[Practical Finance] Should You Switch to 4th Generation Real Loss Insurance If You Rarely Visit Hospitals?

From the 1st of Next Month, '4th Generation' Product Changes
Insurance Premiums Fluctuate Based on Medical Usage

[Asia Economy Reporter Oh Hyung-gil] The indemnity health insurance, often called the ‘second health insurance,’ will be changed to a ‘4th generation’ product starting next month on the 1st. This is the first change in four years since the 3rd generation update in 2017. The biggest feature of the 4th generation indemnity insurance is that premiums are discounted or surcharged based on the amount of medical service usage.

It aims to prevent excessive medical use by lowering premiums compared to previous generations but increasing premiums up to four times for those who frequently visit hospitals.

Existing indemnity insurance subscribers now face a choice: whether to keep their current insurance or switch to the 4th generation indemnity insurance. Experts advise selecting the insurance product that suits one’s circumstances by comprehensively considering future medical usage and economic conditions. A premium surcharge in the 4th generation indemnity insurance does not necessarily mean it is a bad product for consumers.

65% of indemnity subscribers have no claims
Most subscribers expected to receive premium discounts

◆Strengthened prevention of excessive non-reimbursed medical care= The 4th generation indemnity insurance applies a premium differentiation system to non-reimbursed (non-covered) medical expenses. The more insurance claims made, the higher the premiums the insured must pay. This aims to resolve the problem where some subscribers excessively claim insurance benefits through non-reimbursed medical use, causing premium burdens to fall on the majority of good-faith subscribers.

To induce prevention of excessive non-reimbursed medical care, non-reimbursed expenses are classified into five levels based on medical usage volume. If the non-reimbursed insurance claim amount exceeds 3 million KRW in the previous year, premiums can be surcharged up to 300% compared to the standard premium.

If the non-reimbursed claim amount is between 1.5 million KRW and less than 3 million KRW, or between 1 million KRW and less than 1.5 million KRW, the surcharge rates are lowered to 200% and 100%, respectively. If the non-reimbursed claim amount is less than 1 million KRW, the premium will not increase the following year.

Conversely, subscribers who do not use non-reimbursed services can receive a premium discount of around 5%. The financial authorities have set the principle that the surcharge funds from surcharge-targeted subscribers will be used to discount premiums for discount-targeted subscribers, so the discount rate may vary. Also, surcharge targets exclude special cases such as cancer, heart disease patients, rare and intractable disease patients, and long-term care recipients rated 1st or 2nd grade.

This system will be applied starting three years after launch. From July next year until 2024, no discounts or surcharges will be applied, so subscribers can pay the basic grade premium.

Another feature is that the deductible rate has been increased while lowering premiums. For example, the 3rd generation deductible rates were 10-20% for reimbursed and 20-30% for non-reimbursed, whereas the 4th generation rates are 20% for reimbursed and 30% for non-reimbursed. The monthly premium for a man in his 40s is 10,877 KRW, which is 1,307 KRW cheaper than the 3rd generation (12,184 KRW).

For the 1st and 2nd generations, the deductible rates were 0% and 10%, and monthly premiums (for men in their 40s) were 42,467 KRW and 22,753 KRW, respectively. Subscribers must choose whether to pay higher premiums with lower deductibles or pay lower premiums but higher deductibles each time they visit a hospital.

The 4th generation indemnity insurance also expanded coverage for infertility, pregnancy-related diseases, and acne. Coverage for infertility-related conditions such as habitual miscarriage, infertility, and complications related to artificial insemination has been expanded. However, to prevent adverse selection, coverage starts two years after the insurance subscription date.

When subscribing during pregnancy, congenital brain diseases of the newborn are also covered. This applies only if the fetus was insured and only for reimbursed parts recognized as unavoidable treatment. Severe abscesses and other skin diseases requiring treatment (recognized reimbursed parts) are also covered.

Up to 300% surcharge for frequent claims
Non-reimbursed heavy users among elderly disadvantaged

◆Who is the 4th generation indemnity insurance for?= The 4th generation indemnity insurance was introduced to address the problem of rapidly rising premiums due to increasing loss ratios. Currently, there is a serious fairness issue among indemnity insurance subscribers. Costs caused by moral hazard such as excessive treatment and overuse of medical services are passed on to all subscribers through premium increases.

With the premium differentiation system, excessive medical users can be encouraged to use medical services appropriately, and the overall premium increase rate borne by all subscribers can be mitigated. Considering that 65% of indemnity subscribers have no claims, most subscribers are expected to benefit from premium discounts.

However, whether to subscribe to the 4th generation indemnity insurance is another matter. For elderly people who frequently use hospitals, especially non-reimbursed services, the 4th generation may be disadvantageous. Conversely, younger people who use hospitals less frequently may benefit from the cheaper premiums of the 4th generation.

Meanwhile, the insurance industry expresses concerns that the chronic deficit structure will continue even with the introduction of the 4th generation indemnity insurance. According to the current insurance industry, among 24 life insurance companies, only five companies including Samsung, Hanwha, Kyobo, NH Nonghyup, and Heungkuk are expected to sell the 4th generation indemnity insurance. All 10 non-life insurance companies plan to launch the 4th generation indemnity insurance.

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