[Sustainable Nonviable Indemnity Insurance] 700 Billion Won in Cataract Insurance Claims... The Bottomless 'Silsun'

Expansion of Non-Covered Medical Services
Some Consumer Moral Hazard Issues

Sharp Increase in Multifocal Lens Insurance Claims
Prices Vary Widely from 2.5 to 8.3 Million KRW

1st and 2nd Generation Insurance Claims for Physical Therapy Rank First
Low Out-of-Pocket Costs Lead to Growing Deficits

Incentives Needed to Switch to 4th Generation Insurance

[Asia Economy Reporters Oh Hyung-gil and Ki Ha-young] To improve the chronic deficit structure of indemnity health insurance, experts point out that strengthening the management of non-reimbursable items must be prioritized. They advise that issues such as the wildly varying prices of non-reimbursable items, exemplified by cataract surgery, need to be addressed first. Switching to the fourth-generation indemnity insurance launched this year, which reduces excessive medical use by a small number of users, is also considered a way to reduce losses in indemnity insurance.

700 Billion KRW in Insurance Payments Related to Cataract Disease

Recently, insurance payments related to cataract disease under indemnity insurance have been rapidly increasing. By the third quarter of this year, insurance payments related to cataract disease reached approximately 700 billion KRW, and if this trend continues, it is estimated to exceed 930 billion KRW by the end of the year. Among the proportions of non-reimbursable amounts by indemnity insurance product, the amount related to adjustable intraocular lenses (multifocal lenses) ranked second in first- and second-generation indemnity insurance.

The increase in cataract-related insurance payments is due to a surge in cases using expensive non-reimbursable multifocal lenses and claiming indemnity insurance payments. Accordingly, through the revision of the standard terms and conditions in January 2016, costs for multifocal lenses were excluded from coverage. However, after the revision, while the price of multifocal lenses decreased, non-reimbursable examination fees rose sharply.

In fact, the average price per non-reimbursable examination was higher at clinics (260,000 KRW) than at tertiary general hospitals (80,000 KRW), and even within the same medical institution, price differences among clinics were found to be severe.

In September last year, when non-reimbursable examination fees became reimbursable, the average claim amount for multifocal lenses under indemnity insurance contracts signed before January 2016, when claims for multifocal lenses were possible, surged sharply. The average price of multifocal lenses, which had maintained around 2 million KRW in indemnity insurance claims, rose significantly to the high 3 million KRW range after September last year.

On the other hand, non-reimbursable examination fees remained in the 400,000 to 600,000 KRW range until August last year but dropped to around 20,000 KRW after becoming reimbursable in September. Even among clinics, prices for multifocal lenses vary drastically. Some places charged as low as 250,000 KRW, while others, despite being clinics, charged as high as 8.3 million KRW. The pattern of indemnity insurance claims related to cataract surgery has seen arbitrary and sharp fluctuations in non-reimbursable prices with each policy change, but the management system for this has not functioned properly.

Jung Sung-hee, a research fellow at the Korea Insurance Research Institute, advised, "Cost information on non-reimbursable items like multifocal lenses used in cataract surgery should be investigated and disclosed to enhance the public's right to know, and socially agreed guidelines on non-reimbursable prices and usage should be established."

Fourth-Generation Indemnity Insurance Launched in July... Consumers Turn Away

The fourth-generation indemnity insurance, which began sales in July, is being shunned by consumers. The proportion of fourth-generation indemnity insurance among all indemnity insurance contracts is only 0.8%. There are calls for incentives to encourage switching to this product.

Sales of fourth-generation indemnity insurance by five non-life insurers?Samsung Fire & Marine Insurance, DB Insurance, Hyundai Marine & Fire Insurance, KB Insurance, and Meritz Fire & Marine Insurance?totaled 220,218 cases in the third quarter of this year. This is less than half of the 553,394 cases sold in June, the month immediately before the launch of the fourth generation.

This indicates that consumers opted to switch to the third generation instead of the fourth generation, as encouraged by financial authorities. Especially in the first half of the year, a large number of subscribers switched from the first and second generations to the third generation, which explains the lower-than-expected subscription rate for the fourth generation.

The fourth-generation product features reduced premiums but higher deductibles for non-reimbursable items. Additionally, to prevent excessive medical treatment, non-reimbursable items are separated into special contracts that must be purchased separately, and premium discounts or surcharges are applied based on the amount of non-reimbursable medical use.

While first- and second-generation indemnity insurance had little or no deductible, the fourth generation increased deductibles. Since premiums are surcharged for frequent hospital visitors, consumers perceive no benefit.

It is expected that the increased premium burden on old-generation subscribers will encourage switching to the fourth generation, but since old-generation subscribers tend to use medical services frequently, it is also predicted that they will not switch.

An industry insider said, "Although the fourth-generation indemnity insurance was introduced as a solution to the deficit structure of indemnity insurance, it cannot yet be considered successful," adding, "It is necessary to consider innovative alternatives, such as refunding premiums to subscribers who do not claim insurance benefits."