[Q&A] "4th Generation Silson Insurance Premiums Are Affordable... Health Status and Other Factors Should Be Considered for Switching"

[Asia Economy Reporter Oh Hyung-gil] Starting from July next year, indemnity health insurance with differentiated premiums based on medical usage will be introduced.

Policyholders with low medical usage will receive premium discounts, while those with high usage will face surcharges. However, since the deductible is higher, it is necessary to carefully consider whether to switch from existing products.

On the 9th, the Financial Services Commission announced the "Indemnity Health Insurance Product Structure Reform Plan" containing these details. Kwon Dae-young, Director of the Financial Industry Bureau, stated, "This reform plan can be seen as addressing the issue of non-reimbursed medical services, which currently lack control mechanisms, through a differentiated system, and resolving the fairness problem in premium burdens among insurers. It is also expected to contribute to stabilizing insurers' loss ratios in the long term."

Below is a Q&A with Director Kwon Dae-young.

- How will this affect the loss ratio of indemnity health insurance?

▲ This product will be launched in July next year. Since there are existing products being sold, it may take considerable time. In the long term, it is expected to contribute to stabilizing the loss ratio.

- The insurance industry points out that this reform plan is insufficient. What is your response?

▲ Since this product was created in 1999, various complex causes have led to problems. Fundamentally, we reflected these issues in restructuring the product. It can be seen as addressing the problem of non-reimbursed medical services, which currently lack control mechanisms, through a differentiated system, and resolving the fairness issue in premium burdens among insurers. Additionally, if the Ministry of Health and Welfare strengthens management of non-reimbursed medical services as planned, the system is expected to improve.

- Why separate the entire non-reimbursed services, unlike the previous partial separation of some over-treatment items?

▲ Managing the entire category together allows insurance products to be supplied at a lower price. Furthermore, by distinguishing between reimbursed and non-reimbursed services, it is possible to analyze the impact of each on premiums. Consumers can make rational choices by reviewing these analysis results.

- How will the premium differentiation based on policyholders' medical usage be applied?

▲ The next year's non-reimbursed premium will be determined based on the ‘non-reimbursed’ insurance claims paid during the 12 months before premium renewal. The claims history resets annually. For example, if a policyholder had many claims in 2018, the 2019 premium will be surcharged, but if there are no claims in 2019, the 2020 premium will be discounted. However, this method will be applied starting three years later. From July next year until 2024, no discounts or surcharges will apply, and premiums will be paid at the basic rate.

- What benefits will consumers gain from the introduction of premium differentiation?

▲ One major problem with current indemnity health insurance is the serious fairness issue among policyholders. Costs from moral hazard such as over-treatment and excessive medical use are passed on as premium increases to all policyholders. Applying premium differentiation can encourage appropriate medical use among some ‘non-reimbursed’ over-users, thereby mitigating overall premium increases. Considering that most indemnity policyholders have no claims, the majority are expected to benefit from premium discounts.

- Will existing indemnity health insurance policyholders be subject to premium differentiation?

▲ Premium differentiation will not apply to existing products but only to consumers newly subscribing to the restructured products. However, existing policyholders can switch to the new products. We are considering a plan allowing conversion without additional screening except for limited cases requiring separate review (negative listing approach).

- Is it unreasonable to surcharge premiums based on high medical usage in indemnity health insurance that covers diseases?

▲ The premium differentiation applies only to ‘non-reimbursed’ services, which are elective rather than essential treatments covered by ‘reimbursed’ services. Since the health insurance coverage expansion policy aims to convert all medical non-reimbursed services to reimbursed, non-reimbursed services mainly consist of treatments with low medical necessity. Premium differentiation will not apply to essential reimbursed services to avoid restricting access. Patients with severe diseases such as cancer, who are eligible for special calculation under the National Health Insurance Act, are exempt from premium differentiation.

- Could premium differentiation increase the burden on elderly people who may have high non-reimbursed medical usage?

▲ Elderly people who may have high medical usage and are long-term care recipients under the Long-Term Care Insurance Act are exempt from premium differentiation. As of 2019, about 1.5% of the population aged 65 and over fall into the 1st or 2nd grade long-term care recipients. Also, if policyholders find it difficult to maintain indemnity insurance due to income reduction and premium increases in old age, they may consider choosing the non-differentiated Old-age Indemnity Health Insurance (available for ages 50?75).

- Why is there a three-year grace period before applying premium differentiation?

▲ To provide statistically stable discount and surcharge rates, a sufficient number of policyholders subject to premium differentiation (discount or surcharge) is required. Considering the number of new indemnity subscribers and claim cases, a minimum preparation period of three years after the new product launch is necessary for stable operation.

- Will the current 10% premium discount for two consecutive claim-free years be maintained after premium differentiation is implemented?

▲ Premium differentiation is based on risk premiums, while the 10% discount for two consecutive claim-free years is based on additional premiums, so the two systems will operate independently. Claim-free policyholders for two consecutive years will receive both the 10% additional premium discount and the risk premium discount from premium differentiation.

- Will premium differentiation be introduced for group indemnity health insurance?

▲ Premium differentiation will not apply to group indemnity health insurance. Due to the structural characteristics where the insurance period is one year and the policyholder (group) can change insurers annually, applying premium differentiation is difficult.

- Will premium differentiation be introduced for indemnity health insurance for policyholders with pre-existing conditions or for old-age indemnity insurance?

▲ Premium differentiation will not apply to indemnity insurance for policyholders with pre-existing conditions or old-age indemnity insurance. These products have different structures and are designed for policyholders who inherently have higher medical usage, such as those with pre-existing conditions or elderly individuals.

- Is it possible to subscribe only to the non-reimbursed coverage rider?

▲ The restructured indemnity health insurance will have reimbursed coverage as the basic contract and non-reimbursed coverage as a rider. Therefore, subscribing only to the rider (non-reimbursed coverage) is not possible.

- The new product’s premiums are lower, but does this mean coverage scope and limits have been reduced?

▲ Although the new product separates reimbursed (main contract) and non-reimbursed (rider) coverage, subscribing to both provides coverage scope and limits similar to before, covering most disease and injury treatment costs. The annual coverage limit for hospitalization and outpatient care due to disease or injury is set at about 100 million KRW (50 million KRW for reimbursed and 50 million KRW for non-reimbursed), similar to before. As of 2019, only 0.005% of policyholders received claims exceeding 50 million KRW.

- The coverage change cycle (re-subscription cycle) has been shortened from 15 to 5 years. If coverage is significantly reduced every 5 years, wouldn’t this disadvantage consumers?

▲ The shorter coverage change (re-subscription) cycle aims to allow indemnity insurance to timely adjust coverage in line with changes in the medical environment and system, considering linkage with National Health Insurance. Shortening the cycle enables rapid inclusion of certain diseases in coverage, benefiting existing policyholders. For example, the old-age indemnity insurance launched in 2014 expanded coverage (adding mental illness coverage) upon the 3-year re-subscription cycle. Since indemnity insurance coverage is adjusted under financial supervisory regulations and standard terms since 2009 standardization, significant coverage reductions are unlikely. Insurers cannot refuse re-subscription based on past claim history.

- Previously, new indemnity insurance allowed selection of three major riders, but integrating these into the non-reimbursed product limits consumer choice. Is this excessive?

▲ Considering that most (99.6%) of new indemnity subscribers had all three major riders, it is hard to say the restructured product limits consumer choice. From a consumer protection perspective, integrating the three major riders into the new product’s non-reimbursed coverage is appropriate. Treatments previously considered unnecessary may become necessary depending on patient circumstances, and the new product offers these coverages at a relatively lower price. While the three major riders cost an additional 2,500 KRW in the old product, the new product provides all non-reimbursed coverage for an additional 1,300 KRW.

- For existing policyholders, is switching to the new product advantageous?

▲ The new indemnity health insurance product offers lower premiums compared to existing products, which is advantageous price-wise. However, since coverage details and deductibles differ, policyholders should consider their health status and medical usage tendencies before deciding to switch. Especially, as the new product applies premium differentiation based on non-reimbursed medical usage, policyholders should evaluate their health management and rational use of elective non-reimbursed services.

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