Underfunded mandates

Government must honor statutory funding before raising health insurance premiums

A health insurance system can survive an aging population. What it cannot survive indefinitely is a government that treats its own funding obligation as optional.

South Korea's national health insurance system is offering an early warning. In the first quarter, the system recorded a current account deficit of 3.9 trillion won ($2.8 billion), ending five consecutive years of annual surpluses.

Its accumulated reserves fell from 30.22 trillion won at the end of 2025 to 26.32 trillion won three months later. The government had expected the system to move into deficit this year.

The speed of the deterioration is troubling. So are the demographic pressures driving costs higher.

People aged 65 and older accounted for 44.1 percent of medical spending in 2023. That share is projected to rise to 53.1 percent by 2030 and 70.2 percent by 2050. Meanwhile, the population paying premiums through employment is shrinking. Medical demand is rising as the pool financing it contracts.

The obvious response is to raise premiums. Yet that answer becomes less convincing when the state itself has failed to meet its legal share.

Under the National Health Insurance Act and the National Health Promotion Act, the government is required to provide an amount equivalent to 20 percent of estimated annual premium revenue, with 14 percent coming from the general account and 6 percent from the National Health Promotion Fund.

From 2007 through 2024, however, the government never met that statutory level. Its actual contribution stayed around 13 to 14 percent, leaving an estimated 22 trillion won gap.

Over the past five years, the government reportedly underestimated health insurance premium revenue by 9.8 trillion won. Since the statutory contribution is linked to estimated revenue, understating the base conveniently reduces the state's obligation.

The Lee Jae Myung administration has acknowledged the problem. Yet its first budget allocated support equivalent to 14.2 percent of expected premium revenue, down from 14.4 percent the previous year. Asking households to pay more while the state pays less than the law requires is difficult to defend.

Nor should health insurance reserves become a convenient second budget for government policy. More than 8.6 trillion won has been drawn from the insurance fund for measures including emergency medical support and hospital restructuring. Such transfers may be defensible in an emergency, but repeated reliance on them blurs the line between social insurance and general taxation.

More government funding alone will not make premium increases unnecessary. Korea's per capita health spending, at $5,099 on a purchasing-power-parity basis, remains below the OECD average of $6,097. An aging society will require more resources. Higher premiums may therefore be unavoidable.

But additional revenue should come with a more disciplined healthcare system. Korea needs stronger primary care and better management of chronic disease, while expensive tertiary hospitals should concentrate on serious and complex cases.

Wasteful testing, duplicate treatment and improper claims also deserve closer scrutiny. A fee-for-service system makes cost control harder as an aging population requires more frequent treatment and more complex care.

Alternative revenues, such as the Center for Market Education's proposal to raise cigarette prices, could provide some breathing room. Useful as that may be, it is a buffer, not a long-term financing model.

The government should first make its 20 percent obligation enforceable against settled revenue figures rather than flexible estimates. It should also require legislative approval for major transfers from National Health Insurance Service reserves to broader government programs.

Korea's health insurance problem is both demographic and institutional. Before asking citizens to pay higher premiums, the government should stop putting less into the system than the law requires.

A sustainable safety net begins with an honest ledger, rather than price increases that merely paper over the underlying fiscal strain.

(END)

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