Government-Run Long-Term Care Insurance Program in South Korea Facing Financial Woes

While private Long-term Care Insurance is common in some countries, like the United States, South Korea instituted a state-run insurance program to address the costs and burdens of aging.

South Korea's National Assembly passed the Elderly Long-Term Care Insurance Law in April 2007. The national mandatory program was established in July of 2008. 

Nursing home care for the elderly, which had previously only provided for the poor, is now open to all Koreans if they meet the eligibility criteria, regardless of income.

Universal public Long-Term Care Insurance is run by the National Health Insurance Service in South Korea, a single public insurer. The long-term health care program provides comprehensive benefits, including in-home care and facility-based care services.

Government Reserves May Dry Up

However, a leading lawmaker in South Korea says Long-Term Care Insurance reserves will dry out in 2026, creating a deficit in 2070 of 76.7 trillion won ($58.9 billion).

Rep. Lee Jong-sung of the ruling People Power Party said that government data reports that the nation's Long-Term Care Insurance program may have a deficit of 3.8 trillion won in 2030, increasing to 23.2 trillion won in 2040, 47.6 trillion won in 2050, 63.4 trillion won in 2060, and 76.7 trillion won in 2070.

That 2070 expected deficit is substantial, amounting to over $43 billion U.S. dollars. 

The South Korean government statistical agency estimate that the number of people 65 years and older in the country will increase from 10.04 million in 2020 to 25.69 million in 2070.

People require long-term health care services due to declining health, mobility problems, and dementia. The cost of long-term health care services is increasing worldwide due to increasing demand for care and higher labor costs.

Government Premiums Increasing

Rep. Lee says the government has increased the premium tax-payors must pay for this program. The premium rate rose from 12.67% in 2018 to 15.31% in 2019 and 20.45% in 2020.

Lee said that salaried people who paid 200,000 won as health insurance premium in 2017 paid 13,100 won for Long-Term Care Insurance. In 2021 they paid 23,000 won, nearly double that of four years ago. The employee contribution rate is about 3.5%, including Long-Term Care Insurance. That rate goes up every year. 

Rep. Lee Jong-sung

It is wrong for the government to pass the financial burden resulting from rapid population aging to policyholders. The government should expand its financial support to the insurance to help it secure financial soundness.

Rep. Lee Jong-sung

Debate in the U.S. for National LTC Program

There has been some debate in the United States about a national long-term care system. The Medicaid program will pay for long-term health care services but only for those with little or no income and assets. Medicare is a health insurance program primarily for those aged 65 and older. However, traditional health insurance, including Medicare and supplements, will only for a limited amount of skilled care, but most long-term care is custodial - meaning help with daily living activities. 

Private Long-Term Care Insurance is available and has gained popularity over the years, but only about 7% of those over age 50 have a policy in place. Some experts say there are several reasons more people don't purchase Long-Term Care Insurance, but the most common:

• Denial that they will ever need long-term health care
• Perception that the government pays for long-term health care
• Perception that Long-Term Care Insurance is expensive
• Pre-exist health issues make it impossible to obtain coverage
• Never thought about long-term care

Former President Obama's administration proposed a national program as part of its health care package, but the actuarial risks and costs stopped the government from moving forward. Congress formally repealed the CLASS Act, which would have provided a national program for long-term health care.

Partnership LTC Insurance and Government Regulation

The Long-Term Care Insurance Partnership Program does provide incentives for individuals to purchase private Long-Term Care Insurance. Policyholders with partnership policies enjoy additional dollar-for-dollar asset protection. 

Long-Term Care Insurance is regulated jointly by the federal government and the states. Federal rules under Section 7702(b) provide guaranteed benefit triggers, consumer protections, and federal tax incentives for all qualified Long-Term Care Insurance policies.

Many states have rate stability rules in force to maintain premium levels for private Long-Term Care Insurance. Some states also have state-tax incentives to encourage individuals to purchase Long-Term Care Insurance.

Multiple States Considering LTC Tax

However, many states still have budget problems due to long-term care. Medicaid is a federal and state program and is jointly funded. While Medicaid was never designed for long-term health care, it has become the nation's largest payor of long-term care services. States are looking for additional funding due to an aging population and more people needing help with daily living activities or supervision due to dementia.

The State of Washington has instituted a tax on earned income for those who do not own private Long-Term Care Insurance. The tax is applied to 100% of earned income. Several states, including California, New York, Michigan, Minnesota, and Illinois, are getting closer to implementing their LTC tax.

The states will offer a very limited amount of benefits for long-term health care, but most of the tax money is expected to be used to pay for Medicaid long-term care benefits. 

The State of Washington provided a short period of time to allow residents to obtain coverage if they did not already own a Long-Term Care Insurance policy. Some states, like New York, may not give time.

Other federal proposals for a national program outside the Long-Term Care Insurance Partnership program and Medicaid have not gained much traction due to federal budget concerns.

Nevertheless, the problem of longevity is a worldwide issue that affects families and finances.