actuarial and statistical department finnish national health insurance: the financing reform of 2006...
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Actuarial and Statistical Department
Finnish National Health Insurance: The Financing Reform of 2006
Jussi Haapa-ahoChief Actuary
The Social Insurance Institution
15th International Conference of Social Security Actuaries and Statisticians
Helsinki 25.5.2007
Actuarial and Statistical Department
The Finnish health care system
• Health care is provided mainly in the public sector.
• Extensive services are offered to all residents.
• Municipalities responsible for the provision of primary health services.
• Public health services are complemented by private-sector services, which are mainly of an outpatient nature.
• National Health Insurance (NHI), sickness funds and voluntary private medical insurance plans offer reimbursements of health care costs.
Actuarial and Statistical Department
Health care spending in Finland at 2004 prices, 1960-2004
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
10 000
11 000
1960 1965 1970 1975 1980 1985 1990 1995 2000
million euros
Inpatient care
Outpatient care
Medicines (outpatient use)
Investment
Other services
Actuarial and Statistical Department
Health services and how they are financed• Municipal primary and specialised hospital
services: local tax revenue and state grant.
• Occupational health services: employers, partially refunded by NHI.
• Private medical centre services: the insured, costs partially refunded by NHI.
• Out-patient medication: costs of prescribed medication refunded by NHI (three compensation classes), hospitals responsible for medication of patients.
• Complex funding and provision of rehabilitation services.
Actuarial and Statistical Department
Health care spending according to the source of financing, 1960-2004
0 %
10 %
20 %
30 %
40 %
50 %
60 %
70 %
80 %
90 %
100 %
1960 1965 1970 1975 1980 1985 1990 1995 2000
1) Employers, relief funds and private-sector insurance.
State
Municipalities
The Social Insurance Institution
Households
Other private-sector financing 1)
20%
40%
17%
5%
19%
2004
Actuarial and Statistical Department
The National Health Insurance (NHI) System
• is universal and compulsory
• offers compensation to insured persons for loss of earnings caused by sickness or child birth
• provides reimbursements for expenditure on private-sector medical services
• is administered by the Social Insurance Institution (Kela).
Actuarial and Statistical Department
All payments from the National Health Insurance fund 1965–2005 (at 2005 prices)
0
500
1000
1500
2000
2500
3000
3500
1965 1970 1975 1980 1985 1990 1995 2000 2005
million euros
Sicknessallowances
Parenthoodallowances
Refunds ofmedicalexpenses
Occupationalhealth care,rehabilitation etc.
Actuarial and Statistical Department
Original financing principles of NHI
• Based on the PAYG principle (still is).
• Financed with contributions from the insured and from employers.
• Revenue was (and still is) collected in the NHI buffer fund.
• Required to hold calendar year-end reserves equalling at least 10% of annual expenditure.
• The State provided guarantee payments ensuring the liquidity of the fund.
Actuarial and Statistical DepartmentNHI contribution percentages for employers and insured persons, 1965-2005
0
1
2
3
4
5
6
7
8
1965 1970 1975 1980 1985 1990 1995 2000 2005
% of income
Employers,maximum
Employers,average
Employees,average
Employees,maximum(pensioners)
Employers,minimum
Actuarial and Statistical Department
Motivations for the NHI financing reform• Contribution revenues were increasingly used as
instruments of economic and incomes policy.
• The NHI fund faced a growing funding deficit, less than 60% of expenditure was covered by contributions.
• In 2005 over a half of the deficit had to be covered by the state liquidity guarantees, while the rest was met from VAT proceeds.
• The contribution criteria were subject to change and not easily foreseeable — the financing was unstable.
Actuarial and Statistical Department
Main objectives of the NHI financing reform
• to create a solid basis for the financing of NHI
• to achieve balance between revenue and expenditure
• to reinforce the insurance principle in the financing of the system
• to curb expenditure growth.
Actuarial and Statistical Department
Essence of the financing reform
• NHI was split up, in terms of its financing, into two parts: an earned income insurance and a medical care insurance.
• The earned income insurance is financed by employers, the insured persons and the state.
• The costs of the medical care insurance are borne equally by the insured and the State.
Actuarial and Statistical Department
The new NHI financing system
Other outgo
National HealthInsurance
National Pension Insurance
State Insured personsEmployers Em-ployees
Earned Income Insurance
Medical CareInsurance
State
Outgo
Income
Actuarial and Statistical Department
New NHI financing principles
• The principles and responsibitilies governing financing by employers, insured persons and the state were laid down in the legislation.
• A 10% maximum reserve requirement (along with the 8% minimum requirement) was set for the NHI fund.
• The goal is to keep the liquid assets of the fund within these two limits.
• Liquidity guarantee payments by the State were abolished.
Actuarial and Statistical Department
Financing of National Health Insurance 1965–2007
0
10
20
30
40
50
60
70
80
90
100
1964 1969 1974 1979 1984 1989 1994 1999 2004
Municipalities
State
Insuredpersons
Employers
Specialproceeds
Return onassets etc.
% 2007
29%
0%
33%
38%
2007
Actuarial and Statistical Department
The NHI financing reform has
• increased the consistency and stability of the funding system
• put additional weight on the insurance principle
• created a tighter link between revenues and expenditures which has added clarity to the system
• increased the motivation of the contributing parties to keep track of financing trends and costs.
Actuarial and Statistical Department
Forthcoming challenges of health care financing
• The age dependency ratio (the over-65s in proportion to 20 - 64 years) will increase rapidly in Finland.
• The impending demographic development will present enormous challenges for health care.
• The total number of contributors is decreasing.
• Cost pressures will be made worse also by the adoption of new and more costly methods of treatment and increasing use of pharmaceuticals.
• Small municipalities have limited resources to obtain adequate health services.
Actuarial and Statistical Department
Population by age groups in 1980 – 2075, 2000 = 100
0
20
40
60
80
100
120
140
160
180
200
1980 1990 2000 2010 2020 2030 2040 2050 2060 2070
Vuosi Year
0-15
16-64
65-
Actuarial and Statistical Department
NHI and rehabilitation benefits in 1980 – 2005 at 2006 prices
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
1980 1990 2000 2010 2020 2030 2040 2050
million euros
Sickness allowances
Parenthood allowances
Medicines
Other health insurance benefits
Occupational health services
Rehabilitation
Actuarial and Statistical Department
Long-term views
• Health care in Finland appears likely to remain mainly based on public provision.
• Private services will probably play an important and increasing complementary role.
• The role of the National Health Insurance system in providing reimbursements for medical services will remain significant, but it will be necessary to increase the replacement rate of the reimbursements.
Actuarial and Statistical Department
How to meet future challenges
• improve productivity and processes (good management, quality and organisation in health care)
• utilise information technology
• create larger municipalities that are stronger economically
• control rising costs, especially in pharmaceuticals
• search for new financing methods.
Actuarial and Statistical Department
Proposal for a new national health insurance• Municipalities insure their inhabitants for
health services.
• The new national health insurance scheme is responsible for organising health services.
• Insurance regions manage the provision of services, exercise supervision, and control money flows under a central leadership and common information system.
• Municipal and private service providers compete in a common market for service contracts.