Introduction of Scenarios

The purpose of this study is to establish simple and reasonable standards for the health insurance contribution scheme and focus on the analysis of its effect, not to present a new reform scenario. The basic principle for the reform that this study has looked at is to eliminate a distinction between the employee insured and the self-employed insured and assess the amount of contribution in proportion to the ability to pay. Here, the ability to pay is to be based on global income, and all Korean people should pay contributions in principle.

Income subject to contribution assessment is global income (earned income, business income, financial income, annuity and other incomes) that is generated regularly. All incomes should be reflected 100% and the contribution rate is 3.06%, which is the rate borne by the employee insured, out of the contribution rate of the pertinent year, 6.12% (as of 2016). In other words, the total contribution rate is 6.12% in the case of earned income, with half paid by the employee and the other half paid by employers. As for the rest of the income, however, the rate starts from 3.06% because there is no employer.

Under the standard, the contribution is assessed in direct proportion to income. Thus, it can be imposed on the low-income class with a unit of 100 KRW or 10. To resolve this inconvenience, we present the second standard in which the minimum fixed amount of contribution is imposed if the annual global income falls in the range of less than 0.28 million KRW x 12 months (3.36 million KRW), which is the minimum contribution range for the employee

insured, and a fixed-rate contribution for those with the annual global income exceeding the range. For the employee insured, the monthly minimum contribution will be 17,136 KRW (0.28 million KRW x 6.12% (as of 2016)), individuals will pay the half of it (i.e. 8,568 KRW.) Therefore, individuals with a monthly global income of less than 0.28 million KRW pay the minimum fixed amount of 8,568 KRW, and individuals with a monthly global income of 0.28 million KRW or more pay their contributions at a fixed rate of the monthly global income x 6.12%/2. Only in the case of earned income, their employers will pay the other half (3.06 %.)

The contribution burden presented under this simplified standard is the result obtained when the contribution is assessed only based on income. From the life-cycle viewpoint, however, the retired, elderly group live on property like real estate or financial assets as their income base weakens. In this regard, it seems reasonable to consider property, rather than income, when measuring their ability to pay insurance contribution. Of course, property-based contribution assessment is very unfeasible, but we include in our analysis the complementation of income-based contribution with property-based contribution to compare how the amount of contribution changes from an academic perspective. Here, we will assess the rate of contribution based respectively on income and property with 80% of the contribution from income and 20% from property under the premise that the total contribution revenue is equal to the first standard. The range of property here is the same as that is currently applied to the self-employed insured by the NHIS, such as housing, real estate, financial assets, automobile and key-money lease/monthly rent. However, as there are many unresolved issues—e.g. inaccuracy of property reporting in the survey data and whether debt should be added or deducted—, we limit the share of property in contribution assessment to 20%.

In including property in insurance contribution assessment, the third standard can be an attractive alternative in that individuals with more property are likely to have the ability to pay more contributions. However, much caution should be paid to a property-based health insurance contribution assessment. Also, it should be noted that it is very unfeasible in practice since there are many demerits in terms of transparency, objectivity and comprehensiveness in contribution assessment despite the merit of satisfying the ability principle.

Ⅳ

Effect of Reform in the National Health Insurance Contribution Scheme: Cross-Sectional Analysis

1 Background

Recently, shifting the existing health insurance contribution scheme to a single, income-based standard is being actively discussed. The reform plans suggested from various circles are different in their details, but are similar in that they are focused on changing the current standard to a single, income-base one. The main object of this chapter is to evaluate the expected policy effects of a shift toward an income-based contribution scheme from the equity perspective.

Most previous analyses of the equity effect of the health insurance system focus on the joint distribution between the burden of insurance contribution and benefits. If the research method employed in the previous research is adopted, income groups are classified based on taxable income estimated by the taxing authority or the NHIS. This method is effective in analyzing the distribution, redistribution and cross-subsidization effects of the health insurance system itself, such as insurance benefits relative to contribution burden within the frame of the health insurance scheme, and it (the former) is employed in. most of the recent studies that analyzes the expected effects of a change to an income-based contribution assessment standard. However, these analyses are limited in that they discuss the equity effect within the given framework of the health insurance system while failing to provide information on the equity effects on the

distribution and redistribution of income, including all types of incomes in a comprehensive sense, beyond the frame of a direct comparison between contribution burden and insurance benefits.

Complementing previous studies and expanding the prospect of equity effects relating to the national health insurance, we aim to analyze and evaluate income distribution and redistribution effects based on a general sense of income

—encompassing all other types of income than taxable income, which is the current object of contribution assessment—and independent households so as to objectively evaluate the level of the understanding of the health insurance system, policy effects and its merits and demerits.

This chapter analyzes and evaluates effects on equity using the HIES data published by Statistics Korea.²⁾ In the following Chapter V, we estimates and evaluates equity effects using the NaSTaB data. The reason for using these two different data sets is that relying on only one of them cannot cover the comprehensive effects of reform that this study aims to probe. In other words, we use the two structurally different data sets in terms of the method and form of data accumulation basically because we aim to examine both the short-term and long-term effects of reform on equity.

2 Analysis of Income Redistributive Effects

A. Scope of Analysis

To analyze the policy effects of the national health insurance system, this chapter uses raw data (based on annual data) from the HIES published by Statistics Korea. The policy effects of the national health insurance system will be examined in two main aspects: the distribution of contribution by income

2) In addition to the HIES data, data from the Survey of Household Finances and Living Conditions is also cross-sectional. Although the latter contains information on property, measurement errors are much fewer in the former because it uses the method of keeping a household ledger every month for data investigation and accumulation. In the follow-up research, it still deserves to conduct an analysis including the latter data set.

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level and the income redistributive effects. To look into changes in policy effects based on a time-series analysis, we set the period of analysis to be between 2006 and 2014 in that data from the period includes information on single-person households as well. <Table IV-1> presents the descriptive statistics (as of 2014) on household characteristics contained in the HIES.

〈Table IV-1〉Descriptive Statistics of the Household Income and Expenditure Survey (Annualized Basis) by Statistics Korea (As of 2014)

(Unit: Age, Number of People, KRW) Average Standard

Deviation Maximum Minimum

Age of householder 52.34 14.03 95 17

Number of members of household 2.75 1.26 8 1

Number of the employed 1.25 0.88 6 0

Market income 43,304,592 31,489,961 300,867,825 0

Private income 45,725,985 31,170,406 300,867,825 0

Gross Income 48,087,628 30,254,494 300,353,880 0

Disposable income 43,858,486 25,996,489 289,417,972 0

Post-tax income 41,433,144 24,734,674 285,305,601 0

Final income 46,734,821 26,523,329 299,077,856 0

Consumption expenditure 26,533,888 16,895,960 213,638,775 0

Income Tax 1,774,693 3,358,160 55,606,979 0

Property Tax 203,939 376,330 5,685,972 0

Social security contributions 2,432,345 2,411,277 43,561,419 0 Private transfer income 2,421,393 8,025,028 104,824,041 0 Public transfer income 2,361,643 6,311,668 86,652,948 0 Note: Estimates made by the authors using the data annualized based on raw data from the Household

Income and Expenditure Survey

The policy effects of the health insurance system are divided into two main parts: the collection (or payment) of contribution (burden) and insurance benefits (coverage). Therefore, we include both insurance contribution and insurance benefits in probing policy effects and income redistributive effects by income level.

As for changes in distribution by income level, we make estimation about and analyze the distribution of incidence³⁾ by income level based on market income, the amount of insurance contribution and insurance benefits to compare the effective rate of contribution burden, etc. Also, to understand the relative size of the policy effect of the national health insurance system, we evaluate the size of the policy effect of the insurance system through a relative comparison with income tax. Because it can be considered that the calculation of health insurance contribution is primarily based on market income, earned income and business income (including lease income), which takes up the majority of market income, will be the object of income tax. For convenience and within the range in which confusion does not arise, we will refer to them

3) The recent studies respectively by Sung Myung-jae (2016) and by Cho Yoon-je, Kim Jong-il, Park Jong-kyu, Sung Myung-jae, Hee-suk Yun and Lee Chang-won (2016, Chapter 5) are representative ones that make estimation about the distribution of various tax burdens and fiscal expenditure benefits.

In order to estimate the distribution of tax burdens including various in-kind benefits, income tax and excise tax, we obtained the same values, in principle, by adopting the same research data and methodology employed in the above studies, and used the values in our analysis. Therefore, this study and the previous studies mentioned above use the same values of tax burden and fiscal expenditure benefits by household. However, this study is differentiated from the previous ones in terms of the scope of research topic and the object of research. The previous studies estimate overall income redistribution effects by showing the overall joint distribution of tax burden and fiscal expenditure benefits, but they do not discuss incidence distribution, equity and income redistribution effect regarding specific individual items. On the contrary, this study is differentiated in that it focuses on conducting a comparative analysis on the incidence distribution and income redistribution effects of individual items-especially the national health insurance contribution and coverage item-and those of other items.

Meanwhile, there are some cases in the previous studies in which the tax parameters of the past were used for estimating the amount of each health insurance coverage item because statistical data on the performance value of the health insurance benefits of the analysis year had not been announced yet at the time of analysis or had not been updated due to a lack of information. In this study, we have updated health insurance benefit parameters based on performance value and re-estimated the amount of insurance benefits per household amount by households for the corresponding items. The health insurance benefits in 2006-2009, 2011 and 2014 have been newly re-estimated in comparison with Sung Myung-jae (2016). The distribution of final income has been revised to the same degree as revisions in the estimation results of in-kind benefits. Attention should be given to the fact that those parts show different estimation results from the previous studies.

In the case of Cho Yoon-je et al. (2016) and Sung Myung-jae (2016), there are some parts where they conduct an analysis on the same object (incidence analysis of various tax burdens and fiscal expenditure benefits in 2013), but the estimation results are more or less different from each other. This is because Cho Yoon-je et al. (2016) and Sung Myung-jae (2016) adopt different research methods in some items.

The former uses estimated values of excise tax burden from the survey data without adjustment while the latter applies an adjustment coefficient per tax item so as to equalize the average burden on each household calculated based on revenue per tax item and the average burden per household calculated as a result of estimating the survey data. Among these two, our analysis adopts the latter’s method of applying an adjustment coefficient.

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as earned · global income tax.

The main object of analysis is policy effects of the national health insurance system in light of income distribution and redistribution, and we take a look at those effects by household since the data under consideration—i.e. the statistics of the health insurance contribution—is reported by household. Also, from the welfare economic perspective, the household is the smallest unit of consumption to study income redistributive effects and, thus, considering the household as the basic unit of analysis is a widely used research method in the academia.

However, as health insurance contribution is imposed on individual income- earners, the expected incidence and policy effects of the reform will be calculated in the form of burden borne by individual while taking the household, which is the basic unit of welfare, as a reference point for analysis of income redistributive effects.

B. Analysis Method

For the incidence analysis of health insurance contribution and the health insurance coverage (benefits), we divide income level into 10 income deciles based on gross income.⁴⁾ The reason for using gross income for analysis is to minimize the arbitrariness of analysis by tallying up all types of incomes available.

The measurement of income redistribution effects is based on the fall rate (or reduction rate) of the Gini coefficients of both pre-tax income and post-tax income. Since the lower absolute value of the Gini coefficient means less income inequality, it indicates a positive effect on income redistribution. In contrast, the higher absolute value of the Gini coefficient indicates a negative effect on income redistribution because it means more income inequality.

4) In this chapter, the classification of income level is based on gross income. In the previous studies considered in Section 2 above, the classification is based on taxable income related to health insurance contribution assessment. As taxable income is limited to a narrow sense of income that the taxing authorities grasps for the purpose of taxation (or health insurance contribution assessment), it should be noted that gross income-based income deciles and contribution assessment-based income deciles are completely different.

Health insurance contribution per household was investigated directly from the HIES. However, the survey does not have information on the amount of health insurance benefits. In particular, it has some information on medical expenses, but it is difficult to determine whether health insurance benefits have been dispensed (or applied) and how much expenditure has been caused by the application from that information alone. Therefore, this study has adopted the research data and methodology for analysis employed in Sung Myung-jae (2016) to replicate and report the distribution of burden and benefits per item in relation to various tax burdens and cash and in-kind benefits by income level including health insurance benefits between 2007 and 2013. Meanwhile, the estimated values of health insurance benefits per household are needed to estimate the effect of health insurance benefits on income redistribution. To this end, the amounts of contribution and benefits by household have been separately estimated and stored for use in the process of recalculating the distribution of contribution and benefits by income level for the purpose of estimating the income redistribution effect of individual health insurance coverage items.

To resolve an estimation bias arising from not using statistics on the performance figure of the corresponding year, this study made an estimation by revising the amount of insurance benefits for the corresponding year based on the insurance benefit performance statistics of the same year. While basically using the same methodology in the previous research, revision was also made to the amount of insurance benefits by household for estimation by updating statistical data on the total amount of health insurance benefit performance and the average amount of benefits per capita by gender and age (data from the National Health Insurance Statistical Yearbook of each year) and modifying the parameters used in the estimation model.

In addition, this chapter estimates and analyzes the expected policy effect of a change to an income-based contribution assessment. For that purpose, we adopt the method of microsimulation analysis.

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C. Changes in Income Redistributive Effect

As in other studies, this study also measures the income redistribution effects of various tax and fiscal expenditure benefit items based on the fall rate of the Gini coefficient of pre-tax/post-tax income or pre-benefit/post-benefit income.

[Figure IV-1] through [Figure IV-3] presents an comparison of the estimated rates of change for individual items by comparing the fall rates of the Gini coefficient of individual tax and fiscal expenditure benefit items—from the market income stage to final income stage—in 2006, 2010 and 2014.

[Figure IV-1] shows the Gini coefficient by stage while [Figure IV-2] and [Figure IV-3] presents the fall rate of the (marginal) Gini coefficient by corresponding item and the fall rate of the Gini coefficient per unit based on an assumption that an average contribution or benefit of one million KRW per household for each item constitutes one unit, respectively. In calculating the fall rate of the Gini coefficient by stage, the estimation value varies depending on which Gini coefficient was chosen as the denominator for the calculation of change rate. To maintain the objectivity of comparison, we chose the private income Gini coefficient, which serves as a starting point for income redistribution in the public sector, as the denominator and the extent of a fall in the Gini coefficient by stage as the numerator. Then, we converted them into a percentage and measured the value as the income redistribution effect of each item, such as tax burden and fiscal expenditure benefits by stage.

[Figure IV-1] Gini Coefficient by Income Stage(Estimation Results of Raw Data

0.3188 0.3188 0.3186 0.3160 0.3155 0.3154 0.3160 0.3160 0.3162 0.3154 0.3162 0.3153 0.3037

0.3260 0.3260 0.3260 0.3234 0.3229 0.3227 0.3240 0.3240 0.3241 0.3238 0.3244 0.3223

0.3072 0.3063 0.3056 0.3054

DisposableIncome

Health InsuranceContribution

Public pensionContribution

Property Tax

DisposableIncome

Health InsuranceContribution

Public pension Contribution

Property Tax

DisposableIncome

Health InsuranceContribution

Public pensionContribution

Property Tax

Effect of Reform in the National Health Insurance Contribution Scheme:

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As shown in [Figure IV-1], the market income Gini coefficient as of 2006 was 0.3597 and the final income Gini coefficient was 0.2990, a decrease by 17.8%. In relation to the decrease, it is estimated that the fall rate of the Gini

As shown in [Figure IV-1], the market income Gini coefficient as of 2006 was 0.3597 and the final income Gini coefficient was 0.2990, a decrease by 17.8%. In relation to the decrease, it is estimated that the fall rate of the Gini