Association for Public Policy Analysis & Management

Supplemental private health insurance has gained popularity due to high out-of-pocket health spending in Korea. Private insurance supplements mandatory social insurance by covering full payments for services excluded by the public scheme and covering copayments for covered services. Using microdata from the Korea Health Panel, I find evidence of risk selection by insurers. Results from fixed-effects estimations show that supplemental insurance increases the number of annual visits by 12.3% (price elasticity of demand is estimated at around -0.18 ~ -0.2). In particular, this effect is primarily driven by increases in the use and intensity of discretionary care. Supplemental insurance substantially increases the likelihood of visiting outpatient care unit of hospital, indicating substitution away from primary care by incapacitating differential cost-sharing of social insurance. I find that the use of less discretionary services (chronic care visits and ER visits) is not affected by private insurance status. Private policy increases the use of services not covered by social insurance (CT imaging and upgraded hospital accommodation) but does not affect low-value care utilization (preventable ER visit or hospitalization), suggesting that patient’s healthcare demand responds differently to the value of care. Welfare gains from purchasing supplemental insurance outweigh deadweight loss for the elderly, though the likelihood of enrolling in private insurance is the lowest for this age group. This finding suggests that the private insurance market generally leads to over-insurance against health risks. And supplemental insurance has significant negative spillover effects on social insurance ($52~$178 per enrollee per year). To bear these additional costs incurred, every citizen would be required to pay additional social insurance contributions as much as $18~62 per year. I also find the increasing pro-rich inequities in private insurance coverage and out-of-pocket health spending over time.