Healthcare and its financing

Current social welfare and healthcare financing and its development needs

The Finnish healthcare financing system is mostly taxed-based, similarly to the other Nordic countries. In most other western countries the system is built on health insurance or private funding mechanisms. For a long time, Finland has been thinking about the ways to develop its multi-channel funding model. 

The Finnish municipalities and local government regional authorities are responsible for primary healthcare services, and together with the hospital districts, they cater for the public special healthcare.  The public services are complemented by private healthcare services and most of the regularly employed people are covered by occupational healthcare services.

The Finnish healthcare financing comes from many channels: the costs are paid by the State, the municipalities, the Social Insurance Institution Kela and by private parties, such as households and insurance companies. However, the public sector actors are by far the biggest payers. 
The State share diminished radically as a result of the economic recession of the 1990s. Households covered for a larger share of the whole. Throughout the first decade of the third millennium, the State share has been growing and is now 24% which is still less than in the peak years: in the early 1980s, the State accounted for about 35% of the whole.

The municipal sector plays an important role for the financing. The municipalities assumed a larger share as the State allocations grew smaller. Today, the municipalities pay almost 40% of the expenses.
Kela accounts for about 14% of the whole. This share is virtually constant, showing a very slowly growing trend.
Private households pay almost 20% of the current healthcare expenditure. Their stake is high by EU standards.


Healthcare funding in 2014

Source: the Helsingin Sanomat 19 Jan 2014 and Pharma Industry Finland PIF

Annual expenditure about 17 billion euro – to get what?

To quote an example, the Finnish State allocation to healthcare in 2011 was almost four billion euro. 
•    Most of this sum or almost three billion went to municipal healthcare and was paid out in state subsidies to municipalities.  
•    A minor share was allocated as the state contribution to the health insurance and went to healthcare reimbursed from the health insurance covering medicines, private healthcare and other smaller items, such as travelling expenses.

Municipalities pay over 6 billion of the annual healthcare costs  which are incurred for
•    the primary health care organised by the municipal healthcare services, including outpatient care, healthcare centre-level hospital care, maternity and child clinics, school healthcare, inpatient care of the elderly, dental care and mental care services 
•    specialist care organised by the municipalities in collaboration with the hospital districts. 

Household and employers pay for the rest.

•    The users of private healthcare services pay most of the expenses out of their pocket.
•    Employers arrange for occupational healthcare services for their employees, while the Finnish Student Health Service organises the healthcare for university students. Kela contributes to these expenses. 

Pros and cons of the multi-channel system

The development of the Finnish system is not a new topic. However, the reform has not progressed due to political differences, the immense dimensions of the task at hand and the independent status of Finnish municipalities.
Generally, the tax-based financing of the current system is seen as an advantage. This financing system is felt to be fair, with modest administration costs.  It is also easy to influence its expense framework. The multi-channel system provides additional sources of money for the production of healthcare services.

However, the current financing system has its problems. Although it is good that the costs are evened out between many parties, no one party carries the overall responsibility. A frequently used term is partial optimisation meaning that each financier tries to pass the costs to another payer.

Development objectives in the financing system

It is generally considered that the development work should focus on  
•    evaluation and simplification of the multi-channel structure, even considering a one-channel (such as Kela) option
•    simplification and stabilisation of the division of responsibility and funding between the State and the municipalities so that the latter remain truly able to produce the services 
•    increasing the steering power of funding so that it would promote the health policy strategy 
•    increased incentive impact so that there would be a reward for the right and smart actions.

In August 2013, the Finnish Government decided, along with other issues of its structural reform programme, to institute a comprehensive group to prepare a survey on the ways to dismantle the multi-channel financing mode of the social welfare and healthcare system and on the respective impacts.

Two-channel  financing of medicines

The responsibility of medicine financing is divided between the parties following the same principles as in healthcare in general:

•    The health insurance pays part of the medicine expenses of people in outpatient care. 
•    The public sector pays for the patients’ medicine expenses when they receive care at the healthcare facilities. 

The health insurance and the patient pay for the outpatient medicines that the patients can buy from the pharmacies. 

The issues related to the financing of the pharmaceutical supply system are closely linked to the funding of the entire healthcare system.

 It is short-sighted to save on medicines. Making savings with the help of medicines gives us a chance to make a difference in the entire healthcare system.