Korea’s healthcare cost to GDP grew rapidly in the recent five years, at the fastest pace among the OECD members, a report said.

The Korea Insurance Research Institute (KIRI) released a report titled “Macroeconomic Analysis and Implications of Increasing Medical Expenses,” recently.

In the report, KIRI said the ratio of health expenses to GDP in Korea grew from 6.5 percent in 2014 to 8 percent in 2019, up by 1.5 percentage points.

In contrast, the ratio in the U.S. only inched up from 16.4 percent in 2014 to 17 percent in 2019, up 0.6 percentage points. That of Japan also remained almost unchanged from 10.8 percent to 11.1 percent during the same period.

The OECD average was almost the same, from 8.7 percent in 2014 to 8.8 percent in 2019, up only 0.1 percentage point, which radically contrasted to a 1.5 percentage point increase in Korea.

The KIRI report analyzed Korea’s healthcare spending based on the theory of unbalanced growth by U.S. economist William Baumol and came up with its implications.

The report attributed the growth of health expenses to income growth, the population aging, the advancement of medical technologies, the moral hazard of patients, and the healthcare industry’s stagnation in productivity.

While Korean people’s income rose, the elasticity of the healthcare service prices was low. This made the demand increase, and health spending increase, the report said.

A limit in the labor increase in the medical field was also one contributor, the report noted. Unless an AI doctor comes out, it is difficult to expect a dramatic improvement in labor productivity in the healthcare sector because one doctor can see only one patient at a time, it said.

“Healthcare spending continues to rise because there is a limit to the increase in labor productivity in the supply side, and price elasticity in the demand side is low, and income elasticity is high,” the report said.

To suppress the increase in healthcare expenses, the government could curb patients’ moral hazard on the demand side and use policies to improve the healthcare industry’s productivity on the supply side, it added.