South Korea’s financial and medical authorities announced Tuesday guidelines for more affordable but smaller-coverage fee-for-service health insurance in order to curb moral hazards called “medical shopping” sought by some consumers and doctors.

The Financial Services Commission unveiled the plans, which include the launch of insurance schemes with premiums that are about 25 percent lower than existing ones from April next year, in a joint announcement with the Ministry of Health and Welfare and Financial Supervisory Service.

Subscribers who do not claim payments for the first two years will get a 10 percent discount in their premiums, according to the government plan.

As of June, about 65 percent of the Korean population, or 32.96 million citizens, are holders of the private medical expense insurance that cover nonpaid items by the National Health Insurance.

Due to the wide coverage of these insurance schemes, there have been rampant cases of moral hazards including overtreatment by doctors and superfluous spending on medical activities by consumers, the government said.

Such overtreatment practices have caused a rise in insurers’ medical loss ratio and led to higher premiums on insurance holders.

Insurance firms must overhaul their current medical insurance schemes starting April. They are mandated to offer a basic scheme and special scheme separately.

Treatments that are deemed to be the cause of rising premiums are chiropractic treatment, extracorporeal shock wave therapy, prolotherapy, aesthetic injections and magnetic resonance imaging. These will not be covered by the new basic scheme and will be grouped as special schemes that require additional premiums.

As a result, the new basic scheme will lower premiums by 26.4 percent from the current ones when calculated for a male applicant aged 40.

Meanwhile, subscribers to the special scheme will have their deductibles rise from the current 20 percent to 30 percent for exclusive treatments.

The special schemes will also have upper caps on the annual coverage payments for the designated treatments. For example, a special scheme holder can be paid a maximum of 3.5 million won ($2,930) for chiropractic treatments in a year, and the number of treatments cannot exceed 50.

Current insurance holders can choose to switch to new ones in April. The government will announce additional measures beforehand to minimize confusion in the market.

The insurance industry opposed the new government guidelines, saying such measures will pass future burden onto consumers.

“Rather than having insurers scale down their insurance schemes, the government needs to set standards for covering such treatments and prevent overtreatment,” said a sales agent at Hyundai Marine and Fire Insurance. 

By Song Su-hyun (song@heraldcorp.com)