Let’s Guard Against Welfare Populism

Populism, simply put, refers to political behavior that panders to popular appeal among the general public. More specifically, populism means promising and pursuing policies that ordinary people are likely to favor, for the purpose of winning elections and taking power, without giving any consideration whatsoever to their negative effects on the nation, society, corporate competitiveness, and jobs, or to their medium- and long-term consequences rather than just immediate, visible results. The end result of populism is always tragic, as we are currently seeing in Venezuela.

The current government’s policy of “expanding insurance coverage,” the so-called “Moon Jae-in Care,” is also one of the representative examples of populist policy. The promise of lowering out-of-pocket medical expenses, the promise of “free medical care,” sounds sweet. But in reality, things unfold very differently from that promise.

First of all, the public’s burden does not decrease at all. That is because there is ultimately no other way to pay for all medical costs than through insurance premiums and taxes borne by the public. Contrary to the sweet promise, the public’s burden actually increases even more. This is because a policy that reduces the direct burden on individual patients by shifting it to a shared burden inevitably greatly expands demand for medical care.

As a result, total medical spending cannot help but surge, and accordingly, the share each citizen must bear also cannot help but rise sharply compared with before. This phenomenon, also called the “tragedy of the commons,” is already appearing. Under the government’s policy, beginning in October 2018, MRI scan fees—most of which had previously been paid by patients themselves—were drastically reduced.

According to the original estimate, this policy was expected to increase annual National Health Insurance expenditures by KRW 164.2 billion. However, as the number of patients seeking MRI scans rose sharply, related spending nearly doubled to KRW 273 billion–280 billion.

And it does not end there. Because of this kind of populist policy in the medical sector, National Health Insurance spending is increasing rapidly, and this is leading to concerns over a fiscal deficit in the health insurance system and the resulting depletion of funding sources. Estimates differ depending on the researcher, but according to one study, the accumulated reserve of National Health Insurance could turn into a deficit as early as 2022, just two years later; four years after that, in 2026, the cumulative deficit could reach KRW 120 trillion; and two years after that, by 2028, the cumulative deficit could exceed a staggering KRW 234 trillion.

In less than 10 years, Korea’s medical insurance system itself could effectively collapse. To prevent the collapse of the medical insurance system, premium increases will be unavoidable, and their scale is expected to be about three times the current level.

L. Erhard, who served as Germany’s economics minister and chancellor and achieved the “miracle on the Rhine,” criticized politicians and voters who emphasized redistribution and welfare, saying, “No matter how possible the atomic bomb may be in this world, it is impossible to consume more than is produced,” and argued that putting welfare and redistribution first was a childish way of thinking. By contrast, in our society, this “childish way of thinking” is becoming ever more firmly entrenched.

We must reflect on the maxim, “The road to hell is decorated with roses.”

Hyukchul Kwon

Vice President, Center for Free Enterprise (CFE)

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Original title: 복지 포퓰리즘을 경계하자

Author: Hyeok-cheol Kwon

Date: 2020-01-28

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=23&idx=22327