[In-Depth Look] Retirees Losing Health Insurance Dependent Status

Kim Tak-gyu, Team Leader of IBK Industrial Bank Banpo Xi WM Center

Enjoying a comfortable life after retirement is something everyone desires. However, unfortunately, the reality is not easy for retirees. Interest rates are low, but grocery prices are rising, and various taxes are making already light wallets even lighter. On top of that, health insurance premiums are weighing heavily on retirees' minds.

In March 2017, the government announced a health insurance reform plan that applied stricter eligibility criteria for health insurance dependents. Before this reform, as long as annual income from each source such as pension income or financial income did not exceed 40 million KRW, the dependent status was maintained. Even if total income was high, if there was no business income and pension and financial incomes were well distributed, dependent status was maintained, allowing retirees to avoid paying separate health insurance premiums. (However, if there was even 1 KRW of business income, dependent status was lost; for freelancers or business operators not requiring business registration, earning over 5 million KRW annually resulted in loss of dependent status.)

However, from July 2018, under the revised criteria, eligibility for dependent status is determined based on whether the combined taxable income from multiple sources exceeds 34 million KRW, rather than by each income type. For example, a person receiving 30 million KRW in pension income and 30 million KRW in financial income previously maintained dependent status because each income was below 40 million KRW. After the reform, the combined taxable income of 60 million KRW exceeds the 34 million KRW threshold, resulting in loss of dependent status. Note that rental income from housing (registered as a housing rental business) or financial income exceeding 10 million KRW annually is included in combined taxable income regardless of whether it was subject to separate taxation.

These income requirements vary depending on the property ownership criteria. If the total property tax base of owned assets exceeds 540 million KRW, the combined taxable income threshold is drastically lowered to 10 million KRW, meaning even those receiving a small pension may lose dependent status. Furthermore, if the property tax base exceeds 900 million KRW, dependent status is lost regardless of income, and the individual is converted to a regional subscriber. Considering the recent sharp rise in housing prices causing significant increases in property tax bases, the number of retirees losing dependent status is expected to increase.

The bigger problem is that this is not the end.

The reform plan announced in March 2017 was divided into stages. The reform applied from July 2018 was Stage 1, and from July 2022, Stage 2 reform is applied, which makes maintaining dependent status even more difficult than Stage 1.

First, regarding income requirements, the combined taxable income threshold is lowered from 34 million KRW in Stage 1 to 20 million KRW in Stage 2, and if the total property tax base exceeds 360 million KRW, the threshold is adjusted to 10 million KRW. The property ownership criteria are also lowered from 900 million KRW to 540 million KRW, meaning that if the property tax base is 540 million KRW or more, dependent status is lost regardless of income.

Whether one maintains or loses dependent status results in a monthly health insurance premium difference of several hundred thousand KRW, creating a significant so-called threshold effect. This requires careful attention. Since the Stage 2 reform income criteria applied from July 2022 are based on income earned in 2021, retirees with limited funds need to adjust their annual income according to their property holdings and make decisions considering various situations such as gifting assets to children.

- Kim Takgyu, Team Leader, Banpo Jayi WM Center, IBK Industrial Bank