Unintended Consequences of Health Care Reform in South Korea : Evidence from a Regression Discontinuity in Time Design

In June 2007, the South Korean government, hoping to reduce the state's share of health care costs, passed an amendment to the state-run health care system to transition from a copay system to a coinsurance system for outpatient services. This new policy effectively increased the out-of-pocket health care costs of outpatient services to South Koreans from 22 percent to 30 percent. This paper estimates the impact of the health insurance reform on outpatient health care utilization. Using a regression discontinuity in time design, I find that the abolition of the copayment program significantly increased system-wide outpatient health care utilization by up to 90 percent and reduced medical expenditures by 23 percent per visit. The copayment abolition incentivized beneficiaries to obtain more medical treatments during the grace period and enroll in supplemental private health insurance covering patient-sharing medical costs, allowing access to more medical services with lower marginal costs. Therefore, the abolition of the copayment and emergence of supplemental private insurance caused moral hazard and adverse selection problems, leading South Korea to become the country with the highest per capita utilization of outpatient health services worldwide since 2012