The financial authorities have decided to introduce a buyback system to stimulate the new health insurance (5th generation) that will be launched by the end of this year. Those who voluntarily terminate their contracts and join the 5th generation from the first and second generation, who joined before April 2013, will be provided with compensation (incentives). The insurance industry is also showing a positive response.
However, there are concerns that elderly members of the first and second generations, who utilize more medical services, will not easily switch to the 5th generation. While the first and second generations have higher premiums but no or low deductibles, the 5th generation has increased the deductible for non-critical non-covered services to a maximum of 50% and reduced the coverage limit to 10 million won. The financial authorities expect that users who find the high premiums burdensome will transition to the 5th generation. However, many members may wish to maintain contracts with higher coverage limits, and the scale of compensation is expected to determine the success or failure of activating the 5th generation.
The Financial Services Commission and the Financial Supervisory Service announced the health insurance reform plan on the 1st, stating that "if members desire, insurers will implement contract buybacks based on the standards recommended by the financial authorities and compensate members accordingly." Specific implementation plans will be disclosed after discussions with the insurance industry in the second half of this year.
The proposal to forcibly transition members of the first and second generations to the 5th generation mentioned during the policy forum on Jan. 9 has been excluded. The financial authorities explained that "it was suggested that retroactive changes to the contract were unnecessary if the measures to strengthen the management of non-covered services are established and other health insurance reform measures such as contract buybacks are in operation," reflecting the opinion to first assess the effects of the reform measures, which led to its exclusion from the final plan.
Ultimately, the key to activating the 5th generation lies in the buyback system. The contracts for the first and second generations, with approximately 16 million members, do not include a re-enrollment clause. If members desire, they may maintain their contracts for up to 100 years without transitioning to the 5th generation. To activate the 5th generation, 16 million members need to transition, but without a means to enforce this, the buyback is being pursued. About 20 million individuals who joined health insurance after April 2013 will need to re-enroll in the 5th generation when the time comes.
However, there is a skeptical reaction regarding the effectiveness of the buyback system. Previously, the financial authorities attempted to promote a plan to discount premiums by 50% for members transitioning from the first and second generations to the fourth generation, but it is mostly regarded as a failure. This is because first and second generation members have a strong perception of wanting to maintain their current contracts, which have greater coverage and limits, even if it means paying higher premiums. If the buyback system is implemented but the compensation is not remarkable, the impact may be minimal. An industry official stated, "There is a pervasive perception that it would be disadvantageous to transition," adding, "Many members of the first and second generations are elderly and regularly visit hospitals, so even if incentives are provided, they may not be inclined to move."
The financial authorities are monitoring the effectiveness of the measures. A financial authority official noted, "There seems to be sufficient demand from members who find it difficult to maintain their contracts due to the premium burden," but added, "There will be fluctuations depending on the amount of compensation, so we plan to conduct simulations in various ways."