[Essay] Reading Care Systems in a Market Context: Understanding the Care Quasi-Market

  ☐ Reading Care Systems in a Market Context

In contemporary discussions of care services, two of the most prominent concepts are undoubtedly “publicness” and “user-centeredness.” However, I strongly disagree with arguments that treat the market as an inherently negative force that undermines publicness. Such arguments are overly idealistic because they fail to account for the realities of how markets actually operate. In my view, what matters most in understanding care systems is the actual supply chain structure through which services are delivered. To be clear, although I support the use of market mechanisms, I remain firmly committed to the values of social welfare.

Even healthcare, which is widely regarded as one of the clearest examples of a publicly oriented service, operates in practice through market mechanisms. South Korea’s healthcare system provides a useful example. On the demand side, public responsibility is institutionalized through the National Health Insurance system, which regulates fees, benefit coverage, eligibility, and publicly financed demand. On the supply side, however, services are delivered predominantly by private providers.

Primary care is largely delivered through privately owned physician practices, many of which are operated by self-employed doctors. Large hospitals, which require substantial capital and infrastructure, are generally operated by non-profit entities such as medical corporations, social welfare corporations, and educational foundations. At the secondary level, for-profit providers and large non-profit providers coexist and compete, while tertiary referral hospitals are predominantly operated by large, highly institutionalized non-profit organizations.

By contrast, publicly owned and directly operated delivery systems, such as those found more extensively in the United Kingdom, account for only a limited share of healthcare provision in Korea. Traditional social welfare facilities operated through public contracting-out arrangements also depend on public funding and publicly organized demand, while service delivery is undertaken largely by non-profit providers.

An innovative care entrepreneur seeking to build a business in this field must therefore understand the realities of the care market and the institutional mechanisms that shape it better than anyone else.

☐ What Is a Quasi-Market System?

A quasi-market system is a core market mechanism within modern care and welfare systems. It refers to a hybrid market structure in which the state raises and allocates public funding and regulates eligibility, benefit coverage, pricing, and quality standards, while allowing users to choose among competing for-profit and non-profit providers.

In a conventional market, consumers purchase goods and services with their own income. In a quasi-market, by contrast, the state or a social insurer provides users with publicly financed purchasing power. Users may choose their service providers, but the state determines service prices, eligibility rules, and the scope of available benefits. Providers compete within state-designed pricing and regulatory frameworks to attract users and increase service volume. A quasi-market is therefore not a fully free market, but an institutionally constructed market deliberately designed and managed by the state to achieve public objectives.

Historically and in policy terms, quasi-market theory in social policy was developed and systematized by British scholars such as Julian Le Grand and Will Bartlett. The National Health Service and Community Care Act 1990, enacted under Margaret Thatcher’s government, formally institutionalized the internal market within the United Kingdom’s National Health Service by separating purchaser and provider roles and introducing competition among providers.

When Tony Blair’s government took office in 1997, it initially criticized the Conservative model of the internal market. It later restructured and expanded quasi-market principles, however, by combining continued state responsibility for financing and quality control with patient choice, provider diversity, performance management, and competition under the banner of the “Third Way.” Through this process, quasi-markets did not simply become a vehicle for privatization. Instead, they developed into a major welfare-state policy instrument through which the state retained financial responsibility while using choice and competition to organize service delivery.

An important point must be emphasized here: statutory social insurance is itself, in a broad sense, a powerful large-scale quasi-market mechanism. The National Health Insurance system and Korea’s Long-Term Care Insurance (LTCI) system are financed through statutory contributions and public funding, while the state and public insurers determine eligibility, benefit coverage, reimbursement rates, and payment standards. Actual services, however, are delivered by numerous for-profit providers and non-profit providers competing to attract users and expand service volume.

Korea’s Long-Term Care Insurance system (LTCI), in particular, is a quintessential quasi-market. The state converts care needs into publicly financed effective demand through care grades, benefit limits, and government-set fee schedules. Users then choose among approved care providers, and providers compete to be selected. In this sense, public social insurance is both a welfare institution and a major quasi-market mechanism that shapes provider behavior and allocates resources.

The composition of providers and the nature of competition vary across different areas of the quasi-market. Contracting-out arrangements and certain public partnership and designation programs have historically favored established non-profit providers because of their operational experience, specialized personnel, financial stability, and established relationships with public authorities. This structure has helped maintain operational stability and public responsibility, but it has also created barriers to entry for new providers and made it more difficult to introduce innovative business models.

By contrast, in the social service voucher market and Korea’s Long-Term Care Insurance market, provider revenue depends directly on user choice and the actual volume of services delivered. As a result, many for-profit providers, including sole proprietors, have entered the market. This has created a highly dynamic supply environment characterized by frequent entry, expansion, competition, and exit.

This process has increased service capacity, broadened user choice, and encouraged new market entry. At the same time, it has also produced problems such as an oversupply of small-scale providers, excessive competition for users, uneven service quality, and precarious working conditions for care workers.

Ultimately, Korea’s care quasi-market has developed into a pluralistic and competitive market in which sole proprietors, for-profit providers, non-profit providers, and social economy organizations coexist. In this market, the public orientation and field experience of non-profit providers, the agility and scalability of for-profit providers, and the social purpose and participatory governance of social economy organizations both compete with and complement one another.

At the same time, persistent tensions remain among public responsibility, profitability, service quality, and working conditions. Korea’s care quasi-market is therefore not a zero-sum system in which for-profit and non-profit providers replace one another. Rather, it is a complex market ecosystem in which diverse providers compete and coexist within institutional and payment frameworks designed by the state.

☐ Implications for Care Entrepreneurs

Korea’s care market is overwhelmingly dominated by quasi-market mechanisms in which the state tightly regulates publicly financed demand, pricing, eligibility, and benefit conditions. By contrast, the private out-of-pocket market—where consumers purchase services with their own money and enterprises have greater freedom to design prices and service offerings—remains a relatively marginal and underdeveloped segment.

This quasi-market-centered institutional framework has contributed greatly to the rapid expansion of care services in Korea and has improved basic access for citizens. At the same time, however, it has also constrained the growth of the private out-of-pocket market, in which private capital can be invested, enterprises can develop innovative services, and high value-added offerings can emerge in response to varying levels of consumer willingness to pay.

Under government-set fee schedules, eligibility and benefit criteria, service delivery rules, and staffing requirements, entrepreneurs have limited room to set prices flexibly or differentiate the content of their services. Even when providers improve service quality, it is difficult to reflect the additional cost in the price. It is also difficult to generate returns commensurate with investments in new technology or specialized personnel. As a result, many care enterprises are compelled to focus more on regulatory compliance and cost control than on innovation.

Care entrepreneurs must therefore adopt a dual-track strategy that makes use of both the quasi-market and the private out-of-pocket market.

First, within the dominant quasi-market that provides a foundation for stable revenue, entrepreneurs must fully understand the rules and operating logic of the system and maximize operational efficiency. In social service voucher programs and Long-Term Care Insurance (LTCI), they must have a detailed understanding of government-set fee schedules, benefit criteria, staffing standards, and administrative regulations. Within legal and regulatory boundaries, they must optimize workforce deployment, cost structures, and service delivery processes.

They must also systematically manage the administrative and regulatory risks associated with provider designation, evaluation, billing, labor management, and quality control. By doing so, they can turn the quasi-market into a reliable foundation for stable revenue and cash flow. However, because quasi-markets often offer limited profit margins despite their relative stability, productivity, service quality, and workforce retention are more important than indiscriminate expansion.

Second, entrepreneurs should build on the capabilities developed in the quasi-market and proactively enter the underdeveloped private out-of-pocket market. Relationships with users and families, access to the care workforce, operational experience, service data, and brand trust accumulated within the quasi-market should be converted into new private products and premium services.

These offerings should extend beyond the basic level of care guaranteed by the state. Examples include high-quality customized care for consumers who are willing and able to pay, premium in-home care services, family support programs, integrated housing and health services, and technology-enabled care management solutions.

In the private out-of-pocket market, care enterprises are not bound by a single government-set fee schedule. They can design services and set prices according to the value perceived by users. Entrepreneurs must therefore move beyond simply providing more service hours. They must identify what customers are genuinely willing to pay for and turn that value into differentiated, commercially viable offerings.

For care entrepreneurs, understanding market institutions ultimately means looking beyond abstract appeals to publicness and welfare and examining the underlying structures of finance, pricing, competition, and regulation.

The central survival equation for care entrepreneurs is clear. The quasi-market provides a stable foundation, but it does not by itself guarantee high value creation or long-term growth. The private out-of-pocket market, by contrast, offers significant opportunities for innovation and growth, but it also involves uncertain demand and high market-entry costs.

Only entrepreneurs who fully understand the rules governing both markets and successfully connect them will be able to turn the constraints of a quasi-market-centered care industry into new opportunities for growth.

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### About the Author

* Sung-Kee Kim, Ph.D. in Social Welfare

* Director, The Care Biz Lab

* Board Chair, SE Empower Social Cooperative

* E-mail: skkwelfare@gmail.com