real per capita GDP (RPCG) was still under US$1,600. At that time, Korea's RPCG was only two-thirds of that of the Philippines, and was about the same level of Mozambique, Niger, Sri Lanka, and Cameroon [1].

The first social insurance program (Employee Scheme) was introduced in 1977, starting with enterprises that had more than 500 employees, and extended coverage stepwise for smaller sized firms. Social health insurance (SHI) schemes for civil servants and school employees started in 1981 and became important promoters of extending social protection because the then uncovered population was eager and highly motivated to join the SHI when they became aware of the substantial financial protection benefits by the Employee and Civil Servant Schemes. Civic societies and non-governmental organisations demanded expansion of insurance coverage for the selfemployed and made a strong advocacy to extend SHI coverage towards the excluded sectors of the Korean society. Finally in 1989, 13 years after the introduction of the Employee Scheme, the national health insurance (NHI) system covering the whole population was accomplished. It was the most noticeable change in the Korean health care system during the last six decades. It was implemented in stages over thirteen years, when the expansion of health insurance coverage from the employed sector toward the whole population was a popular social issue, and received strong political support from voters.

A significant change in Korean's health status has been brought about during the same period. A remarkable improvement in infant mortality rate and life expectancy has been made over the last three decades. There is no question that development of health care system and the evolution of NHI system played a role. However, as health outcome is affected by multiple factors such as life style, diet, income distribution, and environmental elements, it is hard to tell how much of a change in health outcome is attributable to utilization of medical services or reliance on the health insurance system alone.

Successful development of NHI, however, has involved higher costs. Insurance-driven consumer demand for greater quantity and higher quality health care has been placing heavy financial pressures on the system. NHI began running an annual deficit in 1997 and a cumulative deficit has existed since 2001. Various efforts were made to reduce or eliminate the deficit while reforms of various kinds at the system level have been pursued to establish long-term financial stability. The measures taken include greater government contributions from general tax revenues, higher premiums, a newly introduced cigarette tax, control of fee increases, and stricter monitoring of medical fraud in claims processing.

One additional reform introduced in 2006 was the use of economic data in reimbursement decisions of newly introduced medical technologies. There had been speculations and discussions about the role of pharmaceuticals in NHI budget instability phenomenon. Researchers argued that 1) among new medical technologies, the most contributing factor toward financial un-sustainability was the use of new drugs and ever increasing drug expenditures, and 2) as long as the limited management of insurgent new medical technologies (equipment, devices, and drugs) remained as it was, the long-run financial outlook for NHI would be somber.

Korean NHI's reimbursement of drugs then was characterized by two conspicuous features: 1) a large number of drugs on the reimbursement list, and 2) fast introduction of new drugs into insurance coverage. Almost all the drugs that received market approval by the Korea Food and Drug Administration were automatically listed as insurance- reimbursed drugs. Cost-effectiveness of drugs and their budget impacts were rarely taken into account in reimbursement decisions.

It was expected that use of economic data in reimbursement decisions would contribute to efforts that seek to make decisions more cost-effective and help produce more health from existing spending. Pharmaceuticals were the first area in which this new policy was implemented. Other areas of new medical technologies, such as device, diagnostics, and procedure are now planned to be subject to this new regulation in the coming years in Korea.

In the Korean health care system, NHI is the central organizing mechanism, through which resources flow among government, consumers, corporations, and service providers. In most situations, patients are given a choice of hospitals and clinics, either private or public. Financing for NHI is done through collection of contributions. Premium collection formula for employees is different from the one for the self-employed. However, a uniform formula is used for all employees, and the same is true for all self-employed.

Benefit package is the same for all population. As mentioned earlier, population coverage expanded step by step, starting from the people with sufficient ability to pay, corporate employees, then toward the self-employed and to those in the informal labor sector. Patients pay a fee-for-service (FFS) for all services at all referral levels. FFS has been the dominant method of payment for physicians (both Western and traditional), clinical services, and pharmacists. Physicians at hospitals are paid salaries, and occasionally they are paid bonuses based on their performance.

A unique aspect of the Korean health care system is that the work of health care delivery is done mostly by the private sector. The private sector, which was dominant in Korea before the insurance plans were introduced, has grown further with the increase in per capita income and the expansion of health insurance coverage. Health care providers are tiered into general hospitals, local hospitals, and clinics.

The establishment of NHI was the foremost development in the Korean health care system in the last several decades. In order to become a developed country, both in terms of economy and social quality, Korea is in need of further improvement in many respects. For example, nothing is more basic to any government than ensuring adequate healthcare for the poor, the elderly, and the disabled. Yet, Korea falls behind other OECD countries in doing so. It is hoped that Korea will continue its momentum in closing this gap and pursuing the goal of enhanced quality of life for the whole population.


1. Penn World Table, University of Pennsylvania, Philadelphia, PA, USA, various years.

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