Recently in Korea, there has been surprising increase in attention paid by the public to the health industry since Medical Insurance became effective in 1977.
This paper presents an economic approach in analyzing the utilization of medical services in Korea which considers both demand and supply factors as determinants of medical care utilization.
This paper also introduces the "New Approach to Consumer Behavior" of Muth, Lancaster and Becker. So we accept the basic notion that medical demand is derived from the demand for health which has two aspects of both consumption and investment. And the traditional non-economic factors such as age and education level shall be reconsidered as major economic factors in the horizon of "cost of time". Medical Insurance has the implication of more than financial increase of consumers. It accelerates consumers' demand for medical care by inviting their "price illusions".
The empirical study is based on 21,263 samples from National Health Survey planned and performed by Korea Institute of Population and Health in Summer to Fall 1983. The Cross-Tabulation and Stepwise Multiple Regression Analysis suggest some important implication. The positive (but smoothly increasing) relationship between income (or education level) and medical care utilization seems to be transformed into step-functional relationship by our Medical Insurance. In calculating the price-elasticity of demand for medical care, we found 0.35-0.5% decrease in utilization when "traffic hours", the proxy variable of cost of time, increased by 1%.
The indepth study with the data of characteristics of physicians and hospitals would provide more precise conclusions.
