Actuarial and Statistical Department Finnish National Health Insurance: The Financing Reform of 2006 Jussi Haapa-aho Chief Actuary The Social Insurance Institution 15th International Conference of Social Security Actuaries and Statisticians Helsinki

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,

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,

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) million euros Sickness allowances Parenthood allowances Refunds of medical expenses Occupational health 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 Department NHI contribution percentages for employers and insured persons,

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 Health Insurance National Pension Insurance State Insured persons Employers Em- ployees Earned Income Insurance Medical Care Insurance 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

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 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

Actuarial and Statistical Department NHI and rehabilitation benefits in 1980 – 2005 at 2006 prices

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.