"If You Always Got Treatment for Stiffness... 'Not Anymore': Popular Treatments to Be Excluded from Indemnity Health Insurance"

Full-scale Overhaul of Indemnity Insurance
Maintaining 50 Million Won Limit for Severe Cases, Reducing Non-reimbursable Coverage to 10 Million Won

First- to Fourth-generation Policyholders Can Switch to New Products Without Screening
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The government will completely overhaul indemnity health insurance, shifting its focus to coverage for severe diseases and essential medical care. Coverage for outpatient care with reimbursable items will be linked to the out-of-pocket ratio under the National Health Insurance Service (NHIS), while non-reimbursable items will be split into severe and non-severe categories, restructuring the overall coverage system. The objective is to strengthen coverage for essential medical services, adjust coverage for non-essential treatments, reduce premium burdens, and enhance the efficiency of the healthcare system. The government will also implement the "Optional Discount Rider System" and the "Contract Conversion Discount System" for early indemnity insurance subscribers starting in November 2026.

The coverage scope for non-severe non-reimbursable services (Special Clause 2), identified as a major cause of excessive medical use, will be significantly adjusted. Some items, such as manual therapy and other musculoskeletal physical therapies, extracorporeal shock wave therapy, and non-reimbursable injections, will be excluded from coverage. Getty Images

Non-reimbursable Coverage Split into Severe and Non-severe, Differential Coverage Introduced... Annual KRW 5 Million Cap for Inpatient Care at Advanced and General Hospitals

The Financial Services Commission and the Financial Supervisory Service announced on May 5 that they have prepared a reform plan for the so-called "5th Generation Indemnity Health Insurance" and have fundamentally redesigned the existing product structure. Although indemnity insurance has been established as a private safety net for medical expenses not covered by the National Health Insurance, the authorities have determined that a low out-of-pocket ratio has encouraged the use of non-essential medical services and led to rising premiums.

Lee Dongyeop, Director of Insurance Division at the Financial Services Commission, explained, "Last year, the loss ratio for indemnity insurance recorded a deficit of about KRW 1.87 trillion, with annual deficits hovering around KRW 2 trillion. Concerns are mounting over the sustainability of indemnity insurance due to various factors, including excessive medical use, non-reimbursable medical shopping, the financial burden on the health insurance system from simultaneous use of reimbursable and non-reimbursable services, concentration of care on non-reimbursable treatments, and issues of fairness among policyholders."

The core of this reform is to divide the coverage structure into "reimbursable" and "non-reimbursable" categories, and in particular, to further subdivide non-reimbursable items into severe and non-severe for differential coverage.

First, reimbursable items will be managed separately for inpatient and outpatient care. For inpatient treatment, since most cases involve unavoidable medical use such as severe diseases and surgeries, the current 20% out-of-pocket ratio will be maintained.

On the other hand, for outpatient (ambulatory) care, the out-of-pocket ratio will be adjusted based on the NHIS copayment rate, with variable rates depending on the type of medical institution and treatment item.

For reimbursable outpatient care, the copayment will be determined as the highest among the following: the amount calculated by multiplying the NHIS copayment rate, 20% of the eligible medical expenses, and the minimum fixed copayment (KRW 10,000 to KRW 20,000). This is expected to increase the financial burden for large hospital visits, while reducing it for visits to local clinics.

In addition, reimbursable medical expenses related to pregnancy, childbirth, and developmental disabilities will newly be included in the coverage. This is intended to expand support for essential medical expenses in the era of low birthrates.

The most significant changes in this reform are found in the non-reimbursable coverage items. Previously, these were managed as a single category, but moving forward, they will be divided into "severe non-reimbursable (Special Clause 1)" and "non-severe non-reimbursable (Special Clause 2)."

Severe non-reimbursable items (Special Clause 1) refer to coverage for treatment of severe diseases, and will maintain the current coverage limit of KRW 50 million, with a 30% out-of-pocket ratio. In addition, for inpatient care at advanced or general hospitals, a new annual personal cap will be introduced: if an individual's annual out-of-pocket expenses exceed KRW 5 million, the excess will be covered by indemnity insurance.

By contrast, non-severe non-reimbursable items (Special Clause 2), identified as a major cause of excessive medical use, will see their coverage scope significantly reduced. The annual coverage limit will be lowered from KRW 50 million to KRW 10 million, and the out-of-pocket ratio will be increased from 30% to 50%. Some items, such as manual therapy and other musculoskeletal physical therapies, extracorporeal shock wave therapy, and non-reimbursable injections, will be excluded from coverage.

Additionally, treatments classified as "Grade D" by the National Evidence-based Healthcare Collaborating Agency (NECA)—deemed to have low effectiveness in medical technology reassessment—will also be excluded from indemnity insurance coverage.

Non-reimbursable riders will be designed as optional add-ons. Consumers may choose to enroll in coverage for reimbursable items only, or selectively add severe or non-severe non-reimbursable coverage, enabling them to tailor their insurance according to their medical usage patterns and desired premium level.

Furthermore, the 5th generation Special Clause 2 will introduce a no-claims discount and a differentiated premium system for non-severe non-reimbursable items, reducing premium burdens for policyholders with low usage while ensuring those with higher usage pay premiums commensurate with their level of use.

As a result of this reform, premiums are expected to decrease. Specifically, the premium for 5th generation indemnity insurance is expected to be about 30% lower than the 4th generation, and more than 50% lower compared to the 1st and 2nd generations. In particular, if a subscriber chooses coverage focused only on reimbursable and severe non-reimbursable items, the premium could drop to about half the current level. As of the end of last year, the percentage of policyholders by generation was: 1st generation 17.1%, 2nd generation 41.2%, 3rd generation around 21%, and 4th generation 17.7%.

Inducing Policy Switches: Introduction of Optional Discount and Contract Conversion Discount Systems for Existing Policyholders

Measures have also been prepared to encourage switching from existing products and to benefit current policyholders. For early indemnity insurance contracts signed before March 2013, which have no re-enrollment requirement, the "Optional Discount Rider" and "Contract Conversion Discount System" will be introduced.

The Optional Discount Rider allows policyholders to keep their existing contracts but lower their premiums by excluding unnecessary coverage. For example, by excluding musculoskeletal physical therapy, non-reimbursable injections, and MRI scans, or by increasing the out-of-pocket ratio, policyholders can receive a premium discount of approximately 30% to 40%.

The Contract Conversion Discount System provides a temporary premium discount for those who convert their existing contracts to the 5th generation indemnity insurance. For example, a 50% discount on premiums could be applied for three years. This system will be implemented from November 2026, and will be operated for six months on a trial basis, after which an extension may be considered.

Consumer protection measures have also been strengthened. The criteria for compensation in cases of overlapping indemnity insurance will be clarified, and policyholders with group insurance or those staying overseas for extended periods will be allowed to suspend premium payments. In addition, procedures will be improved so that consumers can compare and subscribe to other companies' products while maintaining their existing contracts.

Financial authorities will continue to monitor loss ratios, medical usage patterns, and trends in insurance payouts, supplementing the system as necessary. Oversight of business practices such as mis-selling and bundled sales will also be reinforced.

Director Lee added, "With the introduction of the commission cap system scheduled for July, we are closely monitoring the potential for so-called 'discontinuation marketing' being raised by some corporate insurance agencies (GAs)."

A total of 16 insurers—including 7 life insurance companies and 9 non-life insurance companies—will begin selling the 5th generation indemnity insurance starting May 6. Consumers can sign up by visiting insurance company branches, consulting with insurance planners, using the Insurance Damoa platform, or calling customer centers. However, due to internal IT preparations, Shinhan EZ General Insurance will begin sales from June 1.

Existing policyholders of 1st to 4th generation indemnity insurance can switch to the 5th generation product with the same insurer without a separate review, and if there is no claims history after the switch, they can revert to their previous product within six months.

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