Starting in November, subscribers to 1st and 2nd-generation indemnity health insurance will face a pivotal decision. Regulators have introduced new options to curb rising premiums and restructure legacy policies: either maintain existing contracts with newly introduced discount special terms, or convert to the 5th-generation policy, which features a 3-year 50% transition discount. But which choice makes the most sense?

The Reality Behind the "50% Discount"

The headline-grabbing "50% discount" applies directly to the 5th-generation premium after conversion. According to financial authorities, a female subscriber in her 60s currently paying 178,489 KRW a month for a 1st-generation policy would see her monthly premium drop to 42,539 KRW upon switching to the 5th generation. With the additional 3-year 50% discount, the premium falls further to 21,270 KRW—a staggering 88% reduction compared to her original cost.

Assuming premiums remain unchanged for three years, the total projected savings compared to maintaining the legacy contract amount to approximately 5.66 million KRW. Of this total, about 770,000 KRW comes directly from the 50% transition discount, while the remainder stems from the inherent base-rate difference between 1st-generation and 5th-generation products.

However, a cheaper premium does not automatically mean a better deal. The 5th-generation policy carries higher co-pay rates for non-severe non-benefit treatments and restricts coverage on certain items.

Why the Push for Transition?

While initial proposals considered a "contract buyback" scheme—offering cash compensation based on the difference between paid premiums and received claims—regulators ultimately settled on premium discounts as the incentive mechanism.

Launched last May, the 5th-generation indemnity insurance overhauled benefit structures to suppress excessive medical treatments and secure long-term sustainability. It lowers premiums by increasing out-of-pocket costs for non-severe non-benefit treatments and excluding select services.

Unlike 4th-generation policies (sold after July 2021) or late 2nd-generation policies (sold after April 2013), which face mandatory re-enrollment cycles every 5 to 15 years, early 1st and 2nd-generation policies have no re-enrollment obligation. Subscribers can keep their original terms indefinitely, though premiums still rise via annual renewals. Financial authorities report that as of late 2024, approximately 47.5% of all indemnity insurance contracts are these legacy 1st and 2nd-generation policies. The new discount incentives are designed specifically to entice these holders to switch.

Two Paths: Selection-Type Discount vs. Contract Conversion

Subscribers are presented with two distinct routes:

Selection-Type Discount Special Terms: Holders keep their existing legacy contracts but opt out of specific coverages to lower premiums. Options include:

   * Excluding non-benefit physical therapy (e.g., Chuna/manual therapy) and non-benefit injections.
   * Excluding non-benefit MRI and MRA scans.
   * Applying a 20% co-pay rate.

Combining all three options is expected to yield a 30% to 40% discount, though rates vary by insurer and age group. While this preserves the core legacy contract without re-enrollment risks, policyholders sacrifice coverage for specific treatments and accept higher out-of-pocket medical expenses.

Contract Conversion Discount (5th Generation): Subscribers switch their legacy contract to a 5th-generation policy, receiving a 50% discount on premiums for three years. Same-insurer conversions generally require no underwriting review, though expanding coverage or attempting a reversal later may trigger medical reviews. This conversion discount will run for an initial six-month trial period starting in November.

How to Calculate Your Net Benefit

Determining the right choice requires looking beyond the discount percentage. You must subtract potential cuts in insurance payouts and higher co-pays from your annual premium savings, while factoring in the opportunity cost of abandoning a legacy contract.

For instance, in the case of the 60s female subscriber, annual premium savings from a 5th-generation conversion total roughly 1.89 million KRW during the discount period, compared to about 860,000 KRW in savings under the selection-type special terms.

Next, factor in reduced payouts. Under recent guidelines, managed non-benefit physical therapy costs roughly 43,850 KRW per session with a 95% patient co-pay rate. Assuming 15 sessions a year (the typical medical guideline), total medical costs reach roughly 658,000 KRW, with an out-of-pocket burden of about 625,000 KRW. A legacy 1st-generation policy covering 90% to 100% of this cost would pay out between 560,000 KRW and 625,000 KRW—amounts that are largely eclipsed by the 1.89 million KRW annual premium savings.

Who Should Switch, and Who Should Stay?

Stay with Legacy Policies If: You are a chronic musculoskeletal or pain patient who frequently receives non-benefit MRIs, injections, or shockwave therapy; if you are elderly; or if you have a history of severe illness. The loss of comprehensive coverage will likely outweigh premium savings.
Consider the Selection-Type Discount If: You have not claimed non-benefit insurance payouts over the past three years, find your current premiums burdensome, and anticipate minimal future use of non-benefit medical services.

Key Cautions

The 5th-generation conversion discount expires after three years, after which standard pricing and normal renewal hikes apply. While policyholders can cancel the conversion within six months, doing so after three months requires a clean claim-free record, and re-converting later may involve strict medical underwriting.

Ultimately, the decision should not rest on the allure of a "50% discount." Subscribers must carefully calculate actual premium savings against forfeited coverages and projected future medical expenses to find the truly rational path forward.

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