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Korea introduced industrial accident insurance (IACIS) in 1964, medical insurance (MIS) in 1977, pension insurance (NPS) in 1988 and employment insurance (EIS) in 1995. In line with Korea’s economic development, social insurance coverage has grown rapidly, and contribution coverage rates now generally exceed 80% for regular workers. However, the four social insurance systems developed separately. The main split in contribution collection methods has been between the insurances under the Ministry of Labour (EIS and IACIS) and those under the Ministry of Health and Welfare (MIS and NPS), although there are also some differences between MIS and NPS. About 50% of the staff in each system has been engaged in collection activities.

Contribution collection processes differ in terms of the definition of the wage base, payment intervals, end-year adjustments when final information for annual incomes becomes available, employer ID codes and other features. Separate collection has been administratively costly and inconvenient for contributors, and differences in the wage base and payment timing have prevented the sharing of information and crosschecks between different income declarations. These features have contributed to continuing low insurance coverage rates, particularly for non-regular workers and the small firm sector.

The need for a reform of collection procedures has been debated in Korea for over a decade. Barriers to unification have been both institutional, since each social insurance institution may defend its independence and fear staff cuts, and technical, since specific choices about detailed aspects of the unified system need to be made and some of the current differences in procedures reflect varying needs. This paper
summarizes the analysis and conclusions of the Task Force on Unification of Contribution Collection which was set up in 2005 by the Presidential Commission on Social Inclusion. After a year of in-depth debate among stakeholders, as of February 2007 the texts of several revised laws to implement the new
contribution collection system had been completed and were being deliberated in the National Assembly. Firstly, wage bases will be aligned with the definition of taxable income to facilitate income data sharing with the tax authority. Second, collection will be based on the previous year’s income and the contribution
amount will be imposed on employers after calculation by the insurers. Third, as long as the insurance corporations collect contributions separately, their current payment intervals will be maintained. Fourth, the MIS, EIS and IACIS will maintain an end-year adjustment system, but the NPS will not since pension is a long-term insurance where benefits depend on life-long contributions. Other reforms include the abolition of the grading (income bracket) system used in collecting the MIS and NPS contributions, the development of common ID units and ID codes for workplaces and a revision of the management system for the EIS insured, although the new system will not be applied to construction sites until proper recordkeeping
for each daily worker is established.

Much else needs to be done for the development of social insurance in Korea. Among other things, a single agency should be created for collecting social insurance contributions. The unification of social insurance contribution collection with tax collection can be envisaged as a more distant objective. According to the bill proposed on 16 November 2006, a new collection agency will be created under the administration of the National Tax Service and entrusted with the integrated collection function on behalf of the social insurance corporations. A range of further measures to reduce gaps in insurance coverage (the "dead zone") should be undertaken as soon as possible.

Most countries at certain stages of economic development experience periods with low social insurance coverage, and the widespread informal employment relationships and labour market duality that this implies. As development proceeds structural reforms are typically needed to coordinate social insurance systems which initially covered a particular social risk and particular population subgroups.
Although such reforms are one-off investments which produce a permanent stream of efficiency gains, and which should usually be undertaken as soon as possible, in this area it often proves difficult to overcome inertia and resistance to change. Annex 1 of the paper shows that shortfalls from an ideal of unification or adequate coordination persist in many OECD Member countries. Several countries have moved decisively towards unification in recent decades, so the general trend is clear but it remains slow. There is little international literature on the detailed issues involved and the OECD, by publishing this description of Korean and international experiences, aims to encourage strategic reflection by policy-makers.