4th Generation Real-Expense Insurance 70% Cheaper to Launch in July Next Year

Resolving Premium Burden Discrimination Among Subscribers
Preventing Excessive Medical Use and Moral Hazard
Premium Burden Expected to Decrease by 10-70%

[Image source=Yonhap News]

[Asia Economy Reporter Oh Hyung-gil] The 4th generation indemnity health insurance, which adjusts premiums based on medical usage, will be launched in July next year. While the coverage range and limits are similar to existing indemnity insurance, the premium burden is expected to decrease by up to 70%. This is a measure to restructure the current indemnity insurance system, where a small number of subscribers with high medical usage receive most of the insurance payouts.

On the 9th, the Financial Services Commission announced a plan to restructure indemnity health insurance products, including the launch of the 4th generation indemnity insurance.

First, non-reimbursable expenses, which are cited as a cause of premium increases, will be separated into special contracts, and a premium differentiation system will be introduced to enhance fairness in premium burdens among subscribers.

The 4th generation indemnity insurance will have reimbursable expenses as the main contract and non-reimbursable expenses as special contracts. The coverage limits are set at an annual combined total of KRW 50 million for inpatient and outpatient care for both reimbursable and non-reimbursable expenses (KRW 200,000 per outpatient visit), allowing treatment costs to be covered similarly to existing indemnity insurance coverage (KRW 50 million for inpatient, KRW 54 million for outpatient).

However, for outpatient care, the coverage per visit will decrease from KRW 300,000 (180 visits) to KRW 200,000. Additionally, deductibles and outpatient deductibles will increase. The deductible for reimbursable expenses will rise from the existing 10-20% to 20%, and for non-reimbursable expenses from 20% to 30%. Outpatient deductibles are set at KRW 10,000 for reimbursable and KRW 30,000 for non-reimbursable expenses.

As the out-of-pocket costs increase, premiums will decrease accordingly.

For a 40-year-old male, the premium for the 4th generation indemnity insurance is KRW 10,929, which is 10% cheaper than the new indemnity insurance launched in 2017 (KRW 12,184). It is 50% and 70% cheaper than the standardized indemnity insurance after 2009 (KRW 20,710) and before standardization (KRW 36,679), respectively.

Although premiums are lower, individuals must decide whether to subscribe or switch based on their own circumstances.

Kwon Dae-young, Director of the Financial Industry Bureau at the Financial Services Commission, emphasized, "Although premiums are cheaper than existing products, there are differences in coverage and deductibles, so it is necessary to rationally decide on switching by considering one's health status and medical usage tendencies."

"Premium surcharge and discount designed based on non-reimbursable usage"

The core of the restructuring plan is the separation of non-reimbursable special contracts.

Director Kwon explained, "A foundation has been established to apply a premium differentiation system to the non-reimbursable portion, which has a high potential for excessive medical service provision and usage," adding, "Premiums will be adjusted according to the loss ratios of reimbursable and non-reimbursable expenses, increasing subscribers' understanding of their medical usage patterns and premium levels."

The premium for non-reimbursable expenses, separated as a special contract, will be linked to medical usage and adjusted annually through a premium differentiation system. Subscribers are classified into five grades based on how much insurance payout they have received.

Grade 1, which does not receive non-reimbursable insurance payouts, will receive about a 5% discount on premiums, and if the payout is less than KRW 1 million, the existing premium is maintained.

If the payout is less than KRW 1.5 million, the premium is 100% of the base; less than KRW 3 million, 200%; and KRW 3 million or more, 300% surcharge applies.

The financial authorities explained that only 1.8% of subscribers will be adjusted to a higher premium grade, while 72.9% will receive discounts and 25.3% will maintain their current premiums.

However, the premium differentiation system will be applied starting three years after the product launch and will not apply to existing indemnity insurance subscribers.

Additionally, it will not apply to those eligible for special calculation under the National Health Insurance Act, cancer patients, heart disease patients, or those eligible for long-term care under the Long-Term Care Insurance Act, including those diagnosed with dementia or cerebrovascular diseases at grades 1 or 2.

Director Kwon stated, "The premium differentiation system requires a sufficient number of subscribers to provide stable discount and surcharge rates," and added, "Considering the number of new indemnity insurance subscribers and insurance payout trends, a minimum preparation period of three years is necessary for stable operation of the premium differentiation system."

Meanwhile, the re-subscription period for indemnity insurance will be shortened from 15 years to 5 years. The financial authorities plan to thoroughly manage the process to ensure that coverage does not drastically reduce or change upon re-subscription due to the shorter period.

The financial authorities plan to complete regulatory review by the Regulatory Reform Committee and approval by the Financial Services Commission by April next year and prepare amendments to the Insurance Business Supervision Enforcement Rules accordingly.

This content was produced with the assistance of AI translation services.