KCCI "Even with Premium Increases, Long-term Care Insurance Faces Depletion Risk, Spending Efficiency Needed"

Annual Increase in Insurance Premiums Alone Deemed Unsustainable Analysis

Source: Korea Employers Federation

[Asia Economy Reporter Changhwan Lee] An analysis has emerged that the finances of the long-term care insurance, an important social insurance service for the elderly, are on the brink of depletion and that the system needs to be restructured by improving expenditure efficiency.

The Korea Employers Federation (KEF) released a report titled "Analysis of Major Issues in Long-Term Care Insurance 2021" on the 6th, stating that despite doubling the insurance premiums over the past four years due to financial deterioration, the accumulated reserves of long-term care insurance decreased from 4.4 months’ worth in 2017 to 0.98 months’ worth in 2020.

According to the KEF report, the average monthly long-term care insurance premium per workplace subscriber increased by 107.9%, from 13,958 KRW in 2017 to 29,022 KRW as of June 2021.

The main reason for the premium more than doubling was that the long-term care insurance premium rate rose from 6.55% of the health insurance premium in 2017 to 11.52% in 2021, marking an unprecedented increase of 75.9% in social insurance history over the four years from 2018 to 2021. Natural increases in premiums due to wage hikes and a 12.1% increase in health insurance premium rates over the past four years also contributed.

The sharp rise in premiums was due to increased insurance expenditures. While the population aged 65 and older grew at an average annual rate of 4.8% over the recent three years (2018?2020), long-term care insurance expenditures increased at an average annual rate of 20.0% during the same period.

In particular, the report pointed out that although aging is generally cited as the main cause of the rapid increase in long-term care insurance expenditures, institutional factors such as expansion of beneficiary coverage, strengthened benefits including reduced out-of-pocket payments, and minimum wage increases had a greater impact on the steeper rise in expenditures than aging itself.

It explained that the number of insurance beneficiaries increased by 39.4% over the recent three years (2018?2020), and the number of people receiving reduced out-of-pocket payments surged by 161.8% during the same period, proving this point.

Despite increased insurance revenue from recent premium hikes, the accumulated reserves of long-term care insurance fell by 61.3%, from 1.9799 trillion KRW in 2017 to 766.2 billion KRW in 2020.

As a result, the reserve ratio, which indicates the level at which the current year’s reserves can cover expenditures, plummeted from 0.37 times in 2017 to 0.08 times in 2020, placing long-term care insurance in a financial depletion crisis.

Raising Premium Rates Alone Has Limits in Ensuring Sustainability; Structural Reform Needed

KEF suggested that repeatedly raising premium rates annually has limitations in securing insurance sustainability, and urgent measures such as stable management of long-term care insurance premium rates, expenditure efficiency, and expanded government subsidies are necessary.

The analysis warned that if the costs associated with aging are covered solely by sharply increasing long-term care insurance premium rates, both current and future generations will inevitably bear an excessive burden beyond their payment capacity.

Accordingly, it recommended managing long-term care insurance premiums at an appropriate level while curbing the growth of insurance expenditures through comprehensive expenditure efficiency policies, including price differentiation based on the quality and usage of care services, reviewing insurance coverage and out-of-pocket reduction systems, and blocking financial leakage.

It also emphasized raising government subsidies, currently set at 20% of expected revenue, to over 30% as a way to share the social costs of aging, with plans for gradual additional increases according to future aging trends.

Lee Hyung-jun, Head of Employment and Social Policy at KEF, stated, “Although the depletion of long-term care insurance finances was predicted from 2016 to the early 2020s, there have been no government measures to restore financial soundness other than increasing the burden on subscribers through high premium hikes,” adding, “It is now time for strong expenditure efficiency measures rather than expanding benefits that cause additional burdens.”

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