Fiscal Projection of Long Term Care Insurance Over 2018-2027
Published on 11 December 2018
Published by Social Cost Estimates Division of the Estimates & Tax Analysis Department
In this report, projections of the income, expenditure and fiscal balance for long term care insurance over the next decade from 2018 to 2027 were made under the assumption that the long term care insurance premium will be maintained at the current level (8.51% as of 2019), through a model developed by incorporating the Second Framework Plan on Long Term Care Insurance from 2018 to 2022 which was published in February 2018. As a result, it was estimated that the income for long term care insurance totals 7 trillion 446.6 billion won in 2018 and 13 trillion 814.8 billion won in 2027; while the expenditures are 6 trillion 604.4 billion won in 2018 and 16 trillion 413.2 billion won in 2027. Consequently, long term care insurance is expected to maintain a fiscal deficit, drying up the cumulative reserves by 2022.
Meanwhile, this report also conducted a sensitivity analysis based on a variation of factors such as the long term care insurance premium rate, national treasury subsidies and the increase rate of the fee schedule, which are the major variables for determining the fiscal projections for long term care insurance. If the long term care insurance premium is increased by the nominal wage increase rate (3-4%), thereby leading to increased insurance premium revenue, the fiscal balance is expected to turn into a surplus from 2021 with cumulative reserves continuing to increase; whereas if the premium is increased by the rate of consumer inflation (1-2%), the fiscal deficit will be maintained but at a lower rate, with a two-year suspension until the cumulative reserves dry up in 2024. If the treasury subsidies are increased to 20% to increase long term care insurance revenue or the fee schedule increase rate is slightly decreased to make up for the expenditure increase rate, the cumulative reserves are expected to run out one year later in 2023.
In addition to the sensitivity analysis, a simulation was conducted on long term care insurance premiums in which long term care insurance maintains a fiscal balance as well as on long term care insurance premiums in which the cumulative reserves sustain one month’s worth of insurance payments. In conclusion, in order for the cumulative reserves to realize a fiscal balance and maintain one month’s worth of insurance payments in reserve, it appears that the long term care insurance premium needs to be increased every year on top of an increase in the health insurance premium.