[Tax Story] The Future of Hybrid Health Insurance

The achievements of K-quarantine in response to the COVID-19 crisis cannot be separated from the sacrifices and dedication of healthcare workers. The National Health Insurance system, a cornerstone of our country's healthcare system, also plays a solid role as a protective barrier. Thanks to the National Health Insurance system, we can respond to urgent medical demands at a level comparable to other advanced countries in terms of quality, accessibility, and cost.

Along with the efforts of healthcare workers, the National Health Insurance system, which is the backbone of our healthcare system, serves as a reliable bulwark ensuring public health during the pandemic phase. Thanks to the National Health Insurance system, we can respond to urgent medical demands at an excellent level comparable to other advanced countries in terms of quality, accessibility, and cost. To share Korea's National Health Insurance system with countries around the world, the annual 'International Health Insurance Training Course' is held, attracting healthcare professionals from more than 20 countries who benchmark this system.

As of the end of 2019, the total population covered by medical security was 52.88 million, of which 1.49 million were medical aid beneficiaries, leaving 51.39 million covered by National Health Insurance. In 2019, the insurance premiums paid by National Health Insurance subscribers amounted to about 60 trillion won, and medical expenses used were about 86 trillion won, a massive scale comparable to income tax revenue of about 90 trillion won, corporate tax of about 72 trillion won, and value-added tax of about 70 trillion won during the same period.

The National Health Insurance system is a medical security system that imposes insurance premiums according to the ability to pay to prevent excessive household burdens from high medical expenses due to illness or injury, while providing equal coverage regardless of the payment level. The National Health Insurance system adopted by Korea is a type of National Health Insurance, evaluated as a unique form in which a single national institution performs medical security and social solidarity functions as well as income redistribution functions. Although Korea's National Health Insurance premiums are not labeled as taxes, they effectively function as a representative quasi-tax item. Unlike the National Health Service system, which raises funds through general taxation and provides free medical care to all citizens, the insurance principle requires subscribers to bear the obligation to pay premiums. It is also distinguished from the Social Health Insurance system, where multiple insurers raise funds through premiums, by having a single public insurer managing and operating the entire country's National Health Insurance.

The origin of the medical insurance system is considered to be the Medical Protection Act enacted in 1963. At the time of enactment, it was applied optionally to workplaces with 300 or more employees, but after the 1977 amendment, mandatory enrollment was enforced for workplaces with 500 or more employees, and the scope of application was gradually expanded. From 1989, urban area medical insurance was implemented, marking the beginning of the 'universal medical insurance era.' Subsequently, about 200 regional medical insurance associations, the Medical Insurance Corporation for public officials and private school faculty, and about 100 workplace medical insurance associations were sequentially integrated, leading to the establishment of the current National Health Insurance Service in 2000, completing the current structure of Korea's National Health Insurance system.

The benefits of National Health Insurance are broadly categorized into medical benefits, in-kind benefits such as health checkups, nursing expenses, assistive devices for the disabled, out-of-pocket expense ceiling system, and cash benefits for pregnancy and childbirth medical expenses. The coverage is very broad and comprehensive compared to other advanced countries. The monthly quasi-tax health insurance premiums are complicated in calculation and vary greatly among subscribers despite being premiums. Regional subscribers who earn more than 1 million won annually are assessed premiums based on property (60 grades), automobiles (11 grades), and income (97 grades), each assigned scores by grade. The total score is multiplied by the 'amount per score' to calculate the monthly premium per household. Even if one does not own a house or building, the property range is determined based on the deposit and monthly rent of rented housing, and if there are two or more cars, the scores for each car are summed. For income, interest, dividends, business, and other income are reflected at 100% of annual income, while earned and pension income are reflected at 30%.

On the other hand, workplace subscribers are relatively simpler, as premiums are imposed based on the monthly wage amount reported in the previous year, and the total wage amount for the current year is reported for adjustment. The monthly premium is calculated by multiplying the monthly wage by 6.86%, with half paid by the employee and the other half by the employer. For workplace subscribers whose income excluding wages exceeds 34 million won annually, an additional income monthly premium is added based on an income evaluation rate calculated by a separate formula. The health insurance premium rate is determined by the Health Insurance Policy Deliberation Committee under the Ministry of Health and Welfare. Through this process, the minimum monthly premium for regional subscribers is 14,380 won, and the maximum is 3,523,950 won; for workplace subscribers, the minimum is 19,140 won, and the maximum is 7,047,900 won.

Behind the broad benefits of National Health Insurance lie issues of excessive premium burdens and procedural legitimacy. Health insurance premiums, as quasi-taxes, are imposed monthly in proportion to property and income, and in case of non-payment, the National Tax Collection Act is applied for collection procedures such as payment demands and delinquency disposition. However, under the guise of premiums, the 'insurance premium score' and 'amount per score' are set by the Health Insurance Policy Deliberation Committee based on enforcement ordinances, raising voices that this is an evasion of the principle of legality in taxation. To strengthen legislative control like other charges, consideration could be given to incorporating health insurance premiums as a separate earmarked tax similar to social security tax in the U.S. or France. Also, despite identical medical benefits, the difference between the minimum and maximum premium amounts is 245 times for regional subscribers and 368 times for workplace subscribers, which is far from insurance principles and requires correction. To enhance coverage, there are arguments to strengthen links with private insurance and reduce premiums for those who have private insurance above a certain amount, or to introduce a competitive system by establishing social insurance like Germany and France in the long term. Now, 20 years after the establishment of the National Health Insurance Service, it is time to seriously consider the future of a hybrid-type K-Medical Insurance that is operated with a strong insurance spirit while also complying with the practical principle of legality in taxation.

Baek Jeheum, Lawyer at Kim & Chang