As the aging population drives more patients to long-term care hospitals, payouts for indemnity health insurance are rising quickly. But with persistent insurance fraud, including sham admissions, falsified medical records and so-called "payback," concerns are growing about leakage in insurance payouts. Insurance fraud also triggers excessive billing of medical costs, burdening the National Health Insurance finances.
On the 22nd, the insurance industry said the number of long-term care hospitals is falling, but indemnity payouts to their patients are increasing. According to data from the Korea Life Insurance Association and the General Insurance Association of Korea, long-term care hospitals decreased 13%, from 1,584 in 2020 to 1,382 in 2024. In contrast, over the same period, the average monthly indemnity payout for long-term care hospital patients rose 33% for life insurance and 27% for non-life insurance, respectively.
The insurance industry points to organized fraud surrounding long-term care hospitals as a driver of the payout increase. Cases uncovered by the Financial Supervisory Service, the National Health Insurance Service and investigative agencies show hospital staff colluding with brokers to steer patients into sham admissions or to kick back part of the insurance payout to patients.
A representative tactic is "payback." When a hospital issues inflated receipts for items such as injections, manual therapy or meal charges, patients pay higher medical bills than actually incurred and then claim indemnity insurance. The hospital then returns part of the bill to the patient in cash, gift cards, or health supplements and beauty products. Patients cover their out-of-pocket cost with indemnity payouts, while hospitals profit from the padded charges.
The problem of "administrator-run long-term care hospitals," which are illegal medical institutions, also persists. Although these hospitals are in substance operated by nonmedical personnel and are not eligible for long-term care benefits, they fraudulently claim benefit payments, manipulate medical records and issue fake receipts to collect indemnity payouts. Some have been caught creating records for patients who were never actually admitted to claim insurance.
Such insurance fraud is cited as a factor pushing up the loss ratio of indemnity insurance. As unnecessary and prolonged hospitalizations increase, the burden of payouts grows. According to the Financial Supervisory Service (FSS), last year's earned-incurred loss ratio for indemnity insurance was 101%, rising from 99.3% in 2024 and topping 100% again. The earned-incurred loss ratio is a metric dividing claims paid by premium revenue; above 100% means payouts exceed premiums.
Insurance fraud also burdens National Health Insurance finances. When sham or excessive admissions occur or medical records are manipulated, claims often hit both indemnity insurance and National Health Insurance benefits. In particular, cases involving administrator-run hospitals repeatedly show embezzlement from both private insurance and National Health Insurance finances.
Even after detection, recovery is difficult. The actual recovery rate of detected insurance fraud amounts is known to be around 20%. Many sums go unrecovered due to hospital closures or asset concealment. Ultimately, observers note, the burden is inevitably shifted onto all National Health Insurance enrollees and indemnity policyholders.
An insurance industry official said, "Insurance fraud at long-term care hospitals is a structural problem that affects not only private insurance but also National Health Insurance finances," adding, "Oversight of sham admissions, payback schemes and administrator-run hospitals must be strengthened."