Emergency Diagnosis of Private Medical Insurance
③ Why is the 2nd Phase of Medical Reform 'Weak'?

[비즈한국] Private medical insurance is dubbed the "second national health insurance," with about 70% of the entire population enrolled. However, it suffers from a distorted structure where the top 9% of subscribers receive approximately 80% of total insurance payouts. Medical abuse driven by private insurance has already disrupted the market and left irreparable scars on the medical system, including the avoidance of essential medical fields. We examine the history of private medical insurance, how it interacts with non-covered services in non-severe fields, and the direction the upcoming 5th-generation insurance should take.

The government announced its 2nd phase of medical reform on the 19th, about seven months after releasing the 1st phase. Originally, the Presidential Committee on Medical Reform was scheduled to release it at the end of last December. However, it was delayed after medical associations declared they would boycott discussions in protest of the emergency martial law decree, which included provisions for "punishing medical personnel who abandoned their posts, such as resident doctors." The 2nd phase focuses on three core areas: fostering regional hospitals and strengthening primary care; proper management of non-covered services and reform of private medical insurance; and building a medical accident safety net that both patients and medical staff can trust. We have taken a detailed look at the concerns surrounding the "proper management of non-covered services and reform of private medical insurance" sector.

Increasing Out-of-Pocket Expenses to 95% and Restricting Mixed Billing of Covered and Non-Covered Services

The core of the non-covered services reform plan is to provide coverage for essential therapeutic non-covered items, while applying a separate management system—such as setting prices and treatment standards—for items with high risks of overutilization. General non-covered services will be supervised through monitoring and information disclosure. Specifically, the government plans to continuously identify items that require a transition to national health insurance coverage, focusing on critical and essential medical fields, such as procedures, therapeutic materials, and pharmaceuticals. Furthermore, it will select "managed coverage" targets within the selective coverage system, setting prices and treatment criteria while applying a 95% out-of-pocket rate for the patient.

Managed coverage targets will be selected through a decision-making process involving the medical community, consumers, and experts, taking into account medical necessity, substitutability, and the potential for misuse. Additionally, coverage will be further restricted in cases where patients simultaneously receive covered services while undergoing non-covered cosmetic or plastic surgery solely for the purpose of filing insurance claims. The names and codes of "elective non-covered services" will be standardized, and the use of these standard names and codes will be mandatory when reporting non-covered services or issuing detailed breakdowns of medical expenses.

The restriction on "mixed billing" of non-covered and covered items was also included in the Essential Medical Policy Package. According to the National Health Insurance Service, the ratio of mixed billing in categories with high private insurance expenditure is 89.4% for manual therapy, 100% for cataract surgery, 95.6% for extracorporeal shockwave therapy, 100% for nasal valve reconstruction, HIFU, and mammotome excision, and 96.7% for varicose vein treatment. As discussions have been ongoing since last year, there were high expectations that specific items would be included, but the only explanation provided was that medically necessary mixed billing will continue to be covered.

No measures were presented to prevent medical institutions from splitting medical procedures into covered and non-covered parts or billing them separately to circumvent the restrictions on mixed billing. Japan is a prime example of a country that restricts mixed billing. However, some worry that because private insurance enrollment is already so high in South Korea, these measures may fail to guide patients toward coverage-centered care. The medical community also points to potential issues such as the infringement of patient choice and the "leveling down" of medical service quality.

Lack of Measures to Prevent the 'Balloon Effect' After Transitioning to Covered Status

While the policy aims to actively promote coverage for therapeutically essential non-covered services, it lacks measures to prevent a "balloon effect," where demand merely shifts to other non-covered items. Numerous studies have shown that in many cases, the total out-of-pocket costs for patients actually increase after non-covered items are transitioned to national health insurance coverage. According to a report by the Korea Insurance Research Institute, titled "Analysis of Private Medical Insurance Non-Covered Payouts," the total out-of-pocket burden on patients increased after the transition of cataracts (September 2020) and female ultrasound scans (February 2020) to covered status, largely due to clinics inducing patients to receive expensive non-covered surgeries instead. An analysis of receipts for female ultrasound exams showed that the proportion of billing for HIFU procedures increased by 26.3 percentage points compared to the period before ultrasound exams were covered. The cost per case at the clinic level surged by 62.7%, from 5.669 million won in 2019 to 9.222 million won in 2020.

Although the plan requires setting prices, reasons, and potential substitutes in advance and obtaining patient consent for non-covered items at high risk of overutilization, critics argue that this is not significantly different from the existing "price explanation" obligation. In Taiwan, the pre-explanation requirements for non-covered items are much more detailed, including information on potential side effects and the specific characteristics of medical devices. Taiwan also operates an objection system for non-covered treatments, where if a complaint is validated, the relevant portion of the fee is refunded to the patient. In Germany, medical staff can apply weighted fees for non-covered items based on the difficulty and time required for a procedure, but they can only apply these rates after obtaining written agreement from the patient and the insurance company.

Meanwhile, the medical community is continuing to voice its opposition immediately following the government's announcement of the 2nd phase of medical reform. The Korean Medical Association issued a statement on the same day, noting, "Setting uniform criteria, such as the number of times a procedure can be performed per patient, risks infringing on the patient's right to treatment. Furthermore, the criteria for determining 'unnecessary' parallel billing are ambiguous, which is feared to lead to frequent complaints at frontline medical institutions." The Korean Hospital Directors Association also stated in a press release, "What is needed to establish fair compensation is the 'normalization of medical fees,' not the management of non-covered services or the reform of private insurance." They added, "We must reflect on whether raising the out-of-pocket rate for private insurance—a measure that primarily serves the interests of large conglomerates—is truly the right approach to medical reform aimed at strengthening regional and essential medical care."