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WORLD BANK TECHNICAL PAPER NUMBER 156
ASIA TECHNICAL DEPARTMENT SERIES

Managing Health Expenditures
under National Health Insurance
The Case of Korea
Willy De Geyndt

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WORLD BANK TECHNICAL PAPER NUMBER 156

ASIA TECHNICAL DEPARTMENT SERIES

Managing Health Expenditures
under National Health Insurance
The Case of Korea

Willy De Geyndt

The World Bank
Washington, D.C.

Copyright © 1991
The International Bank for Reconstruction
and Development/THE world bank
1818 H Street, N.W.
Washington, D.C. 20433, U.S.A.

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First printing October 1991

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ISSN: 0253-7494

Willy De Geyndt is a senior public health specialist in the World Bank's Population and Health Division, Asia
Technical Department.

Library of Congress Cataloging-in-Publication Data
De Geyndt, Willy.
Managing health expenditures under national health insurance : the
case of Korea / Willy de Geyndt
p. cm. — (World Bank technical paper, ISSN 0253-7494; no.
156. Asia Technical Department series.)
Includes bibliographical references.
ISBN 0-8213-1936-1
1. Medical care, Cost of—Korea (South) 2. Insurance, Health-Korea (South) 3. Medicine, State—Korea (South) I. Title.
II. Series: World Bank technical paper. HI. Series: World Bank
technical paper. Asia Technical Department series.
[DNLM: 1. Economics, Medical—Korea. 2. National Health Programs-economics—Korea. 3. National Health Programs—organization &
administration—Korea. WA 540 JK6 D3m]
RA410.55.K6D4 1991
338.4'33621'095195—dc20
DNLM/DLC
for Library of Congress

ill

ABSTRACT

South Korea’s gradual expansion of medical insurance over a twelve
year period achieving universal coverage in 1989 has been a major social
policy accomplishment. Health care spending as a percentage of Gross Domestic
Product has increased from 2.8Z in 1975 before the introduction of the first
stage of universal insurance to 5.2Z in 1985, and an estimated 7.3Z in 1991.
Health care spending at current growth rates will absorb between 11.5Z and
13.52 of Korea’s GDP in the year 2000 potentially crowding out other
investments and damaging exports. This paper analyzes the root causes
underlying the rapid increase in health care costs: demand factors, supply
factors, financial incentives, and administrative inefficiency. It argues
that continuing cost escalation has an economic cost, a financial cost, and a
social cost, and suggests a paradigm to analyze alternative strategies for
controlling health care expenditures.
Strategies are either-: (i) micro or
macro management in style; and (ii) supply side or demand side in emphasis.
Finally, it examines the argument for regulating the private sector and for
setting limits on freedom of choice for patients and providers in order to
reach the objective of achieving an equitable, affordable and sustainable
medical care system of acceptable quality.

- iv -

ACKNOWLEDGEMENTS

The paper benefitted from the contributions and the thoughtful
comments of B.M. Yang, O.R. Moon (Seoul National University); W. Hsiao
(Harvard University); S. Eastaugh (G. Washington University); S. Scheyer, J.
Hammer, J. Martins, and W. McGreevey. Su-Yong Song prepared the expenditure
projections in Annexes 8 and 9.
The views expressed in this paper are those of the author and do
not necessarily reflect those of the institutions to which he is affiliated.
The World Bank does not accept responsibility for the views expressed herein
which should not be attributed to the World Bank or to its affiliated
organizations.

FOREWORD

Many middle Income countries have developed an acceptable health
services infrastructure. Health policy in the 1960s and 1970s and into the
1980s favored growth and geographic distribution of resources, and equitable
financial access to quality services. By the end of the 1980’s it had become
clear that continued growth and escalating health expenditures required a
shift in health policy towards cost containment and the achievement of an
affordable and cost-effective health care services system.

During the process of preparing a lending operation, the author
noticed with great concern the rapid increase in health care expenditures in
South Korea and the similarity in the evolution of its health care economy
with that in other middle, upper middle and high income countries. This study
from the Asia Technical Department analyzes the Korean situation and projects
current health care expenditures up to the year 2000. It analyzes the causes
of cost escalation and its economic, financial and social impact. The study
suggests alternative strategies for controlling health care expenditures in
order to achieve an affordable, equitable, and sustainable health care system
of acceptable quality.

The study is intended for health policy analysts and decision­
makers, and for health economists and policy analysts in development agencies,
governments and universities. Using South Korea as a case example, it sets
the framework for debating the required shift in dominant health policy to
address the issue of affordable cost effective health care services without
losing sight of equity and quality objectives.

Daniel G. Ritchie
Director
Technical Department, Asia Region

- vii

TABLE OF CONTENTS

Country Background .......................................................
Health Sector
A Sui Generis National Health Insurance ..................................
Supply of Health Care.....................................................
Hospital Beds.....................................................
Physicians .........................................................
Medical Technologies ...............................................
Drugs.............................................................
Uses of Funds by Major Providers..................................
Demand for Medical Care...................................................
What Drives Up Cost?
.
.................................................
Demand Factors .....................................................
Supply Factors .....................................................
Financial Incentives ...............................................
Administrative Inefficiency ......................................
What are the Potential Consequences of Unabated Cost Escalation?
....
What Alternative Cost-Containment Strategies are Available to Korea?
. .
Regulating the Private Sector and Setting Limits
.......................
Conclusion...............................................................

1
3
5
5
6
7
8
8
9
11
12
13
14
15
16
18
22
24

ANNEXES
1
2
3
4

5
6
7

8
9
10

National Health Expenditures as a Percentage of GDP
(Korea, Japan and USA, 1960-89)..................................
Infant Mortality per 1,000 Live Births:
(Korea, Japan and USA, 1960-87)..................................
Life Expectancy at Birth:
(Korea, Japan and USA, 1960-89)..................................
Number of Persons per Practicing Physician in
Korea, Japan and USA, 1960-89
....................................
Selected Medical Equipment per Million Population:
Korea and Japan...................................................
KOREA: Production and Import of Drugs 1983-88
(Index 1985-100) ...................................................
KOREA: Trends in Inpatient & Outpatient Volume and Cash Flow
in Urban Hospitals for the last six months of 1989 versus the
last six months of 1988 ..........................................
KOREA: Projection of Medical Expenditure/GDP Ratio .............
KOREA: Projection of Medical Expenditure/GDP Ratio .............
Number of Most Expensive Insurance Claims in Korea, 1985-89
...

REFERENCES.......... .....................................................

25
26

27
28

29
30

31
32
33
34

35

MANAGING HEALTH EXPENDITURES UNDER NATIONAL HEALTH INSURANCE
THE CASE OE KOREA

The Korean health economy is riding the crest of a cost explosion.
Health care spending as a percentage of Gross Domestic Product has increased
from 2.8Z in 1975 before the introduction of the first stage of universal

insurance to 5.2Z in 1985, to 6.6Z in 1989, and an estimated 7.3Z in 1991.
This puts Korea at the high end of the range for developing countries and in
the middle of the range for developed countries.

In absolute terms, health

care expenditures were about US$290 per capita in 1989, or 25Z of Japan’s, and
12.5Z of the US per capita expenditures for health care (Annex 1).

Korea’s

health care spending at current growth rates will absorb between 11.5Z and
13.5Z of GDP in the year 2000.

increase?

What demand and supply factors fuel this rapid

What are the potential financial, economic, and social consequences

of unabated cost escalation?

What policy options are open to the Government

of Korea to moderate and contain costs?

Country Background

South Korea’s rapid economic growth during the last three decades
and its estimated 1990 US$4,400 per capita income are the envy of many

developing nations.

An industrious population of 42 million and a rapid

transformation from a rural agrarian to an industrialized and urbanized

society have contributed to its economic achievements.

Concomitantly,

improvements in education, housing, nutrition, public health services, and
personal incomes have increased life expectancy at birth (68 years for males
and 75 years for females) and dramatically decreased infant mortality (11

deaths per 1,000 live births). (Annexes 2 and 3).

At the same time, this

quick-paced evolutionary process has resulted in new life styles and has

changed the risk factors of Koreans.

The mortality profile and the disease

burden have shifted from a typical developing country high fertility/high

mortality and prevalence of infectious and parasitic diseases profile to a
developed country profile with a predominance of noncommunicable chronic and
degenerative diseases, and a rapidly increasing incidence of diseases related

2
to social, environmental and occupational factors.

Personal behavior, food,

and the nature of the environment have become the prime determinants of health
and disease.

Health Sector

The Korean health care system is patterned after the Japanese

system which in turn was inspired by the German social insurance model.

Features of the United States private health care system were grafted onto
Korea’s system after the second World War.

Today, Korean health policies

strive to emulate the accomplishments of Japan and the US.

Therefore, Korean

data in this article are compared with Japan and the US whenever data sets are
available.

In making these comparisons one should keep in mind that per

capita income of Japan and the US is about five times that of Korea, the size
and the aging of their populations is different, and their health sectors have

evolved over a longer period.

However all three health care systems have

similar structural properties and the strategies used to manage expenditures

are of analytical and policy interest.

Korea also has a strong, vibrant and aggressive private sector.
Private clinics and hospitals account for 95 percent of all medical
facilities, employ 72 percent of physicians, and manage 80 percent of hospital

beds.

Private medical schools account for more than two thirds of the medical

schools and for 60 percent of the dental schools.
oriental medical schools are private.

All the traditional

However, as is often the case, private

sector activities are concentrated in urban areas, creating a maldistribution
of resources between the 70Z urban population and the people living in

agricultural and fisheries areas.

Government action has narrowed the urban/rural resource
maldistribution by giving medical school graduates the option to work in rural
areas in lieu of military service, and by investments in the rural hospital

and health center infrastructure.

In an effort to make the sector more

efficient, Government has also divided the country into eight medical regions

with strict referral standards, improved the diagnostic and treatment

3

capabilities o£ lower level health centers to slow more expensive upward

referrals, and initiated in 1990 a program of training home care nurses.

A Sui Generis National Health Insurance.

Korea introduced its first compulsory health insurance scheme for

industrial firms with more than 500 employees in 1977.

Mandatory health

insurance was gradually expanded to firms with over 300 employees in 1979,

with over 100 workers in 1981, and with over 15 employees in 1983.

Government

workers, teachers and staff in private schools were included in 1979.
Coverage for urban and rural self-employed, low income, elderly and disabled

was also gradually provided during this period.

Universal coverage was

completed in July 1989.

Some government officials were concerned about its financial impact
and the lack of regulation to contain costs.

Two other social policies had

been adopted in 1988, i.e. the national pension system and the minimum wage
legislation, and the cumulative financial impact of these two social programs
and of a national health insurance (NHI) was cause of concern.

consensus however seemed to have existed.

The population liked the idea in

part because it believed that it would make medical care free.
responded to public demand.

A political

Politicians

Hospitals and doctors anticipated a reliable and

regular source of income and an end to uncompensated care and bad debts.

The

fast growing economy would be able to absorb the additional expenditures

generated by a NHI.

Thus, the general support for NHI was easily made a legal

reality in a country which has a strong public executive and a regulationoriented intellectual tradition.

The Korean NHI consists of 408 private, administratively and

financially independent insurance societies or sickness funds (Krankenkasse in

Germany, caisses de maladies in France).

This model of a vertically

structured insurance system where each insurance society has its own
management structure stands in contrast to the coordinated Japanese model or
the Canadian horizontal public insurance model.

A central administrative body

(National Federation of Medical Insurance), organized as a public corporation

4

but monitored by MOHSA, performs a number of administrative tasks for all
insurance societies, such as claims processing and payment, data collection,
and program monitoring.

Economies of scale cannot be realized with the small

size membership of insurance societies (between 30,000 and 200,000), and,
consequently, administrative costs absorb over 10Z of their premium income

ranging up to 22X.

Insurance societies cover 90Z of the population and a government
welfare program covers the remaining 10Z.

The insurance societies can be

broadly grouped in three types by membership: industrial employees (154

societies with 37Z of the population), civil servants and private school
employees (one corporation with 10Z of the population), and the Regional
Medical Insurance grouping the self-employed, farmers, fishermen, and

pensioners (254 societies with 43Z of the population).
ceiling for the insurance premium is 8Z of payroll.

The maximum legal

The industrial worker

pays 1.7Z and the civil servant 2.3Z with the employer paying an equivalent
percentage.

The contribution of the self-employed in the Regional Medical

Insurance however is determined by a classification scheme based on the

family’s total assets and wage earnings as reported on tax records.

Premiums

for the first two groups are a fixed proportion of the salary and wages.

The

premium for the self-employed is not proportional to income because tax

declarations are often unreliable, excluding a large non-reported underground

economy.

Some self-employed and some farmers are reluctant to pay premiums

for medical care that they judge not to meet their health needs or that is not

readily accessible to them.

In 1989 about 10Z of the population was classified as poor or
medically indigent and qualifies for medical care under government subsidized
public assistance provided in designated public or private health care

facilities.

These beneficiaries are divided into three income groups.

Only

about 1.5Z of the population qualifies for free care and the others pay part
of the cost of their care.

Some people in the latter two groups are joining

the NHI partly because it gives them more freedom of choice of providers.
is estimated that the 10Z has already been reduced in 1990 to 7.5Z.

It

5

Insurance societies are financially independent and there are no
transfers of funds among societies.

As the budget of each sickness fund comes

from premium contributions, some have much larger per capita budgets than
others, depending on the wage level and risk profile of its members.

Premium

increases authorized by government in 1990 for the Regional Medical Insurance

averaged 28Z and 30Z in 1991.

In part, these steep increases may reflect

higher medical expenditures but also the fact that premiums for self-employed,
including farmers and fishermen, and for pensioners were set initially at low
levels for social reasons.

The amount of premium increase for each insurance

society within the Regional Medical Insurance varies with its financial

health, and the financially weakest insurance societies increased premiums the

most, with one example of a 90Z jump.

The combined deficit of all insurance

societies under the Regional Medical Insurance was about 70 billion Won or

US$97 million in 1990 and it is estimated to increase to 130 billion Won or

US$180 million in 1991.

The other two large insurance society groupings, the

corporate employees and the government employees, show surpluses.

Inter­

society solidarity which would transfer funds - through subsidies or lending -

from financially strong to weak societies, or national risk pooling, or
government subsidies would break this vicious circle, and this issue merits

further research.

Supply of Health Care.

On the supply side, four production factors account for most of the
national health expenditures: hospital beds, physicians, drugs, and medical

technologies.

We will review the availability and use of these four items and

compare them with Japan and the US.

Hospital Beds.

In 1989 Korea had 2.9 hospital beds per 1,000

population including short-stay acute care hospitals, long-stay facilities

(tuberculosis, psychiatric, leprosy, oriental medicine), and clinics with less

than 20 beds.

Japan has 13 beds per 1,000 population including short-stay and

long-stay hospitals but excluding clinics with less than 20 beds.

In 1987 the

US had 4.3 short-stay acute-care beds, 6.7 nursing home beds, and 0.8 beds in

6

long term facilities (psychiatric, mental retardation, alcoholism), for a
total of 11.8 beds per 1,000 population.

The number of people admitted to a hospital in one year was 67 per

1,000 population for Korea, 75 for Japan and 118 for the US (the 1988 US

figure refers only to short-stay non-federal hospitals).

The Korean and

Japanese hospital admission rates are quite similar but there are large

differences in the number of days that an admitted patient stays in the
The number of patient days per 1,000 population is 870 for Korea

hospital.

and 3,300 for Japan because the average length of stay in Korea is 14 days and
in Japan it is 44 days (unadjusted for population structure).

The Korean average length of stay was 11 days in 1980 and has

increased slowly in the eighties to reach 14 days in 1989.

This upward creep

is affected by the reimbursement rate for patient days which is reduced to 80
percent of the allowed fee, starting with the sixteenth day of

hospitalization.

To what extent this pricing system triggers discharges

before 16 days and subsequent readmissions is not known, as figures for

readmission of the same patient for the same diagnosis are not available.
From the Japan and US experiences, and taking into account differences in
disease profile and aging of their populations, it can be deduced and

projected that Korea will increase its hospital admission rate and the number
of patient days per 1,000 population.

This may require an expansion of

hospital beds as the national bed occupancy rate is over 80Z.

The increase in

beds could be slowed by freeing up beds through a reduction in the average

length of stay.
incentives.

This, however, would require a change in financial

On the other hand, a growing elderly population living in an

urban environment will require an increasing amount of institutional care for
medical and social reasons.

Adding less expensive long term beds would also

free up inappropriately used expensive acute-care beds.

Physicians.

The US and Japan have respectively 2.8 and 1.9 times

more physicians per capita than Korea.

The number of persons per practicing

physician in 1987 was 428 in the US, 638 in Japan and 1,216 in Korea (Annex

4).

The Korean supply of physicians is bound to expand in the medium terms

7
decision-makers think that Korea should at least double its physician stock to

serve a still growing population; some economists hypothesize that more

physicians would increase competition, and therefore lower costs, and at the
same time correct the rural/urban maldistribution; and 31 medical schools,

with four more schools coming on stream, have the institutional capacity to
maintain, and even increase, the current 8Z annual growth in the number of

physicians.

The number of physician contacts per person per year has slowly

increased in the eighties from 2.7 to 3.3 which is below the 4.7 figure for

the US but far from the 14 patient visits in Japan.

The latter figure is

strongly affected by Japan’s drug dispensing policy under which the physician

only gives drugs for one or two days thereby generating repeat visits.
Generally, the imposition of fee schedules with controlled prices drives up
the volume of services, so that physician incomes do not suffer.

happened in Japan and what is likely to occur in Korea.

This is what

As prices in the US

are free, volume of service has been quite stable.

Medical Technologies.

It is generally accepted that the

introduction and diffusion of medical technologies drive up aggregate costs.

Estimates of the relative inflationary role of technology in the US have
ranged from 20 to 40 percent for "little ticket" items in the 1960’s and

1970’s (lab tests, diagnostic radiology, etc.) and for "big ticket" items in
the 1980’s (CT scanners, MRI, etc).

Korea has not been immune to the rapid

spread of medical technologies but in the late 1980’s it still had ten times
fewer CT scanners per million people than Japan, five times fewer MRI’s

(Magnetic Resonance Imaging), and four times fewer linear accelerators (Annex
5).

American hospitals have also responded willingly to widespread

professional demand for technological sophistication.

It can be anticipated

that Korea is likely to acquire more medical technologies.

In fact, in 1989

it already had more lithotripter units per million persons than Canada and

Germany (Annex 5).

Government is aware of the inflationary impact of

technology and has a policy requiring approval of expensive bio-medical
equipment prior to purchase and installation.

8

Drugs.

In Korea, like in Japan and China but unlike in Western

countries, physicians can sell the drugs they prescribe.

Part of the

hospital’s and the physician’s profit is earned from selling medication.

Pharmacies compete with hospitals and doctors because they can sell drugs
without a medical prescription.

Part of their competitive strategy is to

deter patients from switching providers by not labeling the prescribed
medication, and also for physicians to prescribe and dispense medication for

only one or two days at a time.

The result of this unusual situation is that

prescription drugs account for over one third of national health expenditures.

In the US prescription drugs consume 5Z of total annual health expenditures
but, in absolute terms, the 1988 expenditure is higher in Korea, i.e., US$116

A 1988 government initiative to

per capita per year versus US$106 in the US.

separate prescribing from selling was rejected by all providers.

Korea may

also be the only country where health insurance reimburses non-prescription

drugs (albeit with a co-payment of 60Z).

Usee of Funds by Major Providers.

money is spent in Korea, Japan and the US.

Table 1 compares how health care
Definitional and categorization

problems demand caution in its interpretation.

is hidden in outpatient and inpatient care.

High drug consumption in Japan

If the figures could be

disaggregated, relative expenditures in Japan and the US for inpatient and
outpatient care and for drugs would probably be quite similar.

The

corresponding percentages for Korea are depressed because of the high

percentage for prescription drugs.

Data on dental care expenses are not

available for Korea; in the two comparator countries they are about US$120 per
person per year.

9

Table 1: National Health Expenditures by Uses of Funds, Korea, Japan, USA

Korea
(1989)

USA
(1989)

Japan
(1987)

In-patient Care

29Z

43.2Z

46.4Z (a)

Out-patient Care

24Z

44.3Z

31.4Z (b)

Dental Care

N/A

10.3Z

5.2Z

Prescription Drugs

36Z

2.2Z (d)

4.8Z

Other

HZ



12.2Z (c)

Total

100Z

100Z

(a)
(b)

(c)
(d)

100Z

Hospital (38.5Z) and nursing home (7.9Z) care combined;
Includes hospital OPD and ER, physician and other professional services,
home health care, over-the-counter drugs, vision products and other
medical durables;
Total for administrative cost of insurance (5.8Z), government public
health expenses (2.9Z), research (1.8Z) and construction (1.6Z);
Only prescription drugs dispensed in pharmacies.

Demand for Medical Care.

Demand for medical care has increased consistently over the past

two decades, but more pronounced in the 1980’s, as measured by hospital
admission rates, physician contacts per capita per year, and production of

drugs.

The latter input factor more than doubled during the 1980’s (Annex 6).

Demand for medical care seems to have increased more rapidly after the

introduction of the last phase of universal coverage on July 1, 1989.

Annex 7

compares the last six months of 1989 with the corresponding period in 1988,

and shows impressive gains in inpatient volume, repeat outpatient visits, and
hospital revenue from inpatient and outpatient services.

10
Several factors account for the steady rise in medical care demand:
(i) broadening of the insurance coverage;

providers;

(ii) aggressive marketing by the

(iii) the medicalization of healing;

(iv) a cultural shift in the

definition of disease as the basis of illness, i.e. health professionals and

the population have embraced the mechanistic view of the human body with the
resulting engineering approach, which emphasizes the intensive use of medical
technologies and drugs; and (v) people’s ability and willingness to pay for
more medical care.

Although user fees in Korea pay for 511 of national health

expenditures they have not contained the fast growth in aggregate demand.

Korea’s experience is in line with that of other middle income and developed

countries showing that a demand side strategy (deductibles and co-payments)
cannot contain costs.

Providers in Korea charge a fee for each service

provided and patients participate in the cost of service through three types
of cost sharing.

First, a deductible is paid for each unit of service.

Second, co-payment rates are 20 percent for inpatient hospital care and 30 to
55 percent for outpatient services depending on the place of service.

Co­

payment rates are 30 percent for prescription drugs and 60 percent for over-

the-counter drugs.

Third, insurance benefits stop after 180 hospital days per

year, thus excluding coverage for prolonged hospital stays.

Effective cost sharing by the patient however is generally

acknowledged to be much higher than reported here.

Senior hospital medical

staff command special treatment fees not covered by insurance and patients who

are able to pay these special fees do so willingly to buy "better quality
care".

As in China and Japan, the ancient custom of thanking the doctor (and

also the nurse now) with a gift persists, but the gift now is money and can be
as much as the regular fee or hospital bill.

Table 2 compares the sources of health care funds in Korea, the US
and Japan.

Two important facts stand out.

First, the primary source for

financing health care is different in each country: it is insurance in Japan,
government in the US, and user charges in Korea.

Second, the distribution by

source for Korea in 1989 is similar to the US distribution in 1960.

11
Extrapolating the Japan and US experience to the Korean health economy, the
composition of sources of funds in Korea would shift to a larger share of

insurance and of government payments and a sharp drop in out-of-pocket
expenses.

However, the evolution in Korea would depend on prevailing market

mechanisms and on eventual changes in government regulatory policies.

This is

an area that would benefit from policy research.

Table 2. National Health Expenditures by Source of Funds: Korea, Japan, USA

Korea
(1989)

(1960)

(1988)

Medical Insurance

17Z

22Z

32Z

55.6Z

Out of Pocket

51Z

49Z

21Z

12.7Z

Government

24Z

24Z

42Z

31.6Z

Other Private

8Z

5Z

5Z

-

100Z

100Z

100Z

100Z

Sources:

USA

Japan
(1987)

Ikegami (1990); US National Health Expenditures , 1988;

What Drives Up Cost?

The root causes underlying the rapid increase in health care costs
can be subsumed under four categories: demand factors, supply factors,

financial incentives, and administrative inefficiency.

12

Demand Factors.

More money has become available in the 1980’s for use in the health

This money has come from two sources: health insurance covering many

economy.

medical care expenses for the whole population, and rising personal incomes
combined with a willingness to spend more on medical care.

An expansion in

health insurance changes patient behavior as a consequence of "moral hazard":

consumers tend to consume more as the effective "out-of-pocket" price is

lower.

Providers also have a tendency to order more services for their

patients, because it is in their economic self-interest to hospitalize
patients, to order extra tests, and to sell more expensive drugs.

providers induce demand but more so when insurance is present.

In general,

The

increasingly insured Korean hospital patient population stayed three days

longer in the hospital on average in 1990 than in 1984.

In the six months

following the universalization of national health insurance, the hospital

occupancy rate increased by seven percentage points for both urban and rural

hospitals.

The nominal elasticity of per capita health expenditure relative to

per capita GDP is estimated to be 1.6 for Korea (Kwon, 1988) compared to 1.3
in Japan and the US and a mean of 1.1 for all OECD countries for the period

1975-87 (Schieber and Poullier, 1989).

For every 10 percent increase in

nominal per capita GDP, Koreans experience a 16 percent increase in nominal
per capita health services spending.

Expenditure in the 1980’s may have

increased faster as a result of deliberate government policies to provide

needed services to more people.

Some of the population’s increased purchasing

power was spent on more medical services and medical spending took a larger
bite out of a larger household income quite apart from the moral hazard
effect.

In 1975, prior to the introduction of the first stage of NHI, the

urban population spent 4.5 percent of its income on medical care; this
percentage rose to 7.1 in 1987.

The corresponding percentages for the rural

13

population are 3.7 and 5.6.

(EPB, 1988)
.
*

The high rate of cost sharing in

Korea has necessitated a higher percentage of disposable income to be spent on
medical care.

Supply Factors.

In the first eight years of the eighties, the number of hospital

beds doubled and the number of physicians increased 63 percent.

In the first

five years of the nineties, hospital beds are projected to increase about 50
percent and the physician stock is expected to increase annually by about 8

percent.

More physicians are pursuing clinical specialties.

Specialists

represented 32 percent of all physicians in 1980 but reached 49 percent in

1988.

This trend is likely to continue and, in addition, proceduralists using

sophisticated medical technologies will account for a growing share of

specialist physicians.

Korea’s utilization rates (hospital admissions, patient days,
physician visits) are expected to increase.

Largely influenced by induced

demand, there will be more hospital admissions, more patient days, more doctor

visits, more drug consumption, and more medical procedures in the 1990’s.
These increases will be supported by the availability and use of more medical

technologies, and an intensification of medical care services.

Higher

utilization of services and intensification of medical care, meaning the
application of technological advances and intensified services to individual

patient care (intensive care units, coronary care units, neonatal care units),

accounted for one-fifth of health spending increases in the period 1975-80,
but its share jumped to three-fifths during 1980-85 (Table 3).

The

availability of more money to purchase more medical services stimulated the
supply of all factors of production, and, conversely, aggressive and competing
providers triggered more spending.

11 This did not occur in the US. When out-of-pocket spending in the US is
compared with disposable income, the out-of-pocket share has remained fairly
constant since 1950, between 3.0 and 3.9 percent of disposable income.
However, this may have occurred because out-of-pocket payments as a source of
funds dropped from 49 percent in 1960 to 21 percent in 1988.

14

Table 3. Decomposition of Health Spending Increases
(Compounded Annual Growth Rate in Z)

Years

Nominal
Expenditure

GNP
Deflator

Real Expenditure
---------------------------(Demography)
(Utilization/
Intensity)

1975-1980

32

24.2

__________ 7.8__________
(1.55)
(6.3)

1980-1985

25

8.2

_________ 16.8__________
(1.36)
(15.4)

Sources:

Nominal Expenditure from KMIC study (1989). GNP deflator from The
Korea Bank, Industrial Annual Statistics for 1975-1985.
Compiled by B.M. Yang (1990)

Financial Incentives.

Under NHI, Korean hospitals and physicians are reimbursed on a fee-

for-service basis, according to a relative value fee schedule that is

regulated by Government and provides a potential mechanism for expenditure
control.

Fees are set on a cost-plus basis and are increased annually.

The

increase is based on the rate of general inflation in the economy and on the

results of a sample review of hospital costs.

This methodology is similar to

retrospective cost reimbursement, which also guarantees providers to earn a
profit.

The plus factor recognizes the level of hospital and case mix

complexity, and is paid for treatment charges, including labor, but not for
drugs and medical supplies, which are reimbursed according to their value in

the fee schedule.

It consists of a four-tiered payment systems clinics (less

than 20 beds) and private practice physicians receive the fee plus 7 percent;

general community hospitals receive fee plus 13 percent; multi-specialty

15
hospitals receive fee plus 23 percent, and the plus factor for the 25 large

university hospitals is 30 percent.

The public health sector is the only

provider not receiving the plus, and the only patients for whom no plus is
paid are the poor and the medically indigent covered by the public assistance

program.

The increase in the number of medical schools (opposed by the
Korean Medical Association) can in part be explained by government policy

aimed at increasing the number of physicians to correct their maldistribution,
and in part by the generous reimbursement levels for medical services provided

in academic medical centers.

This cost-plus payment modality provides no

financial incentives to contain costs, or to be efficient.

On the contrary,

cost increasing behaviors are rewarded and much of the demand for medical care

may be supply-induced.

Increasing costs and maximizing the volume of services

brings more sales, more revenue and more profits.

Fee-for-service is not

necessarily inflationary (Japan, Canada) if the process by which the level of

fees is set builds consensus among the providers, the payors, the consumers
and the regulators.

Administrative Inefficiency.

The verticalization and the size of insurance societies cause
inefficiency in the administration of the national health insurance.
Administrative expense of insurance societies is on average over 10 percent of

operating expenses reaching as high as 22 percent.

The Blue Cross insurance

plans in the US have about 7 percent of operating expenses as administrative
expenses, and private insurers in general average 10 percent.

The cost of

administering health programs as a percent of total health expenditures is 2.5

16
percent in Canada, 2.6 percent in the U.K. and 5.8 in the US2.

No comparable

figure is available for Korea but it is hypothesized that it would be closer

to the US figure.

Membership in sickness funds ranges from 30,000 to 200,000, and
larger membership could achieve economies of scale.

An econometric study by

Yang and Lee (1988) found that administrative costs would be the lowest when

each insurance society managed a hypothesized 1.7 million members.

Insurance

societies have differential administrative costs and it would be fruitful to

analyze what efficiency measures account for the differences.

What are the Potential Consequences of Unabated Cost Escalation?

The inflationary behavior of the Korean health economy is already
showing undesirable consequences which are likely to be exacerbated in the
1990’s unless the Government, in concertation with providers, consumers and

the insurance industry, makes some difficult policy decisions.

Continuing

cost escalation has an economic cost, a financial cost, and a social cost, and
remedial action will become more painful as the sum total of these costs

accelerates.

The economic cost would be that excessive health care spending

could crowd out other investments and ultimately damage exports.

Table 4

projects the share of health care spending as a percentage of GDP for the year

2/ The US percentage refers only to the insurance overhead (marketing, claim
processing, office space, and profits for the commercial insurers) of the
1,500 private health insurers, and to the administrative costs of the
government Medicare and Medicaid programs. This amounted to US$35.3 billion
in 1989 or US$138 per capita. Woodhandler and Himmelstein (1991) studied
total administrative costs and included hospital administration costs,
nursing home administration costs, and physician office administration costs
(equal to 44 percent of their gross income), and estimated that the total cost
for health care administration in the US in 1987 was between 19.3 and 24.1
percent of all spending for health care or US$400 to 497 per capita.
Corresponding figures for Canada were between 8.4 and 11.1 percent or US$117
to 156 per capita. Yearly financial statements of private insurance companies
in Chile, called ISAPRES, also show a high overhead as they disburse only 60
cents for medical care for each dollar of premium received.

17

2000 based on three scenarios: continuation of the current nominal elasticity
of 1.6, a drop to the US and Japan level of 1.3, and reaching the OECD average
As a rule, health spending rises faster than national income in all

of 1.1.

countries.

Two figures for the 1989 GDP percentage are cross-tabulated with

the three scenarios: 5.6 as estimated by MOHSA and 6.6 as a consensus estimate

among Korean health economists.

Health care expenditures would rise to 13.5Z

of GDP under the worst case scenario, and to 6.3Z under an unlikely scenario

that assumes that the nominal elasticity would suddenly drop from 1.6 to 1.1

Annexes 8 and 9 present the detailed calculations for the period

in 1990.
1990-2000.

The estimates for the annual increases in GDP from 1990 to 2000

are expressed in current terms and form the basis for the calculation of the

relationship between medical expenditures and GDP.

Table 4. Projected Share in the year 2,000 of Korea’s Health Care
Spending as a Percentage of GDP Under Different Assumptions

Nominal Elasticities

1.6
(KOREA)

1989
Estimates
of Z GDP

Source:

1.3
(U.S. & Japan)

1.1
(OECD)

5.6

11.5

8.1

6.3

6.6

13.5

9.5

7.5

Annexes 8 and 9 prepared by S.Y. Song

The fundamental economic issue here is not so much the percent of

GDP but the opportunity cost of continued growth.

Health care spending could

reduce price competitiveness by soaking up an excess share of investment
funds.

More worthy public and private projects may be crowded out.

In the

US, the production cost of a domestic car has 1.2 more health dollars than

18
steel dollars.

In 1990, US companies spent US$3,161 per employee to cover

medical costs which is about 44 percent higher than the estimated US average
per capita health spending of about US$2,200.

Limiting the growth of health

care spending may free up resources for capital investment and may increase

the savings rate (Evans and Stoddart 1990).

Inefficiencies contribute to a higher financial cost: high
administrative expenses of a splintered insurance system, the treatment of
iatrogenic effects of overprescribing drugs, the misuse of skills for lack of

a balanced work force with the performance of lesser tasks by highly skilled
persons, unnecessary and inappropriate care, and rivalrous and profit

maximizing behavior by hospitals, doctors and pharmacists, amongst others.

One major objective of NHI was equitable distribution of resources
with access by all to quality medical care.
could carry a social cost.

Not achieving this objective

Present trends point to the strengthening of a

two-tiered health system with lower quality and restricted access to people
not able to pay the high user fees, special treatment fees and thank you fees.

(The military and police medical care system would be a third tier).

The

medicalization, intensification and technification of care has widened the

vertical cost gap, i.e., the cost of curative and life-saving care between the
least and most expensive patients.

Between 1985 and 1989, the number of

insurance claims for more than five million current Won (approximately

US$7,000) increased 580 percent from 920 to 6,256 cases (Annex 10).

The cap

on benefits, effectively not insuring prolonged hospital care, has put some
care out of reach of lower and middle income people.

What Alternative Cost-Containment Strategies are Available to Korea?

A useful paradigm to analyze alternative strategies for controlling
health care costs has been suggested by Reinhardt (1990).

Options can be

classified in a four-celled two-by-two table (Figure 1).

Strategies are

either: (i) micro or macro management in style; and (ii) supply side or demand

side in emphasis.

19
Micro management demand strategies target patients through cost
sharing (deductibles, co-payments, reimbursement caps, exclusions, premiums),
and submit providers to prospective or retrospective review of clinical

decisions (utilization review, managed care).

Micro management supply strategies encourage technical efficiency

(output per employee), and economic efficiency (maximize output per dollar
invested) in the production of medical treatments, and enhance effectiveness
by minimizing unnecessary and inappropriate care.
mainly on how the provider is paid

Economic incentives focus

for services: capitation fees (the general

practitioner in the UK, HMD’s in the US), fee schedules (most OECD countries),
Diagnosis-Related Groups for hospital payment (DRG’s in the US), and on

attempts to educate the physician in cost-effective clinical decision-making.

A second micro management supply approach is to place legal constraints on the
ownership of facilities that produce health services (e.g. physician ownership

of pharmacies), or legally separate drug prescription from drug dispensing.

Macro management demand strategies limit physician income from

publicly covered funds through expenditure caps, and set prospective global

budgets for hospitals.

In Germany, fees paid to ambulatory care physicians

are limited by a negotiated global budget.

If the total of the physicians’

bill exceeds the negotiated budget in a given quarter, then the fee per claim
is reduced in order to stay within budget.

There is an explicit trade-off

between volume of service and price paid per service; the higher the volume,
the lower the payment per claim; the lower the volume, the higher the payment

per claim (Iglehart, 1991).

Similarly, if payment to Quebec physicians

exceeds the yearly negotiated cap, future fees in the same year are reduced

commensurately.

France, Canada, and Sweden are among OECD countries that have

adopted a global hospital budget system.

Macro management supply strategies limit the physical productive

capacity of the health sector, and regional planning assures an equitable
distribution of this capacity among regions and social classes.

Many

developed countries have reduced the supply of acute care hospital beds as

20
excess beds invite excess inappropriate care3.

Manpower planning assures a

better geographic distribution of physicians (assignment to underdoctored

areas in the UK), and limits the availability of clinical residencies to
contain the number of specialists (surgical residencies in the US).

The

supply of high technology biomedical equipment is controlled as its rapid

diffusion would drive up aggregate costs beyond budgeted resources.

The

American federally mandated health planning structure of the 1970’s (Health

Systems Agencies under Public Law 93-641, Certificate of Need legislation) was
abolished during the Reagan years and institutional planning replaced health

system planning.

The Resource Allocation Working Party (RAWP) formula in the

UK allocates funds between the 14 regions of the English NHS and shifts
resources from overfunded areas to underfunded areas to achieve a socially

more desirable distribution.

Which one of these four strategies or what combination of
strategies would be appropriate for Korea needs further study.

The analysis

should consider the historical development of the health sector and its
cultural context, the present and projected economic environment, and the
political acceptability of those strategies that are most likely to contain

costs and provide accessible quality health care.

3/The number of hospital beds per capita varies widely among communities in
the US. Boston has 4.5 beds per 1,000 people versus 3 beds per 1,000 in New
Haven.
Per capita spending for inpatient care in Boston is consistently about
double that of New Haven.
"Most of the difference in resources used is
invested in the care of patients listed as having medical conditions for which
there is high variation in use rates and for which the rules physicians use to
determine the need for hospitalization - their clinical thresholds - depend on
the supply of beds" (Wennberg 1990).

21

FIGURE 1

ALTERNATIVE COST-CONTAINMENT STRATEGIES IN HEALTH CARE

MICRO MANAGEMENT

Financial incentives:

DEMAND SIDE

STRATEGIES

Patients: deductibles,
co-payments, reimburse­
ment caps, exclusions,
premiums.

STRATEGIES

Limit physician Income
through expenditure caps

Set Prospective global
budgets for hospitals.

Providers: review of
clinical decisions,
managed care, utilizat­
ion review.

Financial incentives:

SUPPLY SIDE

MACRO MANAGEMENT

capitation fees, DRG’s,
fee schedules, educate
doctors in cost-effective
clinical decision making

Legal constraints on
ownership of facilities
and on drug dispensing

Adapted from Reinhardt (1990)

Regulate physical pro­
ductive capacity of
health sector;

Implement sector plans
to assure equitable
distribution of sector
capacity among regions
and social classes.

22

Regulating the Private Sector and Setting Limits

Policy makers in Korea decided in the 1970’s to establish a

national health insurance system.

Universal health insurance is not the cure-

all that is sometimes assumed for dealing with the joint problems of inequity,

inefficiency, and low quality.

It is an important and necessary first step.

Complementary policy decisions are now called for to correct structural sector
deficiencies in three areas:

(i) achieving equity through ensuring financial

access to services for all citizens, and redressing regional imbalances;

(ii)

containing costs in an economic environment where providers are guaranteed
reimbursement for most services provided to an insured population demanding

more medical care; and (iii) improving quality of medical care and monitoring
the medically justified use of medical resources in a financial environment,

where the incentives are to provide more services, even if they are not

necessary or proven effective, to prescribe and dispense more drugs, to

multiply lucrative diagnostic procedures, to prolong hospital stays, and to
request numerous follow-up visits.

A nation can constrain its health system expenditures by either
demand side or supply side strategies.

Korea chose to use mainly a micro

demand side strategy based on the belief in consumer sovereignty.

Yet

countries that have succeeded in bringing their health care expenditures under
control have done so as a direct result of managing sector capacity and

budgets, i.e. a supply side strategy.

The preferred Korean cost containment

strategy is the financial micro management of the doctor-patient relationship:
on the demand side through charging user fees, and on the supply side through

a national cost-plus fee schedule for hospital and physician services.

This

approach has not contained costs, improved quality, or made services more
accessible.

User fees are very high although it could be argued that health

care costs would have increased even more if user fees had not been as high.

This hypothetical argument cannot be proven or disproven.

The fee schedule in

Korea favors the providers; it is more a license to earn a generous profit

than it is a cost containment measure.

23

A nationally uniform fee schedule has been credited to be "the
single most important factor in determining Japan’s health care system" and
the "greatest driving force for containing costs" (Ikegami, 1990) even though
it is procedure and fee-for-service based.

However, fee negotiations in Japan

are conducted centrally by a council with eight representatives from the

providers, eight from the payers, and four members representing the public
interest.

A strong hand at the central level, a willingness to accept

regulation and to live by it as a daily constraint is the common thread
binding countries that have been able to contain health spending and to

achieve an acceptable level of equity.

have shown not to be effective.

Voluntary controls and self-regulation

To achieve a financially and socially

acceptable form of universal coverage regulation must be imposed from the

outside and by political force.

Centrally imposed regulation need not equal

the imposition of arbitrary political, social or managerial values, or of

technocratic values derived from mechanical cost-benefit ratios, but would

entail public consultation in a process of argument, persuasion and consensus
building.

The corollary of regulation is the need to set limits on freedom of
choice.

Achieving an equitable, affordable medical care system of acceptable

quality implies rationing health care and limiting the choices that can be

made by patients and providers.

Shifting resources between population groups

implies reducing or denying some services to one group for the benefit of

another group.

Restricting freedom of choice means that patients cannot

demand how much care they want and where they want it; that physicians are
constrained in their diagnostic and therapeutic choices; and that hospitals

cannot offer the range of services that they would like to‘.

It also means

setting limits on the introduction and diffusion of medical technologies,

4/The federally controlled Medicare program in the allegedly US "private
system" effectively reduces the clinical autonomy of the physician,
establishes the purchase price of standardized products, refuses to pay
hospitals for patients deemed inappropriately admitted, and establishes
minimum volume levels per hospital for specific surgical procedures.

24
which ie a relatively easy process when the technologies have been proven to

be ineffective, but is painful for effective but unaffordable technologies5

Conclusion

Korea’s gradual expansion of medical insurance over a twelve year
period achieving universal coverage has been a major social policy

accomplishment.
process.

This courageous first step is part of an evolutionary

The country now needs to make difficult policy decisions aimed at

managing the sector’s productive capacity and its budgets in order to
guarantee the goal of making affordable quality medical care accessible to all

citizens.

The first step was unopposed but the next steps will threaten

interest groups with acquired rights and strong financial stakes, and are

likely to be strongly resisted.

No country has found it easy to balance

equity concerns with reasonable costs and acceptable quality, and none has

predictably succeeded completely because of built-in conflicts in the

objectives of these three goals.

What is important in this evolutionary

process is to reach consensus among all interested parties on the direction in
which the system should move by defining the strategic goal.

The speed at

which the process will approach this goal is subject to - often

unforeseeable - political, social and economic events.

5/The State of Oregon, in an attempt to develop an explicit system of
rationing health care, ie withholding treatment from Medicaid patients with
diseases for which there are effective but expensive treatments. A young
Medicaid patient with leukemia (Coby Howard) was denied a bone marrow
transplantation on the grounds that it would be more cost-effective for the
State to spend limited resources on preventive programs, such as prenatal
care. The decision-making process for Medicaid patients changes the ground
rules from who is covered to what is covered, and excludes patient-specific
criteria. However, if the patient had been 65 years of age or older, then
Medicare would have paid for the transplant. Young Coby Howard’s death may be
the first one in the US attributable to explicit rationing (for the poor) on
the basis of cost-effectiveness analysis (Wennberg, 1990; Klein, 1991;
McBride, 1990).

25

AHBEX-JL
National Health Expenditures as a Percentage o£ GDP
Korea, Japan and USA, 1960-89

Korea

Japan

USA

1960

N/A

2.9

5.2

1965

N/A

4.3

6.0

1970

N/A

4.4

7.4

1975

2.8

5.5

8.4

1980

3.0

6.4

9.2

1985

5.2

6.6

10.6

1986

5.4

6.7

10.9

1987

5.5

6.8

11.2

1988

5.6



11.5

1989

6.6

6.7

11.8

1990

7.3

Per Capita in USS

290 (1989)

1,137 (1987)

2,354 (1989)

Sources: Health US 1990; Ikegami, 1990; The Korea Bank, Industrial Annual
Statistics for 1975-85; Kwon, 1990

26

ANNEX 2

Infant Mortality per 1,000 Live Births:
Korea, Japan and USA, 1960-1987

Year

Korea

Japan

U.S.

1960

N/A

30.7

26.6

1965

N/A

18.5

24.7

1970

53.0

13.1

20.0

1975

38.0

10.0

16.1

1980

17.3 (36.8)
*

7.5

12.6

1985

13.3 (32.6)

5.5

10.6

1986

12.5

5.2

10.4

1987

12.5

5.0

10.1

1988

12.5

1989

11.0

10.0

Sources:

1. OECD Health Data File, 1989; Health US 1990
2. Republic of Korea, MOHSA Statistical Yearbooks 1981, 1986 and 1989
*

Official data sources after 1986 give the lower rates: the higher
rates were official until 1986 when the time series was revised and
adjusted.
IMR changed from 34.2 in 1983 to 15.7 in 1984

27

ANNEX 3

Life Expectancy at Birth: Korea, Japan and USA, 1960-1989

US

Japan

Korea

male

female

male

female

male

female

1960

51.1

53.7

65.4

70.3

66.7

73.3

1966

59.7

64.1

68.4

73.6

66.7

73.8

1970

59.8

66.7

69.3

74.7

67.2

73.7

1979

62.7

69.1

73.5

78.9

70.0

77.8

1983

63.8

72.2

74.2

79.8

71.0

78.3

1985

64.9

73.3

74.8

80.5

71.2

78.2

1987

66.0

74.1

75.6

81.4

71.5

78.3

1989

66.9

75.0

Sources:

1. Republic of Korea, Economic Planning board, 1990
2. OECD Health Data File, 1989

28

ANNEX 4

Number of Persons Per Practicing Physician in
Korea, Japan and USA, 1960 - 1989

Sources:

Year

Korea

Japan

U.S.

1960

3,022

971

714

1965

2,645

960

637

1970

2,159

916

641

1975

2,100

885

575

1980

1,690

785

508

1985

1,379

678

450

1987

1,216

638

442

1988

1,139

N/A

429

1989

1,066

1.
2.

Social Indicators in Korea, 1990; National Bureau of Statistics,
Economic Planning Bureau
OECD, Health Data File 1989; Health US 1990

29

ANNEX 5

Selected Medical Equipment Per Million Population: Korea and Japan

Korea

Japan

USA

Canada

Germany

(1989)

(1987)

(1987)

(1989)

(1987)

CT Scanner

3.5

37.5

N/A

N/A

N/A

MRI

0.2

1.0

3.7

0.46

0.94

Linear Accelerator

0.7

3.1

N/A

N/A

N/A

Lithotripter (ESWL
)
*

0.7

N/A

0.9

0.16

0.34

Type of Equipment

* Extracorporeal Shock Wave Lithotripsy

Sources:

Korea: MOHSA (1990)
Japan: MHW, Medical Care Facilities Survey, 1989
USA, Canada, Germany: Rublee (1989)

30

ANNEX 6

KOREA: Production and Import o£ Drugs 1983 - 88 (Index 1985=100)

YEAR

PRODUCTION

IMPORT

1983

79.1

89.6

1984

93.3

99.3

1985

100.0

100.0

1986

113.2

95.8

1987

132.1

139.6

1988

158.5

240.6

(US$4,568 million)

(US$560 million)

Source:

MOHSA - Yearbook of Health and Social Statistics 1989

Note:

Between 1980 to 1985 production of drugs increased from 100.0
(index 1980) to 251.5 in 1985. The corresponding figures for
import of drugs are 100.0 and 167.5

31
ANNEX 7

Korea: Trends In Inpatient & Outpatient Volume & Cash Flow in
Urban Hospitals for the last six months of 1989 versus the last
six months of 1988

General
Community
Hospitals

University
Hospitals

Multi-Specialty
Hospitals

Sample Size

25

169

251

Average Bed Size

782

318

97

8Z

15Z

24Z

-14Z

16Z

9Z

7Z

4Z

20Z

Total Outpatient Volume

- 6Z

17Z

32Z

Outpatient Revenue

10Z

21Z

N/A

Inpatient Revenue

19Z

33Z

N/A

Percentage Change in:
Inpatient Discharges

New Outpatients

Outpatient Revisits

Source: MOHSA September 1990 printouts.

CPHE - SOCH.-S,
Kot amanuala

MBA: PrwJoaOlea e» Ml«l tapaatfitwr
*
/ OOP Ml>

1000

1001

ion

ion

1006

ion

10M

1007

ion

ion

2000

17.0

io.a

11.0

11.7

11.7

11.0

11.0

11.9

11.9

11.9

11.9

117.0

186.6

161.0

109.1

in.i

211.6

2M.6

264.0

2M.8

881.6

871.0

20.2

24.6

10.9

16.7

10.7

10.9

19.0

19.0

19.0

19.0

19.0

6.6

7.2

0.9

10.6

12.6

16.0

17.8

21.2

26.2

80.0

86.7

42.6

6.8

0.1

6.6

7.0

7.4

7.9

0.4

9.0

9.6

10.1

10.8

11.6

22.9

19.9

16.8

16.2

16.2

16.3

16.6

16.6

16.6

16.6

16.6

IMP

OOP grewth (neat Ml, X)

OOP

100.0

1. Medical expenditure growth
Korea elasticity a 1.6
(new Inal, X)

Medical expenditure
Medical exp. / OOP (X)

i

2. Medical expenditure growth
Japan A US elasticity a 1.1
' (nonInal, X)

1

Medical expenditure

s.o

6.9

8.2

9.6

11.0

12.6

14.6

16.8

19.4

22.4

26.9

29.9

Medical exp. / COP (X)

6.6

6.9

6.1

6.3

6.6

6.7

6.9

7.1

7.3

7.6

7.8

8.1

19.4

16.8

13.0

12.9

12.9

13.0

13.1

13.1

13.1

13.1

13.1

1. Medical expenditure growth
OECD elasticity a 1.1
(noalnal, X)

Medical expenditure

e.e

6.7

7.8

8.8

10.0

11.2

12.7

14.4

16.2

18.4

20.8

23.6

Medical exp. / GDP (X)

6.#

6.7

6.8

6.8

6.9

6.9

6.0

6.1

6.1

8.2

6.3

6.3

w
N>

1

Source: Bonk staff eatIeats booed en data provided by Korean GovernBont

oo

KOREA: Projection of Medical Expenditure / GDP Ratio

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

17.6

15.3

11.8

11.7

11.7

11.8

11.9

11.9

11.9

11.9

11.9

117.6

136.6

151.6

169.3

189.1

211.5

286.6

264.8

296.3

331.6

871.0

28.2

24.5

18.9

18.7

18.7

18.9

19.0

19.0

19.0

19.0

19.0

8.5

10.5

12.5

14.9

17.6

21.0

25.0

29.7

35.4

42.1

50.1

Medical exp. / CDP (X)

7.2

7.8

8.3

8.8

9.3

9.9

10.6

11.2

11.9

12.7

18.5

2. Medical expenditure growth
Japan A US elasticity = 1.3
' (non i na 1, X)

22.9

19.9

16.3

15.2

15.2

15.3

16.5

16.5

15.5

15.5

15.5

1989
GDP growth (noeinal, X)

100.0

GDP
1. Medical expenditure growth
Korea elasticity = 1.8
(noai na1, X)

Medical expenditure

6.6

1

Medical expenditure

6.6

8.1

9.7

11.2

12.9

14.9

17.2

19.8

22.9

26.4

30.5

35.2

Medical exp. / GDP (X)

6.6

6.9

7.2

7.4

7.6

7.9

8.1

8.4

8.6

8.9

9.2

9.6

19.4

16.8

13.0

12.9

12.9

13.0

13.1

13.1

13.1

18.1

13.1

UJ

3. Medical expenditure growth
OECD elasticity = 1.1
(noeinsl, X)

Medical expenditure

6.6

7.9

9.2

10.4

11.7

- 13.2

16.0

16.9

19.1

21.6

24.5

27.7

Medical exp. / GDP (X)

6.6

6.7

6.8

6.9

6.9

7.0

7.1

7.2

7.2

7.3

7.4

7.5

Source: Bank staff estieate baaed on data provided by Korean Ooverneent

1

34
ANNEX 10

Number of Most Expensive1 Insurance
Claims in Korea, 1985-89

Year

Number of Cases

1985

920



1986

1130

23

1987

1648

46

1988

4272

159

1989

6256

46

Percentage Change

Source: Medical Insurance Statistical Yearbooks 1985-1989; National Federation
of Medical Insurance; Republic of Korea

1/ Claims of more than five million Won (current) or approximately US$7,000.

35

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Iglehart, John K.: "Health Policy Reports Germany’s Health Care System";
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Klein, Rudolf: "On the Oregon Trail: Rationing Health Care"; British
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36

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Schieber, George J. and Poullier, Jean-Pierre: Overview of International
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37
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