South Korea introduced mandatory social health insurance for industrial workers in large corporations in 1977, and extended it incrementally to the self-employed until it covered the entire population in 1989. Thirty years of national health insurance in Korea can provide valuable lessons on key issues in health care financing policy which now face many low- and middle-income countries aiming to achieve universal health care coverage, such as: tax versus social health insurance; population and benefit coverage; single scheme versus multiple schemes; purchasing and provider payment method; and the role of politics and political commitment. National health insurance in Korea has been successful in mobilizing resources for health care, rapidly extending population coverage, effectively pooling public and private resources to purchase health care for the entire population, and containing health care expenditure. However, there are also challenges posed by the dominance of private providers paid by fee-for-service, the rapid aging of the population, and the public-private mix related to private health insurance.

Since its introduction in 1977, the national health insurance programme in Korea has paid health care providers on a fee-for-service basis. Regulated fee-for-service payment has resulted in an increased volume and intensity of medical care. It has also distorted the input mix of treatment because physicians have substituted more profitable and uninsured (no coverage) medical services for those with lower margins, as is evidenced by the sharp increase in the caesarean delivery rate. This paper examines two recent supply-side reforms in Korea: Diagnosis Related Group (DRG) and Resource-based Relative Value (RBRV). Since 1997, through a pilot programme covering a selected group of diseases for voluntarily participating health care institutions, the DRG-based prospective payment system has proven to be effective in containing cost with little negative effect on quality. RBRV-based payment was implemented in 2001, but led to an almost uniform increase in fees for physician services without a mechanism to control the volume and expenditure. Challenges and future issues in the reform of the payment system in Korea include the expansion of benefit coverage, quality monitoring and improvement, strategic plans to overcome the strong opposition of providers and the introduction of global budgeting.

South Korea proactively introduced public long-term care insurance (LTCI) in 2008 when older people were only about one-tenth of the total population. At that time, Korea switched from a tax-based, local-government-operated LTC program targeting low-income older people to the current universal public LTCI run by the National Health Insurance Service, the single public insurer. The LTCI program provides a comprehensive package of home- and institution-based care mainly targeting older people who need assistance in daily living. Over the past decade, the program has continued to expand its population and service coverage: older people in high need have been covered, and an infrastructure for service provision has been established. Future agendas include financial sustainability, care coordination, and the role of local governments. Korea's experiences suggest having an LTCI separate from the NHI has the benefit of potential de-medicalization of LTC, which, in turn, creates challenges for the coordination of health care and LTC. A centralized LTCI system with a single payer has the benefit of bigger risk-pooling, but this may become a barrier to designing integrated community care systems at the local level. There is a tradeoff between population coverage, benefits/cost coverage, and fiscal sustainability.