A substantial change is occurring in the Korean health sector through the introduction of health insurance. Insurance coverage has been expanded gradually since 1977 and is scheduled to become universal by July 1989. Together with the expansion of insurance have come regulations with respect to the setting of fees, the expansion of medical schools and investments in health facilities. This set of insurance-related interventions is producing substantial changes in the health sector. This report studies the effects and implications of health insurance on the health sector, and suggests reforms that will help Korea meet its health care objectives in a cost-effective and equitable manner. Reforms are suggested both in the organization and design of the insurance system and in the regulations governing public and private investments in medical manpower and facilities.