Ⅴ. Effect of Reform in National Health Insurance Contribution Scheme:
3. Analysis of Redistributive Effect
Average Contribution 58.75 62.80 61.97 74.02 80.89 83.45 Contribution Burden 0.021 0.021 0.200 0.023 0.024 0.024 Quintile
4
Average Contribution 83.30 88.46 91.40 106.16 109.61 115.57 Contribution Burden 0.019 0.020 0.019 0.021 0.021 0.021 Quintile
5
Average Contribution 139.13 149.02 159.81 177.18 196.54 196.00 Contribution Burden 0.017 0.018 0.018 0.019 0.020 0.020 Source: Calculated by the authors using the 2nd to 7th NaSTaB data
3 Analysis of Redistributive Effect
Generally, the analysis of redistributive effects is designed to measure changes in income distribution with regard to mandatory expenditure, such as tax, and the result is commonly determined with the difference between the Gini coefficient of pre-tax income and that of post-tax income. Based on the result, vertical equity, horizontal equity and the degree of re-ranking can be identified.
Regarding the redistributive effect and equity issues related to the financial sources of health insurance, previous studies have been conducted within the same frame. However, since WHO report suggested equity issues relating to the financial sources of health insurance should be measured based on contribution burden rather than income in 2000, the WHO developed a
contribution burden-based index called Fairness in Financial Contribution (FFC) and has been using the index in its cross-country analysis on equity related to the financial sources of health insurance. The FFC index measures changes in burden after the payment of health insurance contribution, as opposed to the conventional, income-based redistributive effect (RE) that measures changes in the distribution of income after the payment of health insurance contribution.
In this study, we examined equity in health insurance contribution through the income redistributive effect after the payment of health insurance contribution for the convenience of comparison with previous studies.
First, the redistributive effect of the current health insurance contribution scheme was analyzed. The Gini coefficient of the income before the payment of the health insurance contribution was calculated using household income, for which individual income was added up per household and household weight.
The Gini coefficient of the income after the payment of health insurance contribution was calculated using the household income—the sum of individual income per household—, after the payment of household health insurance contribution—the sum of individual payment of health insurance contribution per household,—and household weight. The redistributive effect is measured by subtracting the Gini coefficients of the post-contribution payment income from the Gini coefficient of the pre-contribution payment income.
The first row of <Table V-14> shows the results of the redistributive effect calculated for each year. The difference between the Gini coefficient of the pre-contribution payment income and that of post-contribution payment income has a negative value every year, which means the income inequity after the payment of the health insurance contribution becomes more serious than before the payment of the health insurance contribution. The redistributive effect can be expressed as the sum of vertical redistributive effect, horizontal redistributive effect, and the degree of re-ranking. Looking at the vertical redistribution rates presented in the third row of <Table V-14>, most of them are above 100%, which shows a structure where more income is transferred from the poor to the rich than actual in the absence of horizontal redistributive effect. The Kakwani index—an index that measures the progressivity of insurance contribution—also shows a negative value every year, suggesting that health insurance contribution is regressive vis-a-vis income.
Effect of Reform in National Health Insurance Contribution Scheme:
Longitudinal Analysis
83
〈Table V-14〉Redistributive effect of Health Insurance Contribution (2009-2014)
2009 2010 2011 2012 2013 2014
Redistributive
Effect (RE) RE=GX-GX_P -0.0013 -0.0013 -0.0011 -0.0009 -0.0013 -0.0011 Vertical
Redistributive Effect
V=[g/(1-g)]*
KE -0.0014 -0.0013 -0.0011 -0.0009 -0.0014 -0.0011
Vertical Redistribution
Rate
(V/RE)*100 102.32 98.21 103.96 102.06 113.26 104.46
Contribution
Rate g 0.029 0.027 0.030 0.031 0.036 0.035
Kakwani
Index KE -0.0472 -0.0481 -0.0383 -0.0300 -0.0401 -0.0326
Source: Calculated by the authors using the 2nd to 7th NaSTaB data
<Table V-15> presents the calculated values of redistributive effect from the longitudinal perspective using the sum of average household incomes and the sum of health insurance contributions between 2009 and 2014 listed in <Table V-2>. As in the cross-sectional analysis, the longitudinal analysis also shows that the redistributive effect of the current contribution scheme has negative values. The last row of <Table V-15> concerns only the households investigated four times or more in the NaSTaB as subjects between 2009 and 2014, and the redistributive effect has a negative in this group as well.
〈Table V-15〉Longitudinal Analysis: Redistributive Effect of Health Insurance Contribution
Redistributive effect (RE) RE=GX-GX_P
Gini coefficient before payment of health insurance
contribution GX
Gini coefficient after payment of health insurance
contribution GX_P
-0.0001212 0.4458285 0.4459497
-0.000188 0.4076958 0.4078838
Note: The last row shows the values obtained by calculations based only on those households that were investigated four times or more in the NaSTaB.
Source: Calculated by the authors using the 2nd to 7th NaSTaB data
A. Redistributive Effect of Standard A
The insurance contribution of Standard A was deduced as explained above, and the redistributive effect was measured using this. <Table V-16> presents redistributive effects that were calculated by comparing the current pre- contribution assessment income—i.e. current household income— and the post- contribution assessment income, which was calculated by excluding insurance contribution calculated according to Standard A from the current household income. The results of <Table V-16> show that insurance contribution in Standard A has almost no redistributive effect. However, Standard A seems to be more positive than the current contribution scheme in that the current health insurance contribution scheme shows negative redistributive effects across all years in <Table V-14>.
〈Table V-16〉Redistributive Effect of Health Insurance Contribution in Standard A (2009-2014)
2009 2010 2011 2012 2013 2014
Redistributive
Effect (RE) RE=GX-GX_P 0 0 0 0 0 -0.0000032
Vertical Redistributive
Effect
V=[g/(1-g)]*
KE 0 0 0 0 0 -0.0000032
Vertical Redistribution
Rate (V/RE)*100 95.09
Contribution
Rate g 0.0299 0.0266 0.0282 0.0290 0.0294 0.0299
Kakwani
Index KE 0 0 0 0 0 -0.0001
Source: Calculated by the authors using the 2nd to 7th NaSTaB data
<Table V-17> presents the calculated values of redistributive effect using the sum of average household incomes and the sum of health insurance contributions between 2009 and 2014 listed in <Table V-7>. Unlike the
Effect of Reform in National Health Insurance Contribution Scheme:
Longitudinal Analysis
85
cross-sectional analysis, the longitudinal analysis shows that the redistributive effect of the current contribution scheme has positive values. This indicates that the contribution scheme of Standard A can be positive for income redistribution.
The last row of <Table V-17> concerns only the households investigated four times or more in the NaSTaB as subjects between 2009 and 2014, and the redistributive effect is positive.
〈Table V-17〉Longitudinal Analysis: Redistributive Effect of Health Insurance Contribution in Standard A
Redistributive effect (RE) RE=GX-GX_P
Gini coefficient before payment of health insurance
contribution GX
Gini coefficient after payment of health insurance
contribution GX_P
0.0000416 0.4458285 0.4457869
0.0000142 0.4076958 0.4076816
Note: The last row shows the values obtained by calculations based only on those households that were investigated four times or more between 2009 and 2014
Source: Calculated by the authors using the 2nd to 7th NaSTaB data
B. Redistributive Effect of Standard B
The insurance contribution of Standard B was deduced as explained above and the redistributive effect was measured using this. According to <Table V-18>, the insurance contribution of Standard B negatively works on the redistributive effect. In other words, when judged based on income, income inequality can be worsened under the Standard B contribution scheme. However, when compared with <Table V-14>, the Standard B contribution scheme has a less impact on income inequality than the current contribution scheme. It is because that while the RE value under the current contribution scheme is about -0.001, under the Standard B contribution scheme the figure is about -0.0003.
Income inequality is worsened under both the current contribution scheme and the Standard B contribution scheme because both of them schemes show negative redistributive effects. However, the extent of the Standard B contribution scheme’s impact on the redistributive effect is less than the current contribution
scheme. In this respect, Standard B seems more positive for redistribution, compared to the current contribution scheme.
〈Table V-18〉Redistributive Effect of Health Insurance Contribution in Standard B (2009-2014)
2009 2010 2011 2012 2013 2014
Redistributive
effect (RE) RE=GX-GX_P -0.0002 -0.0002 -0.0003 -0.0003 -0.0004 -0.0004 Vertical
Redistributive effect
V=[g/(1-g)]*
KE -0.0002 -0.0002 -0.0004 -0.0004 -0.0004 -0.0004
Vertical Redistribution
Rate
(V/RE)*100 111.23 104.86 113.12 111.68 113.00 110.43
Contribution
Rate g 0.0285 0.0282 0.0326 0.03289 0.0338 0.0336
Kakwani
Index KE -0.0082 -0.0074 -0.0118 -0.0124 -0.0132 -0.0128
Source: Calculated by the authors using the 2nd to 7th NaSTaB data
<Table V-19> presents the calculated values of redistributive effect using the sum of average household incomes and the sum of health insurance contributions between 2009 and 2014 listed in <Table V-10>. As in the cross-sectional analysis, the longitudinal analysis shows that the redistributive effect of the current contribution scheme is negative. This indicates that the contribution scheme of Standard B can be negative for income redistribution.
The last row of <Table V-19> concerns only the households investigated four times or more in the NaSTaB as subjects between 2009 and 2014, and the redistributive effect is negative.
Effect of Reform in National Health Insurance Contribution Scheme:
Longitudinal Analysis
87
〈Table V-19〉Longitudinal Analysis: Redistributive Effect of Health Insurance Contribution in Standard B (2009-2014)
(Unit: 10,000 KRW, Ratio)
Redistributive effect (RE) RE=GX-GX_P
Gini coefficient before payment of health insurance
contribution GX
Gini coefficient after payment of health insurance
contribution GX_P
-0.0002465 0.4458285 0.446075
-0.0003035 0.4076958 0.4079993
Note: The last row shows the values obtained by calculations based only on those households that were investigated four times or more between 2009 and 2014
Source: Calculated by the authors using the 2nd to 7th NaSTaB data
C. Redistributive Effect of Standard C
The insurance contribution of Standard C was deduced as explained above and the redistributive effect was measured using this. <Table V-20> presents redistributive effects based on the post-contribution assessment income that was calculated using the current household income and insurance contribution calculated according to Standard C. According to the results, the Gini coefficient increases, and this indicates that the Standard C contribution scheme negatively impacts the redistributive effect.
〈Table V-20〉Redistributive Effect of Health Insurance Contribution in Standard C (2009-2014)
2009 2010 2011 2012 2013 2014
Redistributive
effect (RE) RE=GX-GX_P -0.0005 -0.0009 -0.0011 -0.0012 -0.0014 -0.0016 Source: Calculated by the authors using the 2nd to 7th NaSTaB data
<Table V-21> presents the calculated values of redistributive effect using the sum of average household incomes and the sum of health insurance contributions between 2009 and 2014. As in the cross-sectional analysis, the longitudinal analysis shows that the redistributive effect is negative. This
indicates that the Standard C contribution scheme can be negative for income redistribution.
To compare with Standard A, the NHIS can collect the same amount of contribution revenue in Standard C. Yet, the redistributive effect can be more negative than with Standard A. This seems to be because the amount of contribution is assessed based not only on income but on property as well. The last row of <Table V-21> concerns only the households investigated four times or more in the NaSTaB as subjects between 2009 and 2014, and the redistributive effect is negative.
〈Table V-21〉Longitudinal Analysis: Redistributive Effect of Health Insurance Contribution in Standard C (2009-2014)
Redistributive effect (RE) RE=GX-GX_P
Gini coefficient before payment of health insurance
contribution GX
Gini coefficient after payment of health insurance
contribution GX_P
-0.0007936 0.4458285 0.4466221
-0.00006059 0.4076958 0.4083017
Note: The last row shows the values obtained by calculations based only on those households that were investigated four times or more between 2009 and 2014
Source: Calculated by the authors using the 2nd to 7th NaSTaB data
Ⅵ
Conclusion and Policy Implications
Due to its various assessment standards, the current health insurance contribution scheme generates equity problems between the employee insured and the self-employed insured, as well as within each of them. According to the principle of social insurance, the amount of contribution should be determined in proportion with the ability to pay. However, a regressive structure is observed in some parts of the current contribution scheme. To solve such inequity problems, many reform plans have been discussed to consolidate the current scheme into a single, income-based assessment standard. This means that the distinction between the employee insured and the self-employed insured is removed and that the object of contribution assessment is expanded from earned income to include other types of income as well. If such reform is made, those who have been paying less than their ability to pay will have increased contributions while there will be a decrease in the amount of contribution for the low-income group who have been overpaying. Therefore, the reform will improve overall equity and help secure the revenue of the health insurance system. When the economically active population is reduced due to population aging, the base of health insurance revenue will be threatened under the current scheme since it depends on earned income. In that respect, expanding the contribution assessment base to encompass various types of income is expected to have a positive effect on stabilizing the finance of the national health insurance system.
By applying the three most simplified standards among diverse proposals to reform the existing scheme to a solely income-based one, this study analyzed redistributive effects of the reform on equity in contribution burden, and its
effects on health insurance revenue. Two types of micro data sets were used to serve complementary purposes: the HIES data in Chapter IV for the cross-sectional analysis, and the NaSTaB data in Chapter V for the longitudinal analysis.
According to the cross-sectional analysis based on the HIES, the redistributive effect of the contribution scheme assessed in proportion to income is trivial whereas, the redistributive effect is very significant in terms of health insurance benefits. In particular, the redistributive effect of health insurance benefits was higher than that of earned · global income tax—a taxable item created specifically for the purpose of income redistribution. This seems to be because retirement households (elderly households), whose market income is low while the level of healthcare expenditure is high, make up the majority of the low-income class.
Changes in redistributive effects according to each of the three standards are as follows. In the case of consolidating the contribution assessment scheme into a single, income-based one—i.e. Standard A (a fixed-amount of contribution imposed on global income) and Standard B (a fixed rate of contribution imposed on global income and the adoption of the minimum contribution)—, the burden of health insurance contribution decreases for the low-income class and increases for the rest, thereby improving equity in insurance contribution burden. On the contrary, if Standard C—a combination of income-based and property-based contribution with the ratio of 8:2—is applied, the contribution burden increases the most for elderly households (Income Quintile 1), who depend largely on assets, which indicates a worsening of regressivity in health insurance contribution burden.
According to the longitudinal analysis based on the NaSTaB data, the reform of the health insurance contribution scheme bolsters the redistributive effect, compared to the current scheme. If an income-based contribution scheme takes root completely as assumed in Standards A and B, the burden of insurance contribution decreases noticeably although the amount of contribution increases more than the current level. In the case of Standard C, the revenue is comprised of income-based contribution (80%) and property-based contribution (20%) and here, the contribution rate is only 2% and 0.15% on income and property, respectively. As a result, it is also confirmed that the income-based contribution rate would decrease greatly from the current level of 6.12%. In addition, Standard
Conclusion and Policy Implications
91
C lowers the contribution burden for the employee insured and the self-employed insured, thus leading to a redistributive effect that is similar to or slightly improved from the current level. Longitudinally, the redistributive effect can be either improved or worsened depending on which standard is applied. Overall, it is found that the reform would bring about an increase in the national health insurance revenue by 1.28-1.58%.
One thing that should be made clear is that the focus of this study does not lie in suggesting how to reform the current health insurance contribution scheme. Instead, it bears importance as a study that conducted an empirical analysis, for the first time, on an improvement in equity in contribution burden and redistributive effects by applying the simplified and most basic standards under a single, income-based assessment scheme. The standards used in this study serve as a meaningful theoretical starting point, but they are clearly different from reform plans currently discussed in reality. Thus, it should be noted that they might suggest different results from those plans. In that respect, we expect that this study will hold significance in providing a basic tool for analyzing the effects of any possible reform plans that will be announced in the future, rather than in discussing whether the standards used in our study are applicable in reality.
Last, we examined the advantages and disadvantages of simplifying the health insurance contribution scheme into a single income-based one and expanding the scope of income subject to contribution assessment to see if it is the best reform plan. The advantages of the income-based contribution scheme are as follows. First, the expansion of the income scope subject to contribution assessment will potentially broaden the base of contribution collection and, accordingly, increase the revenue of the natiomal health insurance. Second, a consolidated income-based contribution scheme will ensure simplification, clarification and objectivity in the system. Currently, the ability to pay is not properly identified in the case of the self-employed insured, due to the fact that standards as property, automobiles or the standard of living are applied.
Thus, indirect or subjective judgment is likely to be involved and, in some cases, objectivity is compromised to a certain degree. When the contribution scheme is basically unified to be income-based, enhanced transparency, objectivity and simplification are highly likely to improve the system. Third, expanding the scope
of income subject to contribution assessment is expected to increase the progressivity of the contribution burden structure and the total amount of insurance contribution simultaneously, thereby improving income redistribution.
Fourth, an income-based health insurance contribution scheme reduces the contribution burden for the low-income class, such as the aged and the retired who belong to a low-income period in their life cycle, which will increase income redistributive effects among different income levels.
On the contrary, the following disadvantages of an income-based contribution scheme are expected. First, since changes in population structure continue mainly due to population aging and low birth rate, a significant long-term reduction in the working age population will threaten the foundation of the fiscal structure of the national health insurance system. To establish a long-term sustainable health insurance system, the principle of broad taxation source and low tax rate should be adopted. However, it is hard to rule out a possibility that a single income-based contribution scheme might contradict this principle in the long term. Second, moral hazard relating to health insurance benefits might still exist because there is no correlation between contribution burden and insurance benefits even when the contribution scheme is converted into an income-based one. Third, consumption expenditure might be a better option than income as the basis of health insurance contribution assessment considering the need for life-cycle consumption smoothing—arising from a mismatch between the income-earning period and the period when one mainly consume. In this case,
On the contrary, the following disadvantages of an income-based contribution scheme are expected. First, since changes in population structure continue mainly due to population aging and low birth rate, a significant long-term reduction in the working age population will threaten the foundation of the fiscal structure of the national health insurance system. To establish a long-term sustainable health insurance system, the principle of broad taxation source and low tax rate should be adopted. However, it is hard to rule out a possibility that a single income-based contribution scheme might contradict this principle in the long term. Second, moral hazard relating to health insurance benefits might still exist because there is no correlation between contribution burden and insurance benefits even when the contribution scheme is converted into an income-based one. Third, consumption expenditure might be a better option than income as the basis of health insurance contribution assessment considering the need for life-cycle consumption smoothing—arising from a mismatch between the income-earning period and the period when one mainly consume. In this case,