Healthcare System in Korea?

Dear Korean,

I came across you blog from a reference to your "Fan Death is Real" post (which I LOVED btw, thanks for putting us expats in our place a little bit). I was wondering if you could explain how the Korean healthcare system works. It's amazing, efficient and dirt-cheap. I'm a Canadian, who avoids hospitals and clinics like the plague because back home you will sit and wait in an emergency room for 4 hours unless you are bleeding profusely from a major artery and have to wait at least 3 months to get an appointment with your doctor, never mind how long you have to wait for a specialist. Never mind how much everybody talks about how great our free health care system is. It is great believe me, to not have to give up your university career because you've been sidelined by appendicitis or a tonsillectomy. But it's completely backlogged, and all our nurses and doctors are overworked and medicine is ridiculously expensive. Since living in Korea, I've been amazed by the medical system here. Today I walked into an EMPTY throat specialist’s office with tonsillitis. Within 15 minutes I was out the door with a prescription in hand for less than 3500 won [= $3.50] and on top of that my medication cost all of 3200 won [= $3.20]! How? How does that happen? How does all the medical equipment, office space, staff and doctors salaries get paid for and still charge so little to the patient? Same goes for pharmacies. In Canada and America, it insanely expensive to get medication. How do the Koreans do it???

Lisa
Suncheon, Jeollanamdo, South Korea


Dear Lisa,

Very smart question strategy – you praise a post near and dear to the Korean’s heart (i.e. the reality of Fan Death) and then ask a current events topic. That’s the way to jump the line at AAK!

First, a caveat: the Korean has not been following the details of America’s healthcare debate at all, so he does not have a solid grasp of how the proposed Obamacare is supposed to work out.

Sorry Mr. President, the Korean just doesn't care.

Part of the reason why the Korean did not follow the debate was because the entire thing was so moronic: to the Korean, it is obvious that a country should guarantee its citizens a health insurance, and the cheapest way to achieve that is a single-payer system like Korea’s. Scores of advanced and semi-advanced countries in the world manage to do this without turning their country into Russia. (Unless, of course, if their country is Russia.) There is no point in watching a debate where the other side is arguing the sky isn’t blue.

Another caveat is that the Korean does not know much about how precisely European/Canadian healthcare systems work either, other than some broad-stroke knowledge. (Here is a tip for aspiring writers – write only about what you know. That way, you end up looking like you know everything.) So while the Korean knows that Korea’s healthcare system basically has the same structure as Canada’s, he can’t really talk about which details in Korea’s healthcare system that makes it stand out. All he knows is what he already knew plus some research.

At any rate, Korea’s healthcare system is absolutely beautiful. Basically, everyone is covered for everything (with some amount of deductible) as long as the procedure is not elective. As Lisa noted, the wait time is short and everything is dirt-cheap. It has been this way since 1989. The Korean works in the U.S. for a large company that provides top-rated health insurance, and it still sucks compared to the national health insurance in Korea. “Best healthcare in the world” his ass – what kind of best healthcare in the world makes the patient, half dead from crippling coughs and chills, call ahead to make sure that the doctor’s office nearest from the patient takes his health insurance? Stupid, just stupid.

Structure of Healthcare System in Korea

In Korea, doctor’s offices and hospitals are privately owned, except a small number of community hospitals. There is a national health insurance, funded by nationally levied tax, in which everyone must enroll. Private health insurance exists to cover expenses that the national health insurance does not cover.

The centerpiece of this structure is the national health insurance, governed by National Health Insurance Act. As the Korean mentioned earlier, every Korean citizen living in Korea (and a few others) are automatically enrolled in the health insurance. The only exception is those who receive “medical protection,” which is an out-and-out welfare system – essentially, everything is paid for and there is no premium. This is reserved for the extremely poor, refugees, children of independence fighters and other significant contributors to Korea, possessors of important intangible cultural products (e.g. artisans of very rare traditional ceramics,) and so on.

Everyone who is enrolled in the insurance must pay a premium. There are two avenues through which payments are made. Those who have a job pay half of the premium deducted out of their paycheck, and the employing company pays the other half. Those who do not have a job pay their premium directly to the death panel National Health Insurance Corporation, a government-owned corporation that administers the insurance. The two types of premium are roughly the same in amount, but not identical. The amount of the premium is determined like tax -- the more you earn, the more you pay. In 2009, on average, each family in Korea paid around $8,000 a year for the premium.

The NHIC is run by a number of committees, whose members usually are representatives of the medical community, taxpayers, the government, etc. For example, the board of directors that governs the entire corporation has 18 members, which is broken down as follows: the chairman is appointed by the president based on the recommendation from the Minister of Health, Welfare and Family; the chairman in turn appoints five members; heads of related governmental agencies take up four positions; unions, employer associations, consumer organizations, fishing/agricultural associations can each appoint two.

Under this leadership, the biggest function of the NHIC is to set the cost of every single medical procedure that the law covers. This is a big range, since the law requires coverage of all medical procedures except electives and certain other expenses, such as an upgrade to a nicer hospital room or food. Significantly, this covers medicine – which makes prescription medicine extremely cheap. [Updated with commenter Brett's point:] NHIC insurance also covers traditional medicine (herbal remedies, acupuncture, etc.) and other semi-medical practitioners, like chiropractors.

The Korean had pneumonia when he was a kid, and spent about a month in one of these rooms.

So this is how the whole machinery works, in a very simplified form. A patient visits a doctor. After diagnosis, the patient pays a small amount of deductible – usually a small percentage of the cost set by NHIC (which varies from the type of treatment and the type of doctors one visits) – to obtain a prescription. The patient takes the prescription to a pharmacy, where again she pays a small amount of deductible to get her medicine. Then the doctor and the pharmacist claim the full cost (which is pre-set by NHIC) of the visit to the NHIC. The NHIC pays the doctor and the pharmacist, out of the premium that every Korean has paid.

Although the national health insurance covers a lot, private health insurance companies still exist in Korea. Even with the national health insurance coverage, certain disease or chronic conditions – for example, cancer – can still be very costly for middle class Koreans, because the treatments for those diseases include many options that are considered elective, and the treatments tend to get drawn out while rendering the patients unable to work. Therefore, many Koreans also join a private health insurance that covers what the national health insurance does not cover, such as deductibles (which can get high, since it’s a percentage of the NHIC-set cost rather than an absolute amount,) lost wages, etc.

The Good

The benefits of this system are obvious. First, everyone gets affordable healthcare. This is huge, and cannot be stated with enough emphasis -- in Korea, everyone can visit just about any doctor for anything for less than $5 [fixed because of overstatement] relatively small amount of money. Koreans very frequently visit the doctor's office for any common cold. Often, this leads to early detection/treatment of a more serious illness.

Also, Korean patients almost never have to deal with any bureaucracy, since main exchange of paperwork happens between the doctor and the NHIC. As long as the patients can pay the deductibles, they can visit any doctor in Korea. Given that nearly every corner in the country can be traveled under three hours on a high-speed train, it is very easy to visit the best doctor in the country (who would likely be in Seoul) if anyone wants to.

On top of that, the whole system is really cheap. No one likes taxes, and Koreans grumble on the national health insurance fee as much as anyone. But Koreans on the whole spend about 6.3 percent of its GDP on healthcare, which is lower than Europe/Canada (which is around 10 percent) and a lot lower than America (which spends appalling 15 percent.) The low cost is partly achieved by having a single-payer system, which significantly lowers the administrative cost.

The Bad

But there is no such thing as free lunch. If the system is cheap, it means that it is squeezing savings from someone or something. Then where are the savings coming from (other than the single-payer administrative cost)?

First, the coverage under the Korean national health insurance is not as good as the European countries, especially when it comes to more expensive diseases. Given that Koreans generally pay less for premium compared Europeans/Canadians, NHIC tends to be more conservative on what type of procedure counts as covered. This is not a big deal with primary care where a procedure for common cold, for example, is straightforward. But this could pose a problem when it comes to a chronic condition or a complex disease like cancer where there are many extra tests, etc. that the national health insurance does not cover. (Which this makes cancer insurance a good idea for many Koreans.) It also does not help that these diseases/conditions drag on for years.

The end result is that while European/Canadian national health insurance pays up to 90 percent of the total medical cost, Korea’s national health insurance ends up paying around 55 percent of the total cost. While Korea does not have too many cases of a middle class family receiving treatment all the way to bankruptcy as happens in America, there are definitely cases where lower-middle class families do not invest in a private health insurance and later get bowled over by cancer treatment expenses. (Which is a popular recurring theme in Korean dramas.)

Second, doctors just don’t earn a whole lot of money. Korean doctors are well-off compared to the rest of the society, but they earn about half of European and Japanese doctors, and about a quarter of American doctors in PPP-controlled income. This is because even if you are the best doctor in the country, you still have to charge the NHIC-set price – and the NHIC price, compared to the rest of the developed world, is pretty low. There is some differentiation in the NHIC price that factors in the doctor’s expertise, the hospital’s facilities, etc., but that difference is not big. For each of the same medical procedure, Korean doctors can only charge one-eighth of what American doctors charge or one quarter of what European/Japanese doctors charge.

Doctors and pharmacists have some influence over the NHIC price through their representatives on the NHIC committees, and they actively lobby every year to raise the price. But they cannot be too vigorous in asking for a raise, since it does not look good for them in the eyes of the public given that they are still in a relatively high-earning profession.

This has real effects on healthcare. Think about it from the doctor’s perspective – if the price is fixed, how can they earn money? Broadly, there are three ways: (1) see more patients; (2) perform treatments that have a higher NHIC price or are not covered by NHIC; (3) find another way to get paid.

Pity us, we got a family to feed. 

Because Korean doctors are incentivized to see more patients, they often cram in as many patients as they can, in a practice derisively called “five-minute diagnosis.” As of 2005, each Korean doctor sees three to four times more outpatients than doctors in other OECD countries. Many Korean patients complain about this practice, as they do not feel adequately cared for.

Korean doctors are also incentivized to over-treat a patient or recommend more expensive treatment. For example, Korea is the world leader in caesarian delivery – a whopping 43 percent of all births – partly because doctors are more likely to recommend a c-section, which has the higher NHIC price. Korea also has more hospital beds, CT scanners and MRI machines than OECD average, partly because hospital stay and advanced scanning has the higher NHIC price. Koreans have longer hospital stays than the OECD average, for the same reason. One can argue under this system, patients who do not require extended hospital stay are wasting resources. Also, to avoid the grip of the NHIC price, top medical students often adopt a specialty that the NHIC generally does not cover, like plastic surgery or dermatology.

Doctors also look for other ways to get paid under this system, and the most common way is to receive kickbacks from pharmaceutical companies for prescribing their medicine. This practice sometimes leads to a pattern of over-prescription that has a direct consequence on the national health. For example, Korean patients are notorious for having high immunity against antibiotics, because very strong antibiotics are over-prescribed partly due to doctors’ profit motives. It is also somewhat common for doctors to form an alliance with certain neighborhood pharmacies and receive some amount of fee for referring to patients there to pick up their prescription, which can be considered an unfair business practice.

Lastly, because the patients can visit any doctor in the country, they often opt to visit the best doctor in the country for any petty ailment. So the best hospitals in Korea – like Seoul National University Hospital, Yonsei Severance Hospital, National Cancer Center, etc. – often have a significant waiting time not unlike the horror stories one hears about other socialized medicine countries.

Seoul National University Hospital, arguably the best hospital in Korea.

The Good, Again

While Korean healthcare system is far from perfect, the Korean thinks that its benefits easily outweigh the cost. This is especially so because even some of its perceived costs are, in fact, benefits when the national health is considered as a whole.

First, the complaint of “five minute diagnosis” is hardly a real, dire problem. By incentivizing doctors to see many patients at a primary care level, Korean health insurance is most likely preventing a more serious and more expensive disease down the road. Indeed, a “five minute diagnosis” that costs around $ 3 is a problem that 45 million uninsured people in America will gladly take. Same with the “crowded top hospitals” problem – the uninsured of America will gladly take a cheap visit to the nation’s finest hospitals even if the wait takes a few months.

Korea’s other problems are no worse than any other country’s. In fact, because there is a single entity in charge of overseeing the entire healthcare system, it is much easier for Korea to provide a systematic solution for a systematic problem.

Some may consider the fact that Korean national health insurance only covers around 55 percent of the total healthcare cost to be problematic. This may be true if one takes the idea of guaranteed socialized medicine seriously. But for fiscal conservatives with some measure of compassion for the plight of the uninsured, this could be an attractive balance. While corruption is definitely still a problem with Korean government, the NHIC is surprisingly efficient and well-run. It does a great job squeezing out maximum value out of the tax it receives. What’s not to like?

Got a question or a comment for the Korean? Email away at askakorean@hotmail.com.

-EDIT 1/11/2010- Two articles that show the limitations of Korea's healthcare system. First, a report that automobile accidents in Korea are a cause of poverty, partly because of the healthcare cost among other things. Second, Korea's intensive care unit rates very poorly even compared to countries like Indonesia or Malaysia.