Excessive Medical Care Sinks Real Loss Insurance into Deficit... Situation Worsened Last Year

Trend of Actual Loss Insurance Deficit (Source: Financial Supervisory Service)

[Asia Economy Reporter Changhwan Lee] The deficit of indemnity health insurance, known as the "second health insurance," has continued for six consecutive years. Despite annual premium increases, the deficit has been growing due to factors such as excessive medical care.

According to the Financial Supervisory Service on the 2nd, the total deficit of indemnity insurance among domestic insurers last year was 2.86 trillion KRW, an increase of about 360 billion KRW compared to the previous year. The deficit has been ongoing for six consecutive years since 2016, with the deficit amount increasing.

As of last year, the total number of contracts held was 35.5 million, up 540,000 contracts (1.6%) from 34.96 million the previous year. Although the number of contracts increased, the loss amount remains large. Despite raising premiums by about 15% overall last year, the incurred loss ratio (incurred losses/premium income) rose to 113.1%, up 1.3 percentage points from the previous year. The higher the incurred loss ratio, the greater the insurer's loss.

The incurred loss ratios by product generation were 1st generation (127.6%), 2nd generation (109.4%), 3rd generation (107.5%), and 4th generation (54.2% (covered 63.2%, non-covered 48.1%)), showing that older products had larger losses.

Source: Financial Supervisory Service

The Financial Supervisory Service analyzed that due to the product structure of older products with low self-pay ratios, it is difficult to respond efficiently to excessive medical use, which is causing the deficit to grow.

Major non-covered medical service items include manual therapy, accommodative intraocular lenses (multifocal lenses for cataract surgery), extracorporeal shock wave therapy, musculoskeletal MRI, and spinal MRI, in that order.

Among non-covered medical expenses, accommodative intraocular lenses for cataract surgery showed the largest increase (10.8 percentage points) compared to the previous year, driving the overall increase in medical expenses.

The Financial Supervisory Service explained that non-covered items inherently have incentives for excessive treatment, acting as the main cause of indemnity insurance fund leakage. The incentives for excessive treatment arise because medical institutions arbitrarily decide prices and treatment volumes, and there are no detailed standards for practitioners or methods.

In particular, indemnity insurance operates on a premium renewal basis, so factors such as increasing loss ratios and premium hikes are passed on to consumers as premium burdens, leading to significant annual premium increases, which is also a concern.

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