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The World Bank
Selected Issues in Fiscal Reform in Central Europe and the
Baltic Countries 2005
 Fiscal Background
 Financing Higher Education
 Controlling Health Care Expenditures
VOLUME II: ANNEXES AND COUNTRY CASE STUDIES
Edited by Thomas Laursen
Table of contents:
Annex I: Fiscal challenges in the EU8 countries .................................................................................................................... 5
Annex I.1. Adjustment experience in the EU member states .............................................................................. 5
Annex I.2. Fiscal policy and growth ................................................................................................................... 9
Annex I.3. Efficiency of public expenditure ...................................................................................................... 23
ANNEX II: Financing Higher Education ............................................................................................................................. 37
Czech Republic ................................................................................................................................................. 37
Hungary............................................................................................................................................................ 46
Latvia................................................................................................................................................................ 58
Lithuania .......................................................................................................................................................... 66
Poland .............................................................................................................................................................. 72
Slovakia ............................................................................................................................................................ 78
Slovenia ............................................................................................................................................................ 84
ANNEX III: Health Sector .................................................................................................................................................... 92
Hungary............................................................................................................................................................ 92
Latvia.............................................................................................................................................................. 117
Poland ............................................................................................................................................................ 138
Slovakia .......................................................................................................................................................... 166
Slovenia .......................................................................................................................................................... 193
Figures:
Figure I.1.Free Disposal Hull ................................................................................................................................................... 27
Figure I.2. Data Envelopment Analysis .................................................................................................................................... 28
Figure II.1.Tertiary education is composed of: ......................................................................................................................... 37
Figure II.2. Higher educational attainment of population ......................................................................................................... 46
Figures II.3: Higher educational enrolment .............................................................................................................................. 47
Figure II.4. Higher educational institutions ............................................................................................................................. 48
Figure II.5. Unemployment rate of higher education graduates ............................................................................................... 48
Figure II.6: Average monthly gross earnings of employees by educational qualification (earnings premium), 2003 .............. 48
Figure II.7. Higher Education Finance in Hungary .................................................................................................................. 49
Figure II.8. Change of the number of students in Latvia in 1990/91 – 2004/2005 ................................................................... 59
Figure II.9. Number of students per 10 000 residents in 1990 - 2004 ...................................................................................... 59
Figure II.10: Share of students in total population of the respective age group in 2004/2005 .................................................. 60
Figure II.11. Number of Higher Education Institutions in 1991 -2004..................................................................................... 60
Figure II.12. Total public expenditure on education as % of GDP ........................................................................................... 61
Figure II.13. Total public expenditure on tertiary education as % of GDP............................................................................... 62
Figure II.14. Total public expenditure on tertiary education as % of total public education expenditure................................. 62
Figure II.15. Share of students in state budget founded and commercial studies ..................................................................... 62
Figure II.16. Financing of HE from the State budget and other sources 1995-2003................................................................. 63
Figure II.17 Number of Higher Education Students in Poland. In fee-paying and non-paying forms of studies, 1990 – 2003 73
Figure II.18. Number of Higher Education Institutions in Poland. Public and Non-public, 1991 – 2003 .............................. 73
Figure II.19. Higher Education Institutions’ Total Income Structure by Source ...................................................................... 74
Figure II.20. Share of tertiary students receiving social stipends, 1998 – 2003....................................................................... 75
Figure II.21. Credits Granted in years 1998-2003 ................................................................................................................... 75
Figure II.22. Structure of Tertiary education in academic year 2005/06 .................................................................................. 84
Figure III.1: General government expenditure (percent of GDP) ............................................................................................. 96
Figure III.2: Total Fertility Rate, Hungary, 1980-2025 ............................................................................................................ 97
Figure III.3: Life Expectancy at birth, Hungary 1980-2025 ..................................................................................................... 97
Figure III.4: Hungary: Broad Age Groups (percent) ................................................................................................................ 98
2
Figure III.5a: Hungary 2005 ..................................................................................................................................................... 98
Figure III.6: Public and Private Expenditures on Health ........................................................................................................ 104
Figure III.7: Fiscal Position of the Health System .................................................................................................................. 104
Figure III.8: Structure of Public Expenditures on Health ....................................................................................................... 110
Figure III.9: Total Fertility Rate, Latvia, 1980-2025 .............................................................................................................. 120
Figure III.10: Life Expectancy at birth, Latvia, 1980-2025 .................................................................................................... 120
Figure III.11: Broad Age Groups in Latvia (percent) ............................................................................................................. 121
Figure III.12. Latvia 2005 ...................................................................................................................................................... 121
Figure III.13: Health Expenditures as Percentage of GDP ..................................................................................................... 127
Figure III.14: Public and Private Expenditures on Health ...................................................................................................... 128
Figure III.15: Total Spending on Health................................................................................................................................. 130
Figure III.16: Health Expenditure by functions ...................................................................................................................... 130
Figure III.17: Health Expenditures (by function, 2003 prices) ............................................................................................... 131
Figure III.18: Total Expenditure on Pharmaceuticals (2003 prices) ....................................................................................... 133
Figure III.19: Statutory Health Expenditures (by function).................................................................................................... 134
Figure III.20: Poland registered unemployment ..................................................................................................................... 140
Figure III.21: Total Fertility Rate, Poland, 1980-2025 ........................................................................................................... 142
Figure III.22: Life Expectancy at birth, Poland, 1980-2025 ................................................................................................... 142
Figure III.23: Poland: Broad Age Groups ( percent) .............................................................................................................. 143
Figure III.24a: Poland 2005 .................................................................................................................................................... 143
Figure III.25: Pubic Expenditures on Health Figure III.26: State Budget Allocations, 1999-2003 ........................................ 148
Figure III.26: State Budget Allocations, 1999-2003............................................................................................................... 150
Figure III.27: Functional Share of Public Expenditures on Health (percent).......................................................................... 151
Figure III.28: Comparisons of revenues of health insurance ................................................................................................. 152
Figure III.29: Structure of Hospital Debts .............................................................................................................................. 154
Figure III.30: Seizure of SPZOZ Liabilities by Court Orders ................................................................................................ 156
Figure III.31: Expenditures on Drugs and Medical Supplies .................................................................................................. 157
Figure III.32: Monthly Salaries of Full-Time Employed (October, years) ............................................................................. 158
Figure III.33: Out-of-Pocket Household Expenditures on Health (monthly, in zlotys) 2000 ................................................. 163
Figure III.34: Total Fertility Rate, Slovak Republic, 1980-2025 ............................................................................................ 169
Figure III.35. Life Expectancy at birth, Slovak Republic, 1980-2025 .................................................................................... 169
Figure III.36: Slovakia: Broad Age Groups (percent) ............................................................................................................ 170
Figure III.37a: Slovakia 2005 ................................................................................................................................................. 170
Figure III.38: Fiscal position of the health sector (% of GDP) .............................................................................................. 174
Figure III.39: Redistribution by Risk-Adjusted Index ............................................................................................................ 179
Figure III.40: Growth of Expenditures on Drugs ................................................................................................................... 187
Figure III.41 a: Access to Health Care ................................................................................................................................... 189
Figure III.41 b: Use fo Pharmaceuticals ................................................................................................................................. 189
Figure III.42: Total Fertility Rate, Slovenia, 1980-2025 ........................................................................................................ 196
Figure III.43: Life Expectancy at birth, Slovenia, 1980-2025 ................................................................................................ 197
Figure III.44: Slovenia: Broad Age Groups (%) ..................................................................................................................... 197
Figure III.45a: Slovenia 2005 ................................................................................................................................................. 198
Figure III.46: Struture of General Government Expenditures ................................................................................................ 206
Figure III.47: Public Expenditure on Health .......................................................................................................................... 208
Figure III.48: Estimated Percent Cases Covered by Pathways (selected EU countries, 2004 and 2009)................................ 213
Tables:
Table I.1. Expansionary consolidations: description of episodes ............................................................................................... 8
Table I.2. Theoretical aggregation of taxation and expenditure ............................................................................................... 12
Table I.3. Selected analyses of the impact of taxes on economic growth on the example of OECD countries. ....................... 14
Table II.1: Ratio: Enrolled in the first year of studies (Bc. and “traditional” MSC.) / Total 19-year old ................................. 39
Table II.2. Changes in the structure of higher education institutions ....................................................................................... 39
Table II.3. The unemployment of graduates in 1996 – 2004, data from April of each year ..................................................... 40
Table II.4. Higher education finance. ....................................................................................................................................... 40
Table II.5. The value of norms used for determining the amount of training fund ................................................................... 50
Table II.6. Attainment .............................................................................................................................................................. 59
Table II.6. Unemployment rate of HE graduates ...................................................................................................................... 60
Table II.7. Average gross monthly earnings ............................................................................................................................. 61
Table II.8: Higher education institutions by level, ownership and number of students, 2002/03 ............................................ 66
Table II.11. Participation Rates in Higher Education in Poland ............................................................................................... 73
Table II.12. Number and proportion of full-time and part-time students - including public and private HEIs ......................... 79
Table II.13. Program structure of HE budget ........................................................................................................................... 80
Table II.14. Distribution of wages in HEIs............................................................................................................................... 81
Table II.15. Population aged 15 years or over by education attainment and sex (1991, 2002) ................................................. 86
Table II.16. Undergraduate students (1985/86, 1990/91 to 2003/04) ....................................................................................... 86
3
Table II.17. 19-year old students (1991/92 to 2003/04) ........................................................................................................... 87
Table II.18. Average monthly gross earning in enterprises, companies and organisations by level of school education in
Republic of Slovenia (1999, 2002) ........................................................................................................................................... 88
Table II.19.: Public expenditure on higher education (2001, 2002 and estimate for 2003) ...................................................... 88
Table III.1: Overview of Basic Macroeconomic Parameters of the Hungarian Economy ........................................................ 94
Table III.2: Health Status Indicators, Hungary and other new EU Member States (2003) ....................................................... 99
Table III.3: Standardized Death Rates (per 100,000), different causes (2003) ......................................................................... 99
Table III.5: Composition of Primary Care Provision.............................................................................................................. 102
Table III.6: Outpatient Services ............................................................................................................................................. 103
Table III.7: Parameters of the Health Insurance System ........................................................................................................ 105
Table III.8: Revenues of the Fund .......................................................................................................................................... 106
Table III.9: Annual Per Capita Expenditures on Health, 2000 (HUF) .................................................................................... 108
Table III.10: Expenditures of the Fund................................................................................................................................... 109
Table III.11: Expenditures of the Health Fund on Primary Care (HUF million) .................................................................... 111
Table III.12: Expenditures of the Fund on Inpatient Care (HUF million) .............................................................................. 112
Table III.13: Macroeconomic Indicators, 2000-2004 ............................................................................................................. 118
Table III.14: Health Status Indicators, Latvia and other new EU Member States (2003) ....................................................... 122
Table III.15: Standardized Death Rates (per 100,000), different causes (2003) ..................................................................... 123
Table III.16: Standardized Death Rates (per 100,000), different causes (2003) ..................................................................... 123
Table III.17: Statutory Health Budget, 1992-2004 ................................................................................................................. 126
Table III.18: Private Health Insurance Premiums and Claims ................................................................................................ 129
Table III.19: Macroeconomic Indicators, 2000-2004 ............................................................................................................. 139
Table III.20: Performance of Hauser Program (expenditures and revenues, percent of GDP) ............................................... 141
Table III.21: Health Status Indicators, Poland and other new EU Member States (2003) ...................................................... 144
Table III.22: Standardized Death Rates (per 100,000), different causes (2003) ..................................................................... 144
Table III.23: Standardized Death Rates (per 100,000), different causes (2003) ..................................................................... 145
Table III.24: Expenditures on Health, 1999-2004 (million PLN) ........................................................................................... 147
Table III.25: Average rate of increase in HP growth in comparison with rate of GDP .......................................................... 148
Table III.26: Health Insurance Premium Dynamic (percentages).......................................................................................... 149
Table III.27: Public health care expenditure by uses, 1999-2003, in million PLN ................................................................. 151
Table III.28: Matured debts of autonomous public health establishments (million PLN)....................................................... 153
Table III.29: Debts of SPZOZ by type (as on August 31, 2004) ............................................................................................ 155
Table III.30: Public Expenditures on Refunded Drugs ........................................................................................................... 156
Table III.31: Macroeconomic Indicators ................................................................................................................................ 167
Table III.32: Health Status Indicators, Slovak Republic and new EU Member States (2003)................................................ 171
Table III.33: Standardized Death Rates (per 100,000), different causes (2003) ..................................................................... 171
Table III.34: Standardized Death Rates (per 100,000), different causes (2003) ..................................................................... 172
Table III.35: Structure of main sources of finance, 1998-2003 (billion SKK) ....................................................................... 174
Table III.36: Revenues and Costs of the Health System, 1998-2003 (billion SKK) ............................................................... 175
Table III.37: Expected Number of Insurees, 2000-2006 ........................................................................................................ 177
Table III.38: Resources of Health Insurance Companies, 1998-2003 (% of total resources of HIC) ..................................... 178
Table III.39: Co-payments introduced as of June 2003 (SKK) .............................................................................................. 180
Table III.40: Priority List Diagnoses and Other Diagnoses .................................................................................................... 181
Table III.41: Health Sector Costs, 1998-2003 (type of care as percentage of total health costs) ............................................ 183
Table III.42: Hospital indicators, 1991-2000.......................................................................................................................... 184
Table III.43: Structure of costs, 1996-2001 (percentage of total costs) .................................................................................. 184
Table III.44: Drug Expenditures, EUR million ...................................................................................................................... 186
Table III.45: List of Citizens’ Priority Diseases ..................................................................................................................... 188
Table III.46: Macroeconomic Indicators ................................................................................................................................ 195
Table III.47: Health Status Indicators, Slovenia and other new EU Member States (2003) ................................................... 199
Table III.48: Standardized Death Rates (per 100,000), different causes (2003) ..................................................................... 199
Table III.49: Standardized Death Rates (per 100,000), different causes (2003) ..................................................................... 199
Table III.50: Performance of Acute-Care Hospitals in the European Region (2002 or latest available year)......................... 204
Table III.51: Mean Lengths of Stay (selected DRGs, 2001 and 2003, Ljubljana Clinical Centre) ......................................... 211
Boxes:
Box I.1. Can fiscal consolidations be expansionary? ................................................................................................................. 6
Box I.2. Economic effects of flat tax ........................................................................................................................................ 16
Box III.1: Negotiating A Common Scope of Health Programs .............................................................................................. 207
4
Annex I: Fiscal challenges in the EU8 countries
Annex I.1. Adjustment experience in the EU member states
Analysis of the adjustment experience of the EU member states during the Maastricht
convergence process and after the start of the third stage of the EMU as well as budgetary
adjustments of OECD countries (from 1960 to the 1990s) show that there are some lessons be
drawn in order to achieve durable and growth friendly consolidation.
Fiscal consolidation varied widely across countries, but successful consolidation episodes had
a number of common futures (von Hagen, Hughes Hallett and Strauch (2001), European
Commission):
1. Scale of adjustment is essential

Large consolidation are more successful than smaller ones
2. Composition of the adjustments (quality) is an important determinant of success:

Successful consolidations on average put more emphasis on spending cuts than
unsuccessful ones, and less emphasis on rising revenues.
The majority of EU economies undertook expenditure cuts, although in some
countries fiscal adjustment was carried out through tax increases.
 Expenditure based adjustment: UK, Denmark, Ireland (87-89), Finland and
Sweden consolidated their fiscal position primary through expenditure cuts.
Expenditure reduction in these countries varied but was the highest in case of
Finland and Sweden (7-8%). They rely mainly on primary expenditures, with the
large parts of cuts steaming from transfers and government wage bill.
 “Switching strategy”: Germany, Greece, Spain, France, Italy, Netherlands are
marked by taxes increases in the first phase of their adjustment strategy and then
by switching strategy and implementing substantial expenditure cuts.
 Revenue-based adjustment: Belgium, Ireland (82-84), Austria, Portugal opted
to revenue-based strategy

The likehood of success rise when government tackle politically sensitive spending
items such transfers, subsidies, and government wages more forcefully than
unsuccessful ones Successful consolidation put much less emphasis on cutting public
investment than unsuccessful ones.
 social security and welfare expenditure accounted for almost half o total
expenditure adjustment in:

Denmark (1.7% of GDP and than by 2.5% of GDP), concentrated on
tightening eligibility criteria and availability of unemployment benefits
 Finland (8% of GDP), among others by introducing a major pension reform
package, plummeting accrual factors for early-retired and disabled,
changing the indexation formula
 Sweden (5.8% of GDP), by improving targeting of social benefits,
tightening child-care allowances and reducing the level of housing benefits.
 Ireland and UK significantly downsized government employment (by roughly
9%), which helped them to reduce public sector wage bill (by about 2% of GDP)
 other impotent areas of spending cuts were economic services provided by the
government and social outlays, such as spending on education (Sweden, Ireland,
Finland and health (Ireland)
3. Economic environment (initial conditions) matters for successful consolidation:

Weak economy, both home and abroad raises the likehood of a consolidation effort to
be successful

The governments are more likely to undertake consolidation efforts if the stance of
fiscal policy in other countries changes in the direction of tightening

Large-debt ratio significantly increases the probability of fiscal consolidation start and
last longer.

Consolidation is more likely to be successful if accompanying monetary policy is tight
(this contradict to opinion that the central banks can help making fiscal consolidation
successful by easing monetary policy)
4. Adjustment strategy: timing matters

Switching strategy, increasing revenue first and cutting expenditure later is
significantly less likely to lead long lasting consolidation than a strategy that starts
with the expenditure cuts from the beginning
Cross-country analyses show that roughly half of the episodes of fiscal consolidations that
have been undertaken in the EU in the last thirty years exhibit non-Keynesian features, i.e are
followed by an immediate acceleration in growth (EC (2003)). For theoretical insights
describing non-Keynesian effects in fiscal policy see below).
Box I.1. Can fiscal consolidations be expansionary?
In line with the standard Keynesian view is that a fiscal contraction has a temporary contractionary effect
through an aggregate demand channel, in a model with sticky prices and wages. Fiscal multipliers are expected
to be positive, although there are several factors (substitution effects, interest rates response, wealth effects, and
openness) that could explain values smaller than one. The idea that fiscal policy may have short-run effects
opposite to those predicted by the Keynesian model has been first suggested by Giavazzi and Pagano (1990) who,
looking at the fiscal consolidation experiences of Denmark and Ireland in the mid-eighties, documented in both
cases an acceleration in growth just after the governments put in place measures that drastically reduced budget
deficits.
Since than several theories has tried to explain how fiscal contraction could be expansionary:
1. Wealth effects on consumption:
A cut in government spending, if perceived as long lasting, implies a future, permanent lowering in the
tax burden, generating a positive wealth effect. In this context resolving uncertainty about the course
of future fiscal policy is of highest importance. This suggest expectation channel (Fels and Froehlich
(1986), Bertola and Drazen (1993)). Bertola and Drazen argue that the effects of current fiscal policy
depend on what expectations it generates on the course of future fiscal policy.
A second channel for wealth effects arises from a decrease in interest rates which may go with a fiscal
restrain. Lower interest rates entail a higher market value of private wealth.
2. Credibility effect.
Feldstein (1982) points out that the crucial element for the emergence of non-Keynesian effects is the
6
3.
-
credibility of government action to make public finances sustainable.
The credibility of the fiscal adjustment can be increased by the size of the consolidation and/or the
introduction of fiscal rules. A large fiscal consolidation, particularly in a high debt
country, may have important credibility effects on interest rates by reducing risk premium (Alesina,
Prati, and Tabellini (1989)).
Investment channel.
Alesina, Ardagna, Perotti and Schiantarelli (2002) formulate a rationale for fiscal policies producing
non-Keynesian effects through an investment channel. The link between fiscal policy and investment is
represented by the impact of government spending, in particular of the government wage bill, on the
labor market. Firms are assumed to be forward-looking and to optimize the expected value of future
income flows thus investment decisions are steered by the expected present value of the net marginal
product of capital, which in turn is a negative function of real wages.
The factors that have been found empirically to be relevant to characterized episodes of
expansionary contractions are almost the same as those which characterize successful fiscal
contraction. Building on existing researches we may identify a number of features that are
common to nearly all episodes of expansionary fiscal contractions:

Fiscal adjustments with expansionary effects are more liable when the size of
consolidation (measured by a sufficient degree of improvement in structural budget
balance) is large (Giavazzi and Pagano (1996), Giavazzi, Pagano and Jappelli (2000)).

Composition of adjustments matters: expenditure-based cuts rather than tax-based
adjustments have a higher probability of showing expansionary effects, especially if
expenditure cuts are concentrated on public employees compensations and on
government transfers (Alesina, Perotti and Tavares (1998), Alesina and Ardagna
(1998), Alesina, Ardagna, Perotti and Schiantarelli (2002)).

Initial state of public finance; non-Keynesian effects are more likely to occur in
countries and periods where debt/GDP ratios are high (Alesina and Ardagna (1998),
Perotti (1999)).
Table below shows various cases of fiscal consolidations identified in the EU according to the
different criteria proposed to define consolidations and to detach expansionary consolidations.
It reports expansionary effects of fiscal contractions in Belgium, Denmark and Ireland in the
mid-eighties as well as in Spain and Portugal in 1986 and in West Germany in 1982.
7
Table I.1. Expansionary consolidations: description of episodes
Consolidation:
Size (benchmark)
Consolidation:
Persistence
Consolidation:
Size
Consolidation:
Size
Expansion:
Growth
(benchmark)
Expansion:
Growth
Expansion:
Trend growth
Expansion: Actual
minus EU growth
Number of
consolidation
episodes
49
74
49
49
Number of
expansionary
episodes
24
43
22
21
Number of
"pure"
expansionary
episodes
11
19
11
11
Criteria
Description of expansionary episodes ("pure" episodes in bold)
BE
1984, 1985
1984, 1985, 1986
1987
1984, 1985
1984, 1985
DK
1983, 1984
1982
1983, 1984
1982, 1983, 1984
1983, 1984
1982
1983, 1984
1982
EL
1982,1987,
1994,1996
1986, 1987, 1991,
1994, 1996
1982, 1991, 1994,
1996
ES
1986
1994, 1996, 1997,
1998
1985, 1986, 1987
1986
1986
FR
..
1995, 1996, 1997
..
..
IE
1976, 1987, 1988
1984, 1987, 1988,
1989
1987, 1988
1987, 1988
IT
1976, 1977, 1993
1993, 1995
1997
NL
1993
1982, 1983
..
1976, 1977, 1992,
1993
1993
AT
..
1995, 1996, 1997
1984
..
PT
1986
1993
..
1977, 1998
1986
..
1986
1993
1983, 1987, 1995,
1998
1982, 1983, 1984,
1987, 1994, 1995,
1997, 1998
1995, 1996, 1998
1983, 1998
1997
1981, 1982, 1997
1980, 1997, 1998
..
DE
FI
SE
UK
Giudice, G., Turrini, A., in’t Veld, J. (2003). Can Fiscal Consolidations Be Expansionary in the EU? Ex-post Evidence and Ex-ante Analysis.
Economic Papers No. 195, European Commission, p.11.
Transition countries experiences
The empirical evidence from transition countries and emerging-economies suggest that
successful consolidations in these countries relied predominantly on expenditure cuts
(Purfield (2003), Von Hagen (2004)).
Purfield analysies is based on 25 transition countries of the former Soviet Union (FSU), the
Baltics, Eastern Europe and Mongolia 1992-2000. Her findings point to sizeable fiscal
adjustments in transition countries between 1992 and 2000 but with the huge variation among
8
countries. She shows that decline in the overall deficits in the period under review was
achieved primary by expenditure cuts as revenue collection fell. On average, expenditure
were cut by 2% of GDP annually, while revenue collection fell by about ¾% of GDP per
annum, due to large significant drop in the FSU and CEE countries (by 1.0% and 0.3%,
respectively). Purfield shows that out of the 33 fiscal contractions episodes in transition
countries 24 cases were successful in sustaining the reduction in primary balance two years
after adjustment, but only one case (Ukraine in 1998) was expansionary. Regression analysis
conducted by her confirms that size of adjustment is the most significant factor for securing
durable improvement in primary balance. Moreover, long lasting adjustment for transition
countries relied on large cuts in primary expenditures accompanied by some moderate decline
in revenue. Initial conditions are not found by her to have individually significant impact on
probability of success.
Von Hagen (2004) reports the adjustment patterns in large fiscal contractions in the CEE
acceding states from 1999 to 2002. He shows that 5 out of the 11 fiscal contractions were
expenditure dominated (all of them in Baltic countries). Only one episode, Hungary in 2002,
was characterized by a strong increase in the tax burden. Next joint paper of Von Hagen and
Traistaru (2005) extend previous analysis. It states that 77.8% of large consolidations in the
new member countries from 1999-2004 were due to cuts in government spending. There are 9
out of 14 expenditure based fiscal consolidations, while strong increase in the tax burden
contributed to consolidations in Hungary (2000), the Slovak Republic (2003) and Malta
(2004).
Von Hagen and Traistaru (2005) check also the “success” of the consolidations occurring
between 1999 and 2002 in the new member states and conclude that it occurred in Malta
(1999-2000), Estonia (2000), Latvia (2000-2001), Lithuania (2000), and Slovakia (2001).
On the expansionary fiscal contractions, there is limited evidence of non-Keynesian effect in
the transition and emerging economies in 1990s (Purfield (2003)).
Annex I.2. Fiscal policy and growth
The Lisbon European Council of March 2000 called for the emphasis of public finances to be
broadened from its focus on stability to include the contribution they can make to growth and
employment (to so called “quality of public finance”). Another challenge for new member
countries is the discipline imposed by the EU benchmarks the Maastricht criteria and the
Stability and Growth Pact. At the same time, compliance with EU regulations and standards
entails sizable budgetary outlays and large public sector investments in infrastructure, the
environment, and other sectors. Expenditure pressure does not abate and moreover counties
will soon have to face fiscal consequences of ageing populations.
Quality of public finances in this context refers to the structure of taxation and public
spending as well as mechanisms to maintain a high level of efficiency of public spending,
such as effective expenditure rules. The purpose of this chapter is to shed light on the possible
best ways how to redirect public expenditure towards “productive” items and to ensure that
tax structures strengthen the economic growth.
We summarize the key findings of recent literature on fiscal policy and growth and attempt to
find out how in the light of literature existing current tax burden and expenditure structure in
EU8 might influence economic growth. We are aware of the fact that there is no “cook book”
9
for growth as it is extremely difficult to present an objective an unambiguous overall catalog
of “high-quality”- expenditure and revenue-items. For example, the level of spending will
depend on how efficient the government is in using resource available. That is why when
judging growth enhancing public expenditure items we will try to emphasize their link to
efficiency issues.
A variety of studies have addressed the issue of effect of fiscal policy on economic growth,
mostly using aggregate approach, looking at the impact of total government revenue or
expenditure, as percent of GDP, on growth. These studies often fail to identify channels
through which fiscal policy have an effect on growth, which is the central question. Much less
is known about whether and how the composition of revenue or expenditure affects a
country’s growth rate.
According to the neoclassical growth models of Solow (1956) and Swan (1956), the share of
expenditure in output, or the composition of expenditure and revenue don’t affect the long-run
growth rate. In these models, tax and expenditure measures that influence the savings rate or
the incentive to invest in physical or human capital ultimately affect the equilibrium factor
ratios rather than the steady-state growth rate. Changes in government policy variable, while
permanently changing the steady-state level of output per capita, will alter its growth only
temporarily. Findings to support this claim are reported in Evans and Karras (1993) and Barro
and Sala-i-Martin (1995). As such exogenous growth model has limited value for exploring
the determinants of growth, which might explain why interest in growth theory declined in
1960s and did not revive until development of endogenous growth theory almost 25 year later.
On the contrary, in endogenous growth models, such as those proposed by Barro (1990),
Lucas (1988), King and Rebelo (1991) investment in human and physical capital does affect
the steady-state growth rate, and consequently government policy changes may permanently
change the growth rate of per capita output. Among the main ways in which fiscal policy
affects growth in the endogenous models are the following1:

Production externalities: public investment may boost production of private sector
through complementarities between public infrastructure and private investment

Productivity growth and differences: fiscal policy may influence innovation and R&D
while differences between public and private sector efficiency may provide growthehancing opportunities

Effects on factor accumulation: physical/human capital

Crowding out effect: unproductive public expenditure versus productive private
expenditure
Redistribution effect: i.e. by lowering saving and investment rates; work incentive; granting
social insurance and overwhelming market imperfections.
Since than explosion of work on endogenous growth has generated a number of models
linking fiscal policy and long-term growth, demonstrating various conditions under which the
relation is robust (see Barro and Sala-i-Martin (1995), Jones, Manuelli and Rossi (1993),
Devereux and Love (1994) and Stokey and Rebelo (1995)). These models highlight the
1
European Commission (2000). Public finances in EMU - 2000. European Economy, 3/2000.
10
distinction between productive or non-productive expenditures and distortionary or nondistortionary taxation.
Distortionary taxes in this context are those which affect the investment decisions (with
respect to physical and/or human capital) and create tax wedges on labor, and hence have
effect on the rate of growth. Government expenditures are differentiated according to whether
they are included as arguments in the private production function or not. For example if there
are externalities from investment in physical or human capital then government intervention
to increase school enrolment or capital formation may boost growth and be welfareimproving. If they are, then they are classified as productive and hence have a direct effect
upon the rate of growth. These models envisage that shifting taxation from distortionary
towards non-distortionary forms has a growth-enhancing effect, whereas switching
expenditure from productive towards unproductive forms is growth-hindering. Nondistortionary tax-financed increases in productive expenditures are expected to have a positive
impact on economic growth, while if non-productive expenditure are financed zero effect is
predicted. Finally, non-productive (productive) expenditures financed by distortionary taxes
have an ambiguously (unambiguously) negative growth effect.
From a policy perspective, a key issue is the allocation of taxes and expenditures,
respectively, to distortionary / non-distortionary and productive / non-productive categories.
As theoretical notions do not translate easily into operational rules empirical literature offers
different measures of “productive” public expenditure and distortionary taxation.
Neither economic theory nor empirical evidence provides clear-cut answers to the question
how the composition of public expenditures affects growth. Following Kneller, Bleaney and
Gemmell (1999) specification (see below) income and property taxes are treated as
‘distortionary’ and consumption (expenditure based) taxes as ’non-distortionary’, on the
grounds that the latter do not reduce the returns to investment, even though they may affect
the labor / leisure choice. However, some empirical works point out that consumption taxes
may distort the decision to invest (indirectly) to the extent that they affect the labor–
education–leisure choices of agents. (Mendoza, Milesi-Ferretti and Asea., 1997).
11
Table I.2. Theoretical aggregation of taxation and expenditure
Theoretical aggregation
Distortionary taxation
Non-distortionary taxation
Other revenues
Functional classifications
Taxation on income and profit
Social security contributions
Taxation on payroll and manpower
Taxation on property
Taxation on domestic goods and services
Taxation on international trade
Non-tax revenues
Other tax revenues
Productive expenditures
General public services expenditure
Defense expenditure*
Educational expenditure
Health expenditure
Housing expenditure
Transport and communication expenditure
Unproductive expenditures
Social security and welfare expenditure
Expenditure on recreation
Expenditure on economic services
Other expenditures
Other expenditure (unclassified)
* Barro (1990, 1991) finds that current expenditures less education and defense expenditure is associated with lower per-capita growth.
Source: Kneller, R., Bleaney, M.F., Gemmell, N. (1999). Fiscal Policy and Growth: Evidence from OECD Countries. Journal of Public Economics, 74:
171-190.
Generally, expenditures with a substantial (physical or human) capital component are treated
as ‘productive’ (Kneller, Bleaney and Gemmell (1999)), but it may apply to very narrow
range of expenditure subsidies to R&D, education and transport or even only to public
investment (Romero De Avila and Strauch (2003)). Allocation of expenditure to productive /
non-productive categories may also differ between rich and poor countries. The conditions
under which a change in the composition of expenditure leads to a higher steady-state growth
rate of the economy depend not only on the physical productivity of the different components
of public expenditure but also on the initial shares. The various programs that have been
hypothesized in theoretical literature to have positive growth effects typically amount to less
than one- fifth of public expenditure in OECD countries, while they typically amount to more
than half of public spending in less developed countries (Fölster and Henrekson (1997)).
The empirical attempts to assess benefits or costs of government involvement have also mixed
results: some identify no significant relationship between level of spending/government side2
and the rate of growth (Kormendi and Meguire (1985), Mandoza, Milesi-Ferretti and Asea
(1997), Tanzi and Zee (1997), Linadauer and Velenchik (1992)), while other find either a
significant positive (Korpi (1985), McCallum and Blais (1987), Sahni and Singh (1984),
Holmes and Hutton (1990), Castles and Dorwick (1990), Sala-i-Martin (1992)) or negative
relation between the variables (Barro (1991), Weede (1991), Hansson and Henrekson (1994),
Grier (1997), Damalagas (2000), Heitger (2001), Fölster and Henrekson (2001), Gwartney,
Holcombe and Lawson (1998)). The results may also depend on the level of development, i.e
Fölster, Henrekson (2001) point to a robust negative relationship between government
expenditure and growth in rich countries. However, no study has found a positive relationship
between growth and aggregate expenditure hence the size effect of government spending on
growth seems to be mostly negative.
2
Government expenditure ratio to GDP
12
The negative correlation between growth and “government size” is not a linear function. The
review of structure-effects of public expenditure shows that the productive effects of certain
level and type of public expenditure might be seen. This group of studies has typically tried to
link particular component of government expenditure to private sector productivity or
economic growth. Consumption and social security spending are found to have zero or
negative growth effect (Landau (1983), Aschauer (1989), Barro (1990, 1991), Grier and
Tullock (1989)), except Cashin (1995) who shows a positive growth upshot from welfare
spending.
By contrast government investment expenditure, such as provision of infrastructure services,
is thought to provide the enabling environment for growth. Aschauer (1989) finds that “core
infrastructure” – streets, highways, airports, mass transits has positive relationship with
private sector productivity. (Following Aschauer’s seminal paper many studies have found
plausible growth effects of government investment expenditure: Nourzad and Vrieze (1995),
Sanchez-Robles (1998) and Kamps (2004)), with some evidence that law of diminishing
returns holds (De la Fuente (1997)). Yet large number of authors presents evidence that public
investment can be productive if it is spent on infrastructure that serves inputs to private
investment (Devarajan, Swaroop and Zou (1996). Moreover, productivity of government
investment depends also on the institutional context in which it is undertaken. The empirical
literature on the growth-enhancing effect of expenditure on human capital is almost
unequivocal (Guellec and van Pottelsbergh (1999), Busom (1999), Diamond (1999), De la
Fuente and Doménech (2000), Heitger (2001)), under assumption that public spending (i.e. on
R&D) complements private expenditure and does not crowd out private spending. (David,
Hall and Toole 2000).
For other categories of public spending there appears to be less agreement over whether they
stimulate growth. Kormendi and Meguire (1985), Grier and Tullok (1989) and Summers and
Heston (1988) classify defense and education expenditure as unproductive. On the contrary
Gerson (1998) reveal that many studies find that high levels of educational and health
spending correlate positively with growth. They argue that if the link between education,
health and growth is weaker this may reflect poor targeting or allocation of expenditure. With
the regard to defense and public order the evidence suggest that if spending exceed minimum
required for growth enhancing level it starts to depress the economic growth.
As highlighted above findings differ also between countries. As an example Fan and Rao
(2003) have tested government expenditures by types in Asia and Latin America and Africa,
between 1980 and 1998, and find that in Africa, government spending on agriculture and
health was particularly strong in promoting economic growth. Asia’s investments in
agriculture, education, and defense had positive growth-promoting effects. However, all types
of government spending except health were statistically insignificant in Latin America.
Additionally, as suggested by Devarajan, Swaroop and Zou (1996), expenditures which are
normally considered productive become unproductive if there is an excessive amount of them.
(i.e capital expenditure may have been excessive in developing countries, rendering them
unproductive at the margin and as a result squeezed by capital expenditure, current
expenditures may be productive at the margin).
In case of taxation a number of authors have studied how the total tax revenue in relation to
GDP, i.e., the average tax rate, affects growth. Empirical study conducted by Marsden (1990),
based on a cross-sectional analysis of 20 countries is a good example of this kind of analysis
(aggregated approach). In this study the countries were split into pairs, with each pair having
13
similar per capita income, but different levels of taxation. The selected countries were
compared on the basis of lower and higher levels of taxation and their influence on growth
rates over the period 1970-1979. In all cases, the countries that imposed a lower effective
average tax burden on their populations achieved substantially higher rates of GDP growth
than did their more highly taxed counterparts. The average annual rate of growth of GDP was
7.3% in the low-tax group and 1.1% in the high-tax group. The average tax/GDP ratio in the
low-tax group increased from 13.3% in 1970 to 15.2% in 1979, while it rose from 21 per cent
to 23.9 per cent in the high-tax group during the same period. Moreover, fiscal incentives
provided by low-tax countries shifted resources from less to more productive sectors, thus
raising the overall efficiency of resource utilization. Many other studies find significant
negative effect of tax revenue to GDP on growth (Engen and Skinner (1996), Cashin (1995),
Fölster and Henrekson (2001)). Yet, the size of the effect differs considerably (see below).
Other studies cannot find a relationship, be it positive or negative. Again, no study so far has
shown positive relationship between high taxation and growth.
Table I.3. Selected analyses of the impact of taxes on economic growth on the
example of OECD countries.
Study
Research area
Impact of
taxation on
growth
negative
Cashin (1995)
23 OECD countries 19711988
Engen and Skinner (1996)
USA, sample from OECD
countries
negative
OECD - Leibfritz, Thornton,
Bibbee (1997)
OECD (1997), European
Commission
OECD countries 19651995
Model Quest
negative
Bleaney, Gemmell and Kneller
(1999)
17 OECD countries 19701994.
negative
Fölster and Henrekson (2001)
Sample of most affluent
countries of OECD and
outside OECD 1970-1995
negative
Bassanini and Scarpetta (2001)
21 OECD countries 19711998
negative
PricewaterhouseCoopers (2003)
18 OECD countries 19701999
negative
negative
Extent of impact
1pp of GDP increase in
taxes/GDP ratio lowers
production per employee by 2%
2.5pp increase in taxes/GDP ratio
reduces economic growth by 0.20.3%
10pp increase in taxes/GDP ratio
lowers GDP growth by 0.5-1%
1% GDP increase of personal
income tax lowers GDP growth
by 2.4% compared to base
scenario
1% of GDP increase of
distorting* tax revenues/GDP
lowers GDP growth per capita by
0.4pp
10pp increase of taxes/GDP
lowers GDP growth by about 1%.
1pp increase in taxes/GDP lowers
GDP growth/per capita by about
0.3-0.6%.
1pp GDP increase of in direct
taxation/GDP lowers GDP growth
by 0.2-0.4%
*distorting tax revenue = revenue from taxes on income and profit, social security contribution, tax on payroll, tax on property.
Source: Leach, G. (2003). The Negative Impact of Taxation on Economic Growth. New edition. REFORM.
Clearly, in practice, almost all taxes are distortionary to some degree and the key issue in
search for long-run growth effect of various taxes is whether these distortions can be expected
to be substantial or minor with respect to the main determinants of growth, such as investment
work and technical progress.
It is shown that the effects of taxation on growth depend crucially on the elasticity of labor
supply, the specification of the leisure activity as well as the structure of the human capital
accumulation, and its tax treatment. Stokey and Rebelo (1995) show that large growth effects
14
of fiscal policy occur when depreciation rates are implausibly large and/or when the
uncompensated labor elasticity is implausibly high.
Lucas (1990), King and Rebelo (1990), Kim (1992), Jones, Manuelli, and Rossi (1993),
Pecorino (1993), Devereux and Love (1994), and Stokey and Rebelo (1995) among others use
simulations in order to quantify growth and welfare effects of tax reforms, such as, for
example, a shift from income to consumption taxes or a lowering of capital income taxes.
Although the quantitative growth and welfare effects identified by these studies differ
considerably, they all reveal that consumption taxation induces fewer distortions than the
taxation of factor incomes (human and physical capital). They show that a consumption tax
involves only one fundamental distortion—it affects the choice between time spent in
“productive” activities (labor and education) and in leisure time in favor of the latter, and
therefore reduces the growth rate of the economy. This choice is affected in a similar fashion
by income taxes, but these also involve other distortions that reduce capital accumulation and
growth. A comprehensive discussion concerning growth effects of consumption tax systems
compared with those of income tax systems has been provided by Krusell, Quadrini and RiosRull (1996).
However, the choice between taxes within group of direct taxation is less clear. Mendoza,
Milesi-Ferretti , Asea (1997) point out that changes in labor income taxes might have stronger
effects on growth than changes in capital income and consumption taxes. The estimations
carried out by Daveri and Tabellini (1997) and B. Heitger (2001) underscore the weight of tax
burdens of private individuals. The first study proves that a 14pp rise in personal tax in the
EU countries in 1965 – 1995 led to a 3pp reduction of the share of investment in GDP and
slowed down annual economic growth by about 0.4pp. The authors show the impact of higher
labor taxation on the behaviour of enterprises which by substituting capital for work,
contribute to the decline of the end capital product and limit inclinations to invest. On the
other hand, Leibfritz, Thorton and Bibbee (1999) or Xu (1999), confirm that capital taxes in
the long term lead to much greater disturbances than wage taxes or taxes on consumption.
Some of the strongest and most recent empirical evidence that the tax structure affects
economic growth is reported in Widmalm (2001). Using pooled cross-sectional data from 23
OECD countries, between 1965 and 1990, Wildmalm finds evidence that different taxes have
different growth effects, and moreover the tax progressivity is bad for economic growth.
Specifically, the proportion of tax revenue raised by taxing personal income (which includes
also capital tax) has a negative correlation with economic growth. Results show that if an
economy has a share of personal income tax of say 25% and another one has a share of 62%,
the latter would be expected to have one percentage point lower annual growth, ceteris
paribus. This result is robust to a rigorous sensitivity analysis.
Still more studies showed that a progressive income tax rate structure caused more damaging
economic effects than a flatter rate tax schedule (Sarte (1997), Castañeda, Diaz-Gimenez and
Rios-Rull (1999), Koester and Kormendi (1989), Cassou and Lansing (2000), Cauccutt
(2003), Afonso, Ebert, Schuknecht and Thöne (2005)). Koester and Kormendi isolated
marginal tax effects from average tax effects and found that after controlling for average tax
rates, increases in marginal tax rates had a negative effect on economic activity. In other
words, reducing the progressivity of tax system, while allowing the government the same tax
revenue (the same tax/GDP ratio) may lead to higher levels of national income. Many
empirical studies confirm that high and increasing marginal tax rates impede the formation of
capital, constrain labor supply, retard economic growth while an introduction of a flat tax
15
system helps to avoid many if not all these costs. (For the discussion about flat tax system see Box).
Box I.2. Economic effects of flat tax
Although ‘flat tax’ is not touted as a panacea to all economic ills, an increasing number of European countries – among them a
few new EU member states – have introduced or are developing flat tax regimes.
The case for a flat tax has been around for over two decades. In the early 1980s, Robert Hall and Alvin Rabushka of the
Hoover Institution developed a tax system that is based on a single rate of taxation for all sources of income, as close as
possible to the source. All income is classified as either business income or wages and taxed at one rate, except for a personal
allowance exempting lower income individuals and families from taxation (this makes the Hall-Rabushka proposal to some
extent progressive). There are no other exemptions, no deductions, no loopholes. The other essential aspect of the flat tax
system developed by Hall-Rabushka is radical simplification of the tax system, by removing any deductions or reliefs, and by
eliminating double taxation. This proposal represents a fundamental change in the way governments would collect tax
revenue.3 The Hall-Rabushka proposal has served as the blueprint for several proposals to reform tax system in other
countries (i.e. Russia, Slovakia).
Flat tax is believed to:
1)
Help reduce red tape and associated difficulties and confusion. With tax form down to size of postcard the flat tax system
makes tax filling much simpler and more efficient.
2)
Achieve simplicity, economic efficiency and fairness (same rate for all) – three principle of effective/sound taxation.
3)
Reduce tax evasion and cheating, by lowering opportunity cost of avoiding taxes. Flat tax system means elimination of
relief, allowances and thus eliminates loopholes in the system.
4)
Provide incentives to work, save and invest that trigger an economic boom.
Introduction of flat tax rate tends to redistribute income that encourages saving because higher-income families tend to be
bigger savers than lower-income families, even on a lifetime basis. The saving incentives come from the increase in the aftertax return from postponing consumption. Second, one flat rate at personal- and corporate-level removes the double taxation of
corporate equity and hence tend to reduce the cost of corporate capital. Moreover, dividends and interest are not taxed at
individual or household level, which encourage real investment in economy. Finally, broadening the tax base may imply lower
overall marginal tax rates and reduce the overall cost of capital. A switch to flat tax may cause the supply of labor to increase,
depending on the significance of reductions in marginal tax rates and a lower price of future consumption in relation to
present consumption. Marginal tax rates on labor directly reduce the after-tax wage and hence reduce the relative cost of
leisure. Thus, people have an incentive to work less. Further, what matters the most for the labor supply is the marginal tax
rate on total compensation, not just the marginal tax rate on wages received. Total compensation includes fringe benefits, such
as health insurance and pension benefits, as well as payroll taxes paid by the employer. Fringe benefits are often excluded
from tax under current law, and thus the effective marginal tax on compensation might be much less than the statutory tax
rate on wages. High marginal tax rates induce individuals and firms to change the form of compensation from taxable cash to
taxfree fringe benefits, including nicer working conditions and other perks. The effects of tax reform on human-capital
accumulation depend largely on whether human capital is more of a substitute for or a complement to new physical capital.
The effects of switching to flat tax are somewhat uncertain and depend critically on the details of the reform. Thus existing
empirical results need to be interpreted carefully. Many estimates apply to a pure, well-designed flat tax while any
compromises in the design, such as including some deductions or exemptions are said to reduce the gains or turn them into
losses. However, in principle, some broad conclusions stand out that high and increasing marginal tax:

impede the formation of capital (Carroll, Holtz-Eakin, Rider and Rosen (1998), Ventura (1999)

hinder economic growth and constrain aggregate labor supply (Koester and Kormendi (1989), Mullen and Williams
(1994), Padovano and Galli (2001), Becsi (1996), Feldstein (1995a), Feldstein (1995b), Feldstein and Feenberg (1995),
Cassou and Lansing (1996)).
According to Cassou and Lansing (1996) adoption of flat tax plan similar to one proposed by Hall-Rabushka for US economy
leads to an increase in labor hours, income and investment (or savings). As labor and investment are driving forces for growth,
a flat tax rate raises the US economy’s long run growth (by 0.2 to 0.8pp per capita, yearly). The strength of the growth effect
crucially depends on elasticity of household labor supply, capital/s share of output and elasticity of the capital stock with the
respect to new investment. The gains are attributable to both the lowering of the marginal tax rate and full write-off of
investment expenditures.
5)
3
Generate increased tax revenue. As a result of a more dynamic economy and less tax evasion, the
government actually collects higher revenue. As evidence by Laffer’s analysis if taxes are higher than
More details can be found in: Hall, R.E., Rabushka, A. (1995). The flat tax. 2nd edition. Hoover Institution Press, Stanford University.
16
optimal tax rate than implementation of the moderately low flat tax rate would increase tax revenue.
6)
Eliminates double taxation on saving and investment (if applied in ideal form as proposed by H-R). Since all
forms of income are taxed only once people are free to choose whichever form of investment maximizes
their profits.
At the same time, a flat tax regime is understood to
1)
eliminate practically all forms of tax exemptions and allowances
2)
be non-progressive (at least as far as the 'marginal' rates are concerned)
3)
favour the wealthy at the expense of the poor. However, the flat tax may exempt the poor from paying any tax
by providing a generous tax allowance. (Slovakia: the non-taxable threshold was significantly increased,
from original fixed amount of SKK 38,760 to 1.6 multiple of the poverty line , i.e. SKK 80,832 in 2004.)
4)
favour share and dividend-holders since profits are taxed only once, at source
Flat tax at work
The flat tax concept was the subject of heated debate in the mid 1980s. The modern-day renaissance of the flat
tax concept was initiated by Estonia (1994), followed by Lithuania (1994) and Latvia (1995). Inspired by the
success of fiscal reforms in the three former communist countries, Russia (2001) followed with a record-low 13%
flat tax. Ukraine and Slovakia implemented the flat tax last year, while Georgia and Romania have switched to the
flat tax system just this year, which attests the continuity of the flat tax reforms.
Corporate income tax1)
Flat tax rate on personal income
Country
Rate
Year
introduced
Tax
credit
Estonia
26
1994
Yes
Lithuania
33
1994
Yes
Latvia
Russia
Serbia
Ukraine
Slovakia
Georgia
Romania
25
13
14
13
19
12
16
1995
2001
2003
2004
2004
2005
2005
Yes
No
Yes
Yes
Yes
n/a
n/a
Rates before reform
16,24,33
rates ranging
from 18 to 33
basic rate at 25%, with top
marginal rate of 35%
12, 20, 30
10, 15, 20
10, 15, 20, 30, 40
10, 20, 28, 35, 38
12, 15, 17, 20
18, 23, 28, 34, 40
Type
Flat (F)
Rate
26*)
F
15**)
F
F
F
F
F
F
F
15
30 (24)***
14
25
19
20
16
1) the same period as introduction of the flat tax, *) tax on retained earnings abolished, **)13 for SME, ***) 24 from 2002
Source: MOFs, internet
The flat tax has already had remarkable result in the countries which adopted it. Among other it has achieved
greater compliance due to its simplicity and low rate, has been producing far more revenue than the former
system and has boosted economic growth by improving incentives to work, save, invest and take entrepreneurial
risks. The most frequently citied example of successful flat tax implementation is Russia. The supporters of the
Hall-Rabushka (1995) flat tax often refer to the Russian pattern as evidence in their favor. As in Russia after
introduction of a flat tax in 2001 the country’s tax revenue and GDP grew dramatically over the next years (see
charts below). However, more detailed studies on tax reform in Russia show that links between growth and flat
tax might be not so obvious. For example Gaddy, Gale (2005) point out that (1) the change in the personal
income tax was not a stand-alone reform, but rather part of a comprehensive set of fiscal reforms undertaken
after the country’s debt crisis of 1998, (2) changes in tax administration and enforcement, and other structural
changes, appear to be significantly more fundamental and sweeping than the changes in income tax rates, (3)
economic growth had begun well before the reforms were introduced, (4) microeconomic data suggest that the
tax rate reductions had little if any effect on labor supply, which undercuts the notion of a large supply-side
response. According to their analysis Russia’s example suggest that the principal virtue of the flat tax was its
simplicity, as the system became easier to administer and comply with. Ivanova, Keen and Klemm (2005) do not
see any evidence that rate reduction in Russia had a strong incentive effect, with labor supply changes over the
post-reform period.
17
Estonia
Direct taxes
Latvia
GDP gro wth
Direct taxes
Russia
GDP gro wth
Revenue/GDP
P IT/GDP
GDP gro wth
15
15
10
10
8
5
6
0
4
10
8
10
6
4
5
2
0
-5
2
-10
0
1993 1995 1997 1999 2001 2003
Direct taxes
15
5
15
-10
2
0
2000 2001 2002 2003 2004
10
5
0
5
-5
-15
-20
1993 1995 1997 1999 2001 2003
4
10
-5
0
6
15
0
4
8
GDP gro wth
10
8
10
Slovakia
GDP gro wth
12
-2
1994 1996 1998 2000 2002 2004
Lithuania
Direct taxes
0
12
24
22
20
18
16
14
12
10
8
6
4
2
0
0
-10
1993 1995 1997 1999 2001 2003
Source: MOFs, World Bank.
Summing up, what lessons can be drawn for other countries considering the adoption of similar reforms? A key
lesson must be that tax-cutting reforms should be well designed (which means accompanied by comprehensive
set of fiscal reforms, including tax administration and enforcement) to be expected to pay for themselves by
greater work and improved compliance. The revenue neutrality is crucial especially if country is confronted with
sizeable budget deficits.
As approach proposed above is useful to identify budgetary categories that are on average
more “productive” or “distortionary” than others and may omit important country-specific
features of revenue/expenditure policies (design, linkages with other policy instrument i.e.
between benefits and entitlements, specific aims of spending programs) the quantitative
importance of the taxes’ and expenditures’ growth effects vary substantially between
empirical studies.
Moreover, empirical literature examining relationships between economic growth rates and
fiscal variables in the endogenous growth models varies in terms of data set, econometric
technique and quality. The variability non-robustness of the results comes also from
“widespread tendency to add fiscal variables to regressions in a relatively ad hoc manner
without paying attention to the linear restriction implied by the government budget
constraint.“4 . The importance of a complete specification of the government budget
constraint is brought out by many recent empirical studies (Helms (1985), Mofidi and Stone
4
Source: Kneller, R., Bleaney, M.F., Gemmell, N. (1999). Fiscal Policy and Growth: Evidence from OECD Countries. Journal of Public Economics, 74: 171190.
18
(1990) and Miller and Russek (1993), De la Fuente (1997) Mendoza et al. (1997)). Miller and
Russek, for example, find that the growth effect of a change in expenditure depends crucially
upon the way in which the change in expenditure is financed. Another example might be
Kocherlakota and Yi (1997) showing that tax measures significantly affect growth only if
public capital expenditures are included in regressions.
Adding to that in the empirical growth literature, correlations between economic growth and
its proposed determinants are often sensitive to the inclusion of other potential growth
sources. Levine and Renelt (1992) point out that over 50 different variables have been
reported significantly correlated with economic growth in empirical studies, but that only two
of these survive a systematic sensitivity analysis. They identified a positive, robust correlation
between growth and share of investment in GDP as well as initial level of income
(conditional-convergence hypothesis).
Finally another analytical problem is issue of endogenity (extend to which endogenity may
impact regression results). It may be that the significant associations observed between fiscal
variables and growth alt least partly reflect tendency, for example, for higher income
countries to devote proportionally more resources to government spending. (Bleaney,
Gemmell and Kneller (2001), Kocherlakota and Yi (1997)). Among the most prominent
issues which require further attention and work, before fiscal growth effects can be reliably
identified for policy advice is problem of efficiency, especially related to delivery of public
services. Almost none of the panel investigation across EU and OECD studies allow for fiscal
parameters heterogeneity in the sample that for example, may reflect efficiency differences
with which countries deliver public services.
Main findings in macroeconomic links between public expenditure items and economic
goals: selected studies
Expenditure issues
Public investment
Main findings

Aschauer (1989): a 'core' infrastructure (highways, airports, etc.) has most
explanatory power for growth and productivity improvement.

Cashin (1995): productive government spending, in the form of public
investment and transfer payments, is demonstrated to enhance economic
growth. A trade-off exists between the growth-enhancing provision of public
capital and transfers and the growth-diminishing influence of distortionary
taxes. For small government (where public spending is low), the growthenhancing effect dominates.

Sanchez-Robles (1998): indicators of infrastructure physical units used as
proxies of investment in infrastructure are positively and significantly
correlated with the per capita growth. Public investment in some countries may
suffer from lack of efficiency.

Kamps (2004): elasticity of output with respect to public capital is positive and
statistically significant in most of OECD countries.

Devarajan, Swaroop and Zou (1996); expenditure which are normally
considered productive could become unproductive when used in excess, in
particular capital expenditures; a economic infrastructure expenditure that in
general have a high proportion of capital spending are negatively correlated
with per-capita real GDP. (data from 43 developing countries over 20 years);

Easterly and Rebelo (1993): positive impact on growth depends on the quality of
public investments; investment in transport and communication is consistently
positively correlated with growth
19
Research and development

De la Fuente (1997): non-linear effects; positive effects on growth for levels up
until 2% of GDP,

Heitger (2001): Total government expenditures as well as expenditures by type
indicate a significant negative impact on economic growth (excepting transfers
and public investments) OECD countries in 1960–2000

Kocherlakota and Yi (1996): government policy can have persistent, sustained
effects on growth rates at the aggregate level; investment has significant,
positive effect on growth when a tax is included in the regression; time series
data spanning up to 100 years for the US and 160 years for the UK

Cassou and Lansing (1999): none of the observed public capital policies in the
eight OECD countries can account for slowdowns in the growth rates of
aggregate labor productivity since 1970

Keefer Knack (1997) : breakdowns in foreign investment or human capital
accumulation should be considered proximate, but not fundamental causes of
low growth rates and failure to catch up

Bussom (1999): public funding induces more private effort, but for some firms
(30% of participants) full crowding out effects cannot be ruled out

Diamond (1999): no support for the hypothesis of federal spending crowding out
private spending (aggregate annual time series data 1953-1995);
complementarity between federal and private spending on basic research

David, Hall and Toole (2000): survey of available econometric evidence on
crowding-out effect of public R&D spending accumulated over the past 35
years; public funded R&D can displace private sector investment

Bassanini Scarpetta and Hemmings (2001): in addition to the ‘primary’
influences of capital accumulation and skills embodied in the human capital,
the results confirm the importance for growth of R&D activity, the
macroeconomic environment, trade openness and well developed financial
markets

Guellec and van Pottelsbergh (2003): increasing positive impact of public
funded R & D on private R & D up to a ceiling (about 10% of business R&D), after
which public spending crowds out private R&D; defence research performed in
public laboratories and universities crowds out private R&D

Education

Hanushek and Kim (1995): the quality of education, measured by students
average performance on standardized international tests in mathematics and
science, contributed significantly and positively to productivity growth.

Barro, Sala-i-Martin (1995): significant positive effect for 97 countries during
the period 1965-85

Bleaney, Gemmel and Kneller (2001): mixed effect of variation of public
spending on growth during 1990s in EU countries: positive in DK, F, UK,
negative in: NL, S,

De la Fuente and Doménech (2000): human capital has positive impact on
growth for a sample of OECD countries, findings are robust; .counterintuitive
findings on the lack of relationship between educational investment and growth
may be due to poor data quality

Buysse (2002): positive effect of public expenditure in OECD countries on
productivity growth, after controlling for demographic differences.

Thöne (2003)
20
Healthcare
Social expenditures
Public employment

Rivera and Currais (1999): evidence for reverse causality: economic growth has
created high real incomes which enable people to spend more on the
consumption good “health”

Bleaney, Kneller and Gemmel (2001): positive and significant effect on growth
in OECD countries for the period 1970-95

Bloom Canning Sevilla (2001) good health as one of fundamental component of
human capital has a positive, sizable, and statistically significant effect on
aggregate output.

Feldstein (1976): negative effect of pension transfers in PAYG systems on
national savings and private investments,

Hakan Nordstrom (1992): evidence that greater government transfers in
proportion to GDP are negatively associated with average growth in the OECD
countries between 1970 and 1985

Persson and Tabellini (1994): significant positive effect on GDP growth in OECD
countries during the period 1960-85

Hanson, Henrekson (1994): government transfers, consumption and total
outlays have consistently negative effects, while educational expenditure has a
positive effect

De la Fuente (1997): no significant effect on growth.

Cashin (1995) : reports the growth-enhancing effects of both intragenerational
and intergenerational transfer payments (for 23 developed countries between
1971 and 1988; transfers are argued to raise the marginal product of private
capital by reducing the negative externalities flowing from (1) poor
enforcement of private property rights, and (2) workers with a below-average
stock of human capital.

Algan, Cahuc and Zylberberg (2002): negative effect on labor-market
performance; public employment crowds our private employment when the
public sector offers attractive wages and/or benefits
Source: European Commission (2002). Public finances in EMU - 2002. European Economy, 3/2002;Afonso, A., Ebert, W., Schuknecht, L.,
Thöne, M. (2005). Quality of Public Finances and Growth. Working Paper No. 438, European Central Bank.
Recent studies examining the effects of the tax burden on labor supply, capital
formation and savings.
Studies on the effect of tax on savings and capital formation
Denison (1958)
David and Scadding (1974)
Boskin (1978)
Evans, M.K. (1983); Canto,
Joines and Laffer (1983)
The gross private savings rate (GPSR) is a stable function of GNP and
changes in the tax system or other changes in the real after-tax rate of
return to capital do not affect the GPSR.
The gross private savings rate is constant and taxes cannot affect
savings behaviour, either through a reduction in private income or a
reduction in a real rate of return on capital.
The savings function of Denison (1958) and David and Scadding (1974)
was criticized on the ground that the savings rate out of private net-oftax income grew by more than 50 per cent during the period 19291969 (the same period examined by David and Scadding). Boskin
pointed out that taxes would result in a decline in savings by
decreasing the net return to savings.
There is a close relationship between tax rates, revenues and
productivity. Taxation is identified as one of the policy instruments to
accomplish the task of stimulating capital formation. If the tax rate
increases above or decreases below the optimum rate, the tax revenue
declines and so does productivity. The optimum rate which produces
the desired revenue and the desired national product is determined by
21
Mathur (1985)
Carrol and Summers (1987)
Jenkins (1989)
Marsden (1990)
Harberger (1990)
Ahmad and Stern (1991)
Tanzi and Shome (1992)
Trela and Whalley (1992)
Bernheim and Shoven (1987),
Shoven and Topper (1992) and
Taylor (1993),
Kerr and Monsingh (1998a,
1998b) and Monsingh (1998a,
1999b)
Tanzi and Zee (2000)
the electorate and its ability and willingness to pay tax in a democratic
system.
Income taxation has a significant effect on household savings through
disposable income and interest rate channels. Reduction in income tax
rates would induce higher household savings by shifting the household
budget constraint and changing the slope in favour of savings.
Tax incentives play an important role in influencing the aggregate level
of personal savings. Tax exemption for savings that takes the form of
superannuation has a positive impact on total savings.
Tax reform in Sri Lanka after the change in government in 1977 shifted
the focus in the fiscal system from direct taxes to indirect taxes. As a
result of these changes, gross capital formation increased substantially
from an average of 14.5 per cent of GDP in 1976-1977 to an average of
28.9 per cent during the period 1978-1982.
A cross-section analysis of 20 selected countries was compared on the
basis of similar per capita income with different tax rates. For
example, Singapore was compared with New Zealand, which has similar
per capita income but higher levels of taxation, Japan with Sweden,
and so on. In all cases, the countries that imposed a lower effective
average tax burden on their populations achieved substantially higher
rates of GDP growth than did their more highly-taxed counterparts.
Tax credits are implemented to stimulate investment. The investment
tax credit on the machine or other physical assets tends to subsidize
depreciation, thus artificially biasing investors in the direction of
choosing short-lived assets. The investment tax credit would artificially
turn a socially wasteful investment into a privately profitable one.
Many countries have imposed statutory minima on the lives of the
assets to reduce the bias. One important way is to provide incentives to
the net income generated by the assets covered.
Direct tax reduces productive investment and thereby reduces capital
formation and growth. However, their main concern was indirect tax
reform, since 80 per cent of the tax revenue raised by developing
economies is from indirect taxes
A study of tax regimes in eight Asian economies (Hong Kong, China;
Republic of Korea; Singapore; Thailand; Philippines; Malaysia; Taiwan
Province of China; and Indonesia) revealed that the beneficial effects
of tax incentives in the Republic of Korea, Singapore and Taiwan
Province of China were dependent on other supporting factors. The tax
rate in Hong Kong, China, was comparatively lower and is one of the
factors responsible for a high growth rate in that economy.
Pro-growth tax policies (direct tax reductions and indirect tax
exemptions) made a discernible contribution to the Republic of Korea’s
economic growth over the period 1962-1982. The generalequilibrium
model, using the “outward-oriented growth strategy”, estimated the
increase in output due to pro-growth tax policies to be 0.54 per cent
per annum.
The current income tax system is inefficient, since it discriminates
against savings. These studies recommend replacing the current
corporate income tax with a consumption-based, cash-flow approach to
tax that exempts savings and investment from taxation. This system
removes tax-related differences between the costs of debt and equity
financing.
These studies reveal that direct tax is one of the many variables that
affect savings and capital formation, and reduction in direct tax rates
has boosted the growth of the Indian economy. Tax policy can promote
growth by increasing the rate of savings in the economy. Tax on
expenditure would discourage non-productive consumption and
promote capital formation.
Optimal tax models are of no practical use to developing economies.
Tax theory shows that the direction of causation tends to run from
development to tax levels rather than the other way around. Tanzi and
Zee feel that tax incentives may not promote sustained development
but lead to unnecessary distortions. These distortions encourage “rent-
22
seeking activities.”
Studies examining the effects of the tax burden on labour
Nickell (1997)
Payroll taxes have negligible coefficient; overall tax burden may raise
unemployment and reduce labour supply.
Mendoza Milesi-Ferretti and
Asea (1997)
Factor income tax ratios are negative and consumption tax ratios
significantly positively related to investment, but there is relationship
between tax ratios and growth.
Martin
Scarpetta (1998)
Tax wedge significantly related to unemployment, but not in case of
high levels of degree of centralisation/co-operation in the labour
market.
and
Elmeskov,
Nickell and Layard (1999)
Total tax wedge affects unemployment, while payroll taxes alone have
no additional effect.
Blanchard and Wolfers (2000)
Higher taxation increases unemployment, but the effect is small.
Martinez-Mongay (2000)
Labour tax ratios affect private investment and growth negatively. No
effects on (un)employment, which is "unsurprising" as interplay with
market institutions not taken into account.
Fiorito and Padrini (2001)
Increasing taxation (especially labour taxation) negatively leads both
the labour force and employment, while increasing taxation positively
leads unemployment.
Prescott (2004)
High responsiveness of labour supply to marginal labour tax rates.
Marginal tax rate accounts for the predominance of difference at poin
in time and large change in relative labour supply over time
Source: Monsingh, P., Kerr, I.A. (2001). The Influence of Tax Mix and Tax Policy on Savings and Capital Formation in Developing
Economies: a Survey. Asia-Pacific Development Journal, 8(1): 32-33; Nickell, S. (2003). Employment and Taxes. CESifo Working Paper
No. 1109, Center for Economic Studies and the Ifo Institute.
Annex I.3. Efficiency of public expenditure
In spite of all efforts to identify sources of growth we still have simplistic growth concept that
ignores many “quality-indicators”. In context of quality of public finance growth equations
usually do not capture the performance and efficiency of the public sector, which are essential
while assessing growth effects of public spending. From this perspective, the shift of the focus
from quantitative to quality considerations could give valuable additional insight to our study,
and can be an avenue for further work on the topic.
Assessing public expenditure efficiency requires setting output/outcome measures in relation
to inputs utilized, what presents a difficult empirical issue. Both real inputs and benefits from
the governmental expenditure are not easily determined, due to deficient budgetary
classifications, lack of reliable data or difficulties in allocating fixed costs to various functions
of the government. The concept of efficiency has a broad meaning. Government expenditure
can be efficient in a technical sense (providing the output at low cost) but inefficient in a
public interest sense, i.e. the government produces efficiently the wrong output, what is
clearly a political issue. This should be distinguished from technical inefficiency when the
budget is allocated to socially desired goals but wastes resources by not using them in an
efficient way. Both of these types of inefficiencies are common and equally harmful.
As noted by Tanzi (2004) in the analysis of public expenditure one should not assume the
identity between expenditure and benefits. It is quite often the case in health and education or
generally labor intense activities where additional resources are absorbed mostly by higher
salaries which are not accompanied by increased productivity. In this context it is also vital to
make a distinction between output and outcome, which is fundamental in the analysis of
public spending efficiency. The output of educational spending may be the number of
children attending school or completing certain grades whereas the outcome is what they learn
23
and how this will affect their future situation on the labor market. The measures of efficiency
of public spending should focus on the latter.
In recent years a number of attempts have been made at measuring the efficiency of public
sector. The techniques developed are divided into parametric and non-parametric approaches.
The parametric approach assumes a specific functional form for the relationship between
inputs and outputs of government spending. The inefficiency term is reflected in the deviation
of the observed values from the unobservable efficiency frontier. This group is based on
econometric methods and includes Public sector performance indicator (PSP) and Public
sector efficiency indicator (PSE).
The non-parametric approach calculates the frontier from the data without imposing any
specific functional restrictions. Techniques developed within this approach: Free Disposal
Hull (FDH) and Data Envelopment Analysis (DEA), use mathematical programming
techniques. The brief description of the specified methods is presented below.
Parametric methods
Public sector performance indicator (PSP) is one of the parametric approaches developed by
Afonso, Schuknecht and Tanzi (2003). The approach attempts to determine whether there is a
positive identifiable linkage between higher public spending and higher social welfare, i.e.
public sector performance, defined as the outcome of public policies.
Assume that public sector performance is a function of a number of socio-economic indicators
(I), i.e. depends on life expectancy, literacy rate, employment rate etc. For any country i there
are j areas of government performance which contribute to the overall performance in country
i, (PSPi). Thus,
n
PSPi   PSPij ,
j 1
with
PSPi = f(I1, I2,…,Ik).
Therefore an improvement in public sector performance depends on the positive development
of the relevant social and economic indicators:
k
PSPij  
l 1
f
I I
l
.
l
Thus, public expenditure attempts to bring about desirable changes in the selected
performance indicators. The greater the positive effect of government spending on the
indicators, the greater will be the improvement in social welfare reflected in PSP indicator.
This approach assumes that any changes that might occur in the economic and social
indicators may be seen as changes in public sector performance.
The performance indicators used under this methodology belong to two broad groups: process
(opportunity) indicators and traditional (Musgravian) indicators. The opportunity indicators
24
include four sub-groups: administrative, education, health and public infrastructure, each of
which can contain several indicators, i.e. health includes infant mortality and life expectancy.
The group of indicators reflecting traditional functions of government is made up of three
sub-groups: income distribution and economic stability and allocation, again each of them
consisting of several indicators. All the indicators are given equal weights.
Afonso, Schuknecht and Tanzi (2003) studied performance of the public sectors of 23
industrialized OECD countries in 2000 computing PSP indicators for the government as a
whole as well as for its core functions. The results suggest notable but not very large
differences across countries. The authors found that small governments (industrialized
countries with public spending below 40% of GDP in 2000) on average report better
economic performance than big governments (public spending above 50% of GDP) or
medium sized governments (40-50% of GDP). Similar conclusion was reached in case of
administrative and economic performance. Countries with large public sectors show more
equal income distribution. These results are consistent with the findings of Tanzi and
Schuknecht (2000).
However it should be stressed that public sector performance indicator as defined above
reflects outcomes without taking into account the level of public spending, which can be
assumed to reflect the opportunity costs of achieving the estimated social welfare. Further in
their work, basing on the framework already outlined, Afonso, Schuknecht and Tanzi (2003)
introduced indicator of Public sector efficiency (PSE), defined as the outcome of public
policies in relation to the resources applied.
Public sector efficiency indicator weighs the performance, measured by PSP indicators, by the
amount of relevant public expenditure (PEX) used to achieve a given level of performance.
For any country i the overall PSE indicator is defined by:
PSE 
i
PSP
PEX
i
,
i
with
PSP
PEX
n

i
i
j 1
PSP
PEX
ij
.
ij
It is however stressed that not all expenditure categories are equally suitable as input
measures (PEX) used under the proposed approach. Whereas health and education
expenditure seem good measures of the public sector inputs in these areas, public
consumption is a mere approximation for input to produce administrative outcomes. It is
assumed that public investment can be used as a proxy for infrastructure quality while
transfers and subsidies as proxies for input to affect income distribution. Total spending may
be a useful proxy for the input to affect economic stabilization as well as economic efficiency
(since it is generally financed by distortive taxation). Furthermore the authors note a few
caveats to the proposed methodology as comparability of the public spending data across
countries.
25
Apart of some data problems the outlined approach to measure public sector performance and
public sector efficiency is subject to problems of distinction between output and outcomes.
Another serious caveat also already mentioned is the assumption that any outcomes (positive
development of socio-economic indicators) results from public sector activities, what neglects
any possible contribution from other factors (ex. effects from changing diets contributing to
improvement in health indicators). Moreover these approaches require assuming specific
functional relationship between inputs and outputs or for the inefficiency terms.
The analysis of public sector in 23 industrialized OECD countries in 2000 presented by
Afonso, Schuknecht and Tanzi (2003) indicates that differences in efficiency are much more
significant than in performance across countries. Countries with small public sectors report
much better efficiency indicators clearly outranking the others. These results suggest that in
many industrialized countries the size of the government may be too large, with declining
marginal products being rather prevalent.
Non-parametric methods
To avoid the caveats of the outlined parametric methods some studies apply non-parametric
approaches to the evaluation of public spending efficiency. The group of these methods
include: Free Disposal Hull (FDH) and Data Envelopment Analysis (DEA)5.
Free Disposal Hull (FDH) as a non-parametric technique was first proposed by Deprins,
Simar and Tulkens (1993). The FDH method imposes the least amount of restrictions on the
data as it only assumes free-disposability of resources. Central premise to this approach is the
notion of relative efficiency defined as the ability of the producer to generate more or equal
amount of output (as compared to other producers) given less or equal amount of input. The
figure below presents a simple (single-input single-output) case of FDH production possibility
frontier. Countries A and B use input XA and XB to produce outputs YA and YB
respectively. The input efficiency score for country B is defined as the quotient XA/XB. The
output efficiency score is given by the quotient YA/YB. A score of one implies that the
country is on the frontier. An input efficiency score of 0.75 indicates that this particular
country uses inputs in excess of the most efficient producer to achieve the same output level.
An output efficiency score of 0.75 indicates that the inefficient producer attains 75 percent of
the output obtained by the most efficient producer with the same input intake. Multiple input
and output efficiency tests can be defined in an analogous way.
5
More detailed information on non-parametric approaches could be found in: Herrera S., Pang G., Efficiency of Public Spending in Developing Countries: An
Efficiency Frontier Approach. World Bank, May 2005.
26
Figure I.1. Free Disposal Hull
index of
perform ance
D
production possibility
frontier
C
YA
YB
A
E
B
XA
XB
spending
The FDH framework allows the ranking of several countries in terms of public expenditure
efficiency by calculation of input efficiency and output efficiency scores (reflecting how
much less a given country uses to produce the same output or how much more output it
produces at the same level of spending). The scores are set between 0 and 1 (maximum for all
countries located on the production possibility frontier). It is stressed that this methodology is
likely to underestimate inefficiencies as countries placed on the frontier are assumed to be
efficient, without respect to any possible improvements they could or should introduce.
This technique was used by Vanden Eeckhaut, Tulkiens and Jamar (1993) to assess public
expenditure efficiency in Belgian municipalities and by Fakin and Crombrugghe (1997) to
study efficiency of government expenditures in OECD and Central European countries. Nonparametric efficiency analysis presented in the latter study reveals cost-inefficiency of
transition governments. The authors suggest that Central European countries could enhance
their efficiency by lowering and restructuring their government expenditure and that the
reform of future pension rights would contribute to this end. Gupta and Verhoeven (2001)
assessed efficiency in education and health spending in 37 countries in Africa concluding that
on average African countries are inefficient in providing education and health services
relative to both Asian and the Western Hemisphere countries. The authors also report a
negative relationship between the input efficiency scores and the level of public spending.
The same approach was applied to assess education spending in the EU by Clements (2002)
leading to the conclusion that 25% of education spending in the EU is wasteful as related to
the best practices observed in the OECD. Already cited Afonso, Schuknecht and Tanzi (2003)
in their evaluation of public sectors of 23 OECD countries also used FDH as one of the
methods finding that the EU countries are mostly well inside the possibility frontier. The
results show the average input efficiency of the EU15 countries to equal 0.73 meaning that
they should be able to provide the same level of output using only 73% of inputs they are
currently using. The output efficiency of the EU15 amounts to 0.82 – with given public
spending these countries “produce” on average only 82% of what they could have produced if
they were on the production possibility frontier.
Another non-parametric approach used in the public expenditure efficiency analyses is Data
Envelopment Analysis (DEA) developed by Charnes, Cooper and Rhodes (1978). This
technique implies a convex production possibility frontier, i.e. assumes that linear
combinations of the observed input-output bundles are feasible (a constraint that is not
27
required by the FDH approach). The figure below provides a single-input single-output DEA
production possibility frontier as a simple graphic illustration of this technique.
Figure I.2. Data Envelopment Analysis (DEA)
index of
perform ance
D
production possibility
frontier
V
C
Y
A
B
E
spending
The feasibility assumption, displayed by the piecewise linearity, implies that the efficiency of
C, for instance, is not only ranked against the real performers A and D, called the peers of C
in the literature, but also evaluated with a virtual decision maker, V, which employs a
weighted collection of A and D inputs to yield a virtual output. Country C, which would have
been considered to be efficient by FDH, is now lying below the efficiency frontier. This
example shows that FDH tends to assign efficiency to more countries than DEA does. The
input-oriented technical efficiency of C is now defined by TE = YV/YC.
Data Envelopment Analysis (in addition to FDH) has been used in recent paper by Afonso
and St. Aubyn (2004) to evaluate efficiency of education and health expenditure in OECD
countries. A recent study by Herrera and Pang (2005) provides an estimation of efficiency
frontiers of nine education output indicators and four health output indicators, based on a
sample of over 140 countries and covering years 1996-2002. The results show that countries
with higher expenditure levels as well as countries where the wage bill is a larger share of the
government’s budget register lower efficiency scores. The authors found that the average
output efficiency in developing countries amounts to around 0.9 (alternatively 0.7 –
depending on the framework applied) implying that they could increase health and education
attainment by between 10 to 30% while using the same input assuming they were as efficient
as the countries from the production possibility frontier.
It is stressed that all results based on the methodologies outlined above should be seen as
indicative and need to be interpreted with great care. Assessing public expenditure efficiency
requires determining the relationship between public spending and the outcomes as well as
separating the impact of other factors, what is not always an easy task. Another fundamental
problem is the issue of data comparability across the countries. Finally, what is seen as
inefficiency can result from numerous cultural and social factors that in many cases escape
definition and measurement but are likely to play a significant role.
28
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36
ANNEX II: Financing Higher Education
Czech Republic
1. Description of the Higher Education System
The term „higher education” as used in some countries and as it is now understood under the
Bologna process corresponds in the Czech context with the whole tertiary sector. Tertiary
education in the Czech Republic includes any type of education recognised by the state
that requires a completed secondary education as an entrance condition.
Figure II.1.Tertiary education is composed of:
Tertiary Professional Schools (TPSs) provide tertiary professional studies, a more
practically oriented type of education, lasting mostly three years (only in case of health
programmes 3,5 years). These studies lead to the Diploma in different subjects, e.g. in
economics, in social sciences, in health etc. This diploma is not academically equivalent to the
bachelor degree. There are also examples that both a diploma from a tertiary professional
school and a bachelor academic title from a HEI are recognised as the same professional
qualifications (e.g. nurseries and midwives). The TPS can also provide next to the three (3,5)
year programmes professional courses lasting only one or two years leading to the
Certification. TPSs compose relatively small part or the tertiary sector of education as regards
number of students.
Higher Education Institutions (HEIs) form the highest level of Czech education. They offer
accredited study programmes at three levels – Bachelor’s, Master’s, and doctoral, as well as
lifelong learning. HEIs are either university-type or non university-type.
37
University-type HEIs may offer all types of study programmes (Bachelor’s, Master’s, and
doctoral) and carry out associated scholarly, research, developmental, artistic or other creative
activities. Non university-type higher education institutions offer mainly Bachelor’s study
programmes, but may also provide Master’s study programmes and carry out associated
scholarly, research, developmental, artistic or other creative activities. They are not allowed to
provide doctoral study programmes.
Both types of higher education institutions can be public, state and private. The public and
private higher education institutions come under the responsibility of the Ministry of
Education, Youth and Sports (Ministry), while state institutions (military university and the
police academy) are under the responsibility of the Ministry of Defence and the Ministry of
the Interior. The list of HEIs is available at: http://www.msmt.cz/files/htm/Vswwwser1.htm or
www.csvs.cz.
Higher education is realised within the framework of accredited study programmes and given
form of studies. The form of study can be daily (face to face), distance or a combination of
both Access to a bachelor study programme is conditional on completing a full secondary
general or vocational education with a “maturita” examination. Access to master studies is
conditional on graduating from a bachelor study programme, while access to a doctoral study
programme is conditional on graduating from a master study programme.
Higher Education Qualifications A bachelor study programme aims at qualifying to enter a
profession or a master study programme. It takes from 3 to 4 years (180-240 ECTS credits).
Graduates receive the academic degree Bachelor (Bc). The study programme must be
completed in due form with a final state examination, which usually includes the presentation
and defence of a bachelor thesis. A master study programme follows a bachelor study
programme. The length is 1 – 3 years (60 – 180 ECTS credits). In selected fields, where the
nature of the study programme so requires, a master study programme need not follow on
from a bachelor programme. In this case, the programme lasts 4 - 6 years (240 – 360 ECTS
credits). Admission to these study programmes is conditional on passing the “maturita”
examination (see access to bachelor studies). Graduates in a master study programme have to
take a final state examination and publicly present and defend a master thesis. Studies in the
field of medicine, veterinary medicine and hygiene are completed by passing a rigorous state
examination including the presentation and defence of a rigorous thesis. The standard length
of a doctoral study programme is 3 years. Doctoral studies are completed by the state doctoral
examination and the public presentation and defence of a doctoral thesis (dissertation), based
on original results, which must be published.
38
2. Higher education statistics
a. attainment, (% of population with HE ) – 13,3 %
b. enrolment, (gross enrolment in HE in years 1990 – 2004 and net enrolment if available)
Table II.1: Ratio: Enrolled in the first year of studies (Bc. and “traditional”
MSC.) / Total 19-year old
97/98
Enrolled in the
first year of
studies (Bc. and
„traditional“
MSc.)
Total 19-year
old
Ratio – enrolled
in the first year
of studies/ total
19-year old
98/99
99/00
00/01
01/02
02/03
03/04
04/05
*)
44 478 45 901 44 930 43 713 52 527 58 342 66 517 81 348
174
017
167
991
150
657
141
206
0,26
0,27
0,30
0,31
139
854
0,38
134
929
135
777
134
000
0,43
0,49
0,61
c. HE institutions, (changes in # of HE institutions, by type public vs. non-public)
Table II.2. Changes in the structure of higher education institutions
Type of higher education institution
Universities (multi-field)
Technical universities (multi-field)
Technical universities (specialised)
Veterinary universities
Universities of economics
Agriculture and forestry universities
Universities of education
Universities of the arts
Public non-university HEIs
Public HEIs in total
State higher education institutions
Private higher education institutions
Independent faculties of education
TOTAL
1989
3
2
5
1
1
2
4
18
4
5
27
1999
9
4
1
1
1
2
1
4
23
4
9
36
2001
10
5
1
1
1
2
4
24
4
14
42
2003
10
5
1
1
1
2
4
24
4
30
58
2005
10
5
1
1
1
2
4
1
25
2
38
65
d. labor market outcomes, (unemployment rate of HE graduates, earnings premium – HE
over upper secondary)
We do not have any evidence about the earnings premium – HE over upper secondary.
39
Table II.3. The unemployment of graduates in 1996 – 2004, data from April of each year
1996
1997
1998
1999
2000
No. Rate
No. Rate No. Rate No.
Rate
No. Rate
TPSs
8,8%
13,8% 829 11,5%
HEIs 503 1,5% 693 2,0% 1217 3,1% 2085 4,8% 2519 5,4%
2001
2002
2003
2004
No. Rate No.
Rate No. Rate
No. Rate
TPSs 1153 8,0% 1561
9,9% 1573 10,6% 1131 9,7%
HEIs 2392 5,0% 3099
6,4% 3435 6,9% 3000 4,6%
TPS – tertiary professional school
HEI – higher education institution.
3. Higher education finance.
a.
Total public expenditure on education as % of GDP
b.
Total public expenditure on tertiary education as % of GDP,
c.
Tertiary as % of total public education expenditure,
d.
Extent of cost recovery: how important are fees? Student loan system?
Table II.4. Higher education finance.
Yea Total
r
public
expen
diture
on
higher
educat
ion as
% of
GDP
1997
1998
1999
2000
2001
2002
2003
2004
TPS
TPS +
HEIs
Total
Total public
Total
public
expenditure on
public
Total
expen
education
expendi
public
diture
ture on
expenditu
on
tertiary
res on
educat
educatio
education ion as
n as %
State
Regional
% of
of GDP funding funding
GDP
0,549 454 064
0,542 731 079
0,668 883 243
10 256 990
11 367 682
14 519 452
0,57
0,58
0,71
0,676 872 713
15 401 290
0,72
0,722 839 364
17 559 899
0,76
0,776 803 293
19 543 340
0,81
0,817 856 841
21 690 037
0,85
0,859 912 500
24 546 500
0,89
7063200
0
4537400
0
3683600
0
2623200
0
1426800
84 900 000
0
4952300
94 897 000
0
6792600
104 762
0
000
8430900
110 541
0
000
Tertiar
y
educati
on as
% of
total
public
expend
iture
on
educati
on
3,95
18,14
4,10
18,50
4,34
18,65
4,33
19,62
40
Study related fees
Public higher education institutions
Generally, students do not pay any tuition fees for studies in accredited study programmes (at
Bachelor’s, Master’s, and doctoral level) provided in the Czech language. In case of study
programmes provided in foreign language the tuition fees are charged from all students. They
differ within 1 000 – 10 000 Euro per an academic year. The amount is not limited by the
legislation; it is stipulated by a respective HEI. The public HEI shall announce the amount for
the next academic year before the date of submitting applications for study. The amount of
this fee, its form of payment and due date shall be stipulated in the Statute of the public higher
education institution. This also pays for other study related fees stipulated bellow.
However, in special cases a tuition fee is required:
 Should student’s enrolment in a Bachelor’s or Master’s study programme exceed the
standard length of study by more than one year, the public higher education institution
shall set a fee for each commenced month of study.
 Should a graduate of a Bachelor’s or Master’s study programme be enrolled in another
Bachelor’s or Master’s study programme, the public higher education institution shall
set an annual study fee; this is not applicable to graduates of a Bachelor’s study
programme that are enrolled in a following or Master’s study programme, or several
regular study programmes not exceeding the standard length of study of one study
programme.
There are also some modest administration fees – e.g. about 17 Euro for admission procedure
etc. Their level is regulated by the law.
The study related fees are transferred into the scholarship fund of a respective HEI.
Private higher education institutions
Study-related fees at a private higher education institution are set by the private higher
education institution by means of its internal regulations. The amount is very different from
2 000 to 4 000 EURO per an academic year.
Tertiary professional schools
The tuition fees at tertiary professional schools differ between 70 – 1100 Euro per an
academic year. For more details see Item 4, headline Funding of Tertiary Professional
Schools (ISCED 5B)
Loans
There are some loans possible for students. They are provided by most of the banks; however,
they are not advantageous very much. The students can get a loan of maximum 150 000 CZK
(about 4 680 EURO), however the interest is relatively high (about 12%).
4. Financing system for higher education in the Czech Republic
Funding of Higher Education Instiutions (ISCED 5A, ISCED 6)
The state decisions about the rules on budget allocation are made only after the negotiation
with the Representative Commission consisting of representatives of HEIs (the Czech Rectors
Conference and Council for HEIs), bursaries, students, representatives of the Ministry and
other stakeholders (e.g. trade unions).
41
Teaching, formula based part
(cca 70% of the overall public funding – incl. research part
This part of the basic lump sum is derived from the volume of teaching activity (input based
formula). Some changes have been implemented recently which form steps to more balance
between the input and output indicators. The study programmes are ranked into the seven
groups of the different tariffs. The highest tariff is 5,9 times more than the basic one (just for
the imagination - the value of the basic tariff is about 1100 EUR). A higher education
institution is fully free to distribute the obtained lump sum according to its own internal rules.
Nevertheless, the majority of HEIs copy the model state rules of allocation.
Teaching, long-term plans, other financial means
Teaching dependent on the long-term plans
A new important and gradually increasing role in money allocation has been played by the
long term plans of development elaborated on the both state and institutional levels. Both
sides are obliged to do so by the Higher Education Act. The HEIs’ plans of development
should come from the careful analysis of their own abilities as well as of the expectation of
the society. The plans of both the state and the institutions have been updated annually. The
Ministry discusses and negotiates its plan with each single institution; these debates assure
better understanding between both sides. Certain amount of the state funds (gradually
increasing) is allocated on the bases of the correspondence between the state plans of
development and priorities and those of a particular institution. It gives the state an instrument
for creation incentives for the publicly articulated higher education system development.
The ideal situation expects that the strong points of each HEI will be developed and the weak
ones limited. In consequence it should lead to the improvement of the whole system of HE.
For the latest changes see 5.
Other financial means
form the last part of the overall grant for teaching. They are divided into several categories;
the size of the budget devoted to the followed items is negotiated with the Representative
Commission:
 Scholarship for postgraduate students (students in doctoral study programmes)





Grant covering expenses of foreign students studying in the framework of international
agreements and programmes
Costs connected with capital investments
Special grant called Fund of Educational Policy; the Vice-Minister is responsible
to decide about the means allocated from this Fund
Fund for possible solution of any type of breakdowns and accidents
Grant devoted to the students´ accommodation and boarding (there are settled tariffs for one
student meal and average cost of accommodation). The change regarding the state support of
students’ accommodation should come into reality from the academic year 2005/06. The
support will be provided directly to students in the form of scholarship for accommodation.
Funding of research
Research budget is the separate part of the state money devoted to the higher education. To
decide about the overall volume as well as separate parts for the specific purposes is the
responsibility of the Research and Development Council of the Government of the Czech
Republic (RDCG) after the debate with the Ministry.
Specific research
A higher education institution receives grant devoted for so called specific research. The purpose
of this financial means is to support any type of research, development or other creative activity
closely connected with education.
42
The mentioned grant is allocated to the particular institution on the basis of the formula using
following indicators: sum of money received by the institution from research and development
projects in open competition, the ratio of professors and associated professors to the total number
of teachers, the ratio of graduates from doctoral and master study programmes to the total
number of students of the institution.
Institutional money for research and development plans (RDP)
This grant (newly introduced in 1998) aims to increase the research support and harmonise
gradually institutionally supported research and development with the relevant situation in the
EU countries. An institution can ask for this money on the basis of the project which is evaluated
by both the Czech and foreign experts. Taking the evaluation results into consideration the
special commission decides about the project financial support.
There are no priorities stated in advance and it is up to the institution to choose the proper topic
and to prepare the project of a high quality. The state influence relates to the overall amount of
money devoted to the institutional research and development plans which is in fact the
expression of the state support of the higher education research in general.
Research centres
The main aim of this programme is to deepen quality of particular fields of research and
development. Connected aim is to enhance the co-operation of different sectors in the field of
research and development preferably institutions of Academy of Sciences of the CR, higher
education institutions, other research institutions and industry. The effort is paid to the training of
PhD students and young researchers.
To receive money for the establishment and run of a research centre it is necessary to elaborate
the project and pass successfully the selection procedure.
Targeted money for research and development
Research money conveyed for specific research mission are used mainly for the support of
projects running within the number of programmes organised in collaboration of the Ministry the
RDCG. Almost all of these programmes are open to any legal entity including HEIs.
Funding of Tertiary Professional Schools (ISCED 5B)
Funding of the TPSs is different. The education activities are financed on formula basis. The
formula is based on the number of students and the demands of the study programme. There
are also funds for operating costs and investments. All TPSs charge certain tuition fees.
According to the provider there are regional, church and private TPSs.
 The regional TPSs get the formula funds through regions. The regions get these funds
from the Ministry. Operating costs are financed directly from the region. TPSs are
allowed to charge tuition fees 2.500 – 5 000 CZK (90 – 170 EURO) per a year. The
region pays them capital investment costs from public funds.
 The church TPSs get the formula and operating funds through regions. The regions get
these funds from the Ministry. No capital investments are paid from public sources.
The level of tuition fees depends on the provider and is not limited by legislation.
Usually it corresponds with the level charged at regional institutions (see above).
 The private institutions get on average 90% of their budget calculated on the formula
(see regional TPSs) from public sources. All other costs are covered by the provider;
the level of tuition fees depends on the provider and is not limited by legislation. The
range is quite wide – 15 000 – 33 000 CZK (500 – 1100 EURO) per a year.
5. What problems does higher education face in the Czech Republic?
Main problems:
43
The HE system is underfinanced (lower % of GDP and lower GDP per capita than in
developed OECD countries);
The mechanism of public money allocation does not create enough space for motivation and
incentives
the money should be spent more efficiently
the consistent social system does practically not exist though some social arrangements exist
(subsidized meals, scholarships for the stays abroad, etc.) and some have been improved –
scholarships for accommodation
Ministry and all HEIs are preparing the new long term plans of development that should cover
the period 2006-2010. The main action lines are: internationalisation, quality and sociocultural development.
The strategy is elaborated hand in hand with another important document based namely on the
reform of state funding mechanism. It will introduce the output indicators and step by step
balance their ratio with the input indicators up to current time solely used in the formula
funding. It will also support further the development of a certain kind of contract between the
state and respective HEI based on the agreement of the institutional and state long term plans
of development as the supplementary mechanism to the formula for the state budget
allocation. This should provide more sustainable conditions of the development of HEIs for a
longer period. At the same time, it will enable the state to implement its goals and priorities
indirectly through funding and to encourage the new incentives and motivation for institutions
to implement changes.
The innovation of the mechanism of public money allocation should lead mainly to the
improvement of
- access to higher education
- long lasting under financing of HEIs
- quality of education and research
- employability of graduates
- social situation of students
- competitiveness of Czech HEIs as the consequence of above mentioned
improvements.
The funding mechanism reform is supposed to help to receive more state money for the higher
education system. In parallel it should increase the effectiveness of spending the state funds.
Consequently we expect that the new financial mechanism will lead to the development of
strong points and minimising of weak points of HEIs / faculties and that the possibility to
receive the money from various parts of the budget (aimed for teaching or for research) will
enable a natural and gradual "profilation" of the institutions and /or their units (mainly
faculties):
a) HEIs/ faculties – most study programmes based on top research
b) HEIs / faculties – top research associated with a limited number of study programmes
– the other activities focused mainly on teaching
c) HEIs / faculties – focused primarily on teaching (mostly Bachelor's study
programmes) connected with development and other creative activities
What role for government in all this?
Ministry - decision making power. All important decision have to be negotiated with HE
representation composed of two bodies
- a body composed of the members of academic communities of HEIs delegated by their
representative academic bodies – The Council of HEIs;
- a body composed of representatives of HEIs -The Czech Rectors’ Conference.
44
The Representation Commission, a body consisting of the wider range of higher education
stakeholders –representatives of the Czech Rectors Conference, Council of HEIs (incl.
representation of students), representatives of registrars, trade unions and the Ministry. This
body serves as an important advisory body to the vice-minister for research and higher
education especially in the issues regarding the state budget.
Parliament of the Czech Republic has two Chambers.
Responsibility – approval of the state budget including its part for higher education, approval
of a legal norm.
Each Chamber has a committee for educational matters:
Chamber of Deputies - Committee for Science, Education, Culture, Youth and Sport
Senate - Committee on Education, Science, Culture, Human Rights and Petitions
Czech Government composed of ministers responsible for relevant ministries (among them
Minister of Education, Youth and Sports)
Responsibility – proposals of legal norms and budget regarding education, approval of basic
national strategic documents.
45
Hungary
1. Brief Description of the Hungarian Higher Education System
The Hungarian Parliament is now discussing the proposed whole new Act on Higher
Education, but the present system is as follows.
Hungarian higher education works according to a dual system - colleges and universities.
Some colleges are associated with universities and known as "college faculties" of those
universities. A university may offer college-level courses, too. The undergraduate higher
vocational programmes (ISCED 5B) last 2 years long. The undergraduate programmes at
college level (corresponding to B.Sc./BA/Bachelor's degree level; ISCED 5A) last 3-4 years,
the graduate programmes at university level (corresponding to M.Sc./MA/Master's degree
level; ISCED 5A) last 4-5 years long (with the exception of medical universities, where
courses last for 6 years). The PhD programmes (ISCED 6) last 3 years, only in universities.
There are post-graduate programmes (ISCED 5A) as well. Courses may be full-time or parttime (evening, correspondence or distance learning). In addition to state (public) higher
education there are private, foundation and church-owned (non-public) institutions, too.
The higher education system consists of 71 HEIs – including public and non-public
institutions – accredited by the Hungarian Accreditation Committee (HAC). The HAC,
established in 1993 and being an independent agency and member of the International
Network for Quality Assurance Agencies in Higher Education (INQAAHE), is responsible for
accrediting and evaluating the quality of teaching and research carried out in the HEIs.
Quality assurance is based on a periodically repeated assessment of the curricula, the
requirements, and the qualification of the academic staff in each study programmes of the
institutions.
The proposed new act will have the well-known Bologna-type multi-cycle linear education
system: higher vocational, bachelor, master, doctoral and post-graduate programmes.
2. Higher Education Statistics in Hungary
Figure II.2. Higher educational attainment of population
As a percentage of population of 25 years old and older with third level education completed
(1 January)
1949
1960
1970
1980
1990
2001
3.1
4.5
6.4
8.6
11.8
13.8
Males
0.5
1.1
2.3
4.6
8.7
11.6
Females
1.7
2.7
4.2
6.5
10.1
12.6
Total
(Source: Statistical yearbook of Hungary 2003, Hungarian Central Statistical Office, 2004; p. 43)
46
Figures II.3: Higher educational enrolment
All the ISCED 5A, 5B and 6 programmes
Academic
1st year students*,
year
Total
33760
1990/1991
37550
1991/1992
43553
1992/1993
54561
1993/1994
65420
1994/1995
71826
1995/1996
74854
1996/1997
92399
1997/1998
100199
1998/1999
109776
1999/2000
118112
2000/2001
128237
2001/2002
138642
2002/2003
144998
2003/2004
**139176
2004/2005
(Source: Ministry of Education, Hungary)
*: One must take into account the effect of the credit-system
**: preliminary data
All the ISCED 5A, 5B and 6 programmes
Academic
New entrants,
year
Total
88064
2000/2001
93202
2001/2002
103105
2002/2003
101717
2003/2004
101461
2004/2005
(Source: Ministry of Education, Hungary)
*: preliminary data
47
Figure II.4. Higher educational institutions
All the ISCED 5A, 5B and 6 programmes
State
Academic
Institutions Students
year
1990/91
1991/92
1992/93
1993/94
1994/95
1995/96
1996/97
1997/98
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
66
66
66
59
59
58
56
56
55
55
30
30
30
31
31
Church-owned
Institutions
Students
Private and foundation
Institutions
Students
number of
10
550
1
219
10
623
1
279
21
1903
4
1129
28
6110
4
2755
28
7154
4
5382
28
9055
4
9049
28
10629
5
13195
28
12655
6
17343
28
14291
6
22029
28
16227
6
23331
26
17590
6
25729
26
18922
9
30019
26
19821
10
34283
26
21626
11
36295
26
22666
12
34893
(Source: Ministry of Education, Hungary)
*: In 2004/05 Hungary had 2 more non-public HEIs.
107607
113788
122842
135695
157404
177482
191291
224695
243077
266144
283970
300360
327456
351154
363961
TOTAL
Institutions
Students
77
77
91
91
91
90
89
90
89
89
62
65
66
68
*69
108376
114690
125874
144560
169940
195586
215115
254693
279397
305702
327289
349301
381560
409075
421520
Labour market outcomes
Figure II.5. Unemployment rate of higher education graduates
%
2000
4,0
2001
4,1
2002
5,5
2003
5,4
(Source: Statistical yearbook of Hungary 2003, Hungarian Central Statistical Office, 2004; p. 94)
Figure II.6: Average monthly gross earnings of employees by educational qualification
(earnings premium), 2003
%
Highest qualification
Combined
Primary school,
Specialized
Secondary
Higher
completed 8
secondary
school
education
grades or less
school or
apprentice
school
62.1
69.4
93.9
180.6
100.0
(Source: Statistical yearbook of Hungary 2003, Hungarian Central Statistical Office, 2004; p. 102)
48
Figure II.7. Higher Education Finance in Hungary
3. a. Total public expenditure on education as % of GDP
3. b. Total public expenditure on tertiary education as % of GDP
3. c. Total public expenditure on tertiary education as % of total public education
expenditure
Year
3. a. (all education)
3. b. (tertiary educ.)
3. c. (tert./all educ.)
5.68
0.81
14.3
1990
6.11
0.88
14.4
1991
6.58
1.06
16.1
1992
6.53
1.07
16.4
1993
6.38
1.08
16.9
1994
5.46
0.96
17.6
1995
4.95
0.85
17.2
1996
4.98
0.94
18.9
1997
4.89
0.91
18.6
1998
5.18
0.97
18.7
1999
5.11
1.09
21.3
2000
5.19
1.05
20.2
2001
5.57
1.05
18.9
2002
5.77
1.12
19.4
2003
(Source: Statistical Yearbook of Education 2003/2004, Ministry of Education, Hungary)
Extent of cost recovery: fees, financial aids, student loan system
On the first hand, those students, who reach the minimum number of points at the
examination of final exam in a secondary school, will be financed by the state which means,
that they will not pay any tuition fees during their studies (except some special cases). These
minimum points are determined differently every year, and are depending on the
university/college institute and the field. In general, every university/college degree has state
and non state financed version. On the other hand, there are some fields (studies) which don't
have a state financed version, so everybody must pay tuition fees. In case of a student who
must pay tuition fee, the tuition fee is determined by the university/college by itself. They
don't need to abide by any special rules. These students pay tuition fees since the very
beginning of their studies.
There are exception, e.g. in private and foundation HE institutions usually all the students are
paying tuition fees, but we have some private and foundation HEIs who have some hundredthousand state financed students. The degrees itself and the tuition fees don't depend on the
university/college.
There are financial aids for students on the first hand allocated directly for them by local
governments or the Ministry of Education, on the other hand allocated for them by the HEIs:
scholarships; grant for schoolbooks, course materials, compendia of studies; social aids; grant
for accommodation on the basis of social position; scholarship for students of doctoral
schools; students, who have children or/and have already obtained a professional qualification
in teaching (one major, equivalent to MA) and want to complete a second degree in teaching
will be state financed, and the student loan. There are some other types of aids, e.g. the
student transportation tickets.
49
A loan from the Student Loan Company is seen as increasingly necessary for more and more
students. The means-testing is not examined: all students can benefit from them who attend
the first tertiary level programme in a public or non-public HEI, and is not older than 35
years. The amount of the loan is limited.
There is a grant for accommodation for student hostels of HEIs on the basis of students: these
hostels get grant from the state for operational expenses and renovation.
3. Financing System for Higher Education in Hungary
The transfers to Universities are determined on the basis of normative financing system. The
Ministry of Education uses every effort to modernize the normative financing system of
higher education by making it more transparent and thus more efficient. The concept is to
create three main norms. These are for the normative financing of training, maintenance and
scientific activity with R+D supporting training and education as part of the latter.
The description of the system is given by the Government Decree No. 8/2005. (I. 19.) on
financing higher education institutions based on normative (per capita) funding for training
and maintenance. (Please see attached this decree in English: "Case Study of Hungary_200504-27_Annex.doc".)
The normative system is post-financing. The training and maintenance norm consists of three
subsidies. These are:
- training fund,
- scientific fund,
- maintenance fund.
The training fund
The training fund, as part of the normative (per capita) funding for training and maintenance,
is the sum of the products of the calculated numbers (Full Time Equivalent= FTE) of students
attending the fields of state financed HE institutions and the norms concerning the financing
groups of fields. The financing groups of different fields are given in the following table.
Table II.5. The value of norms used for determining the amount of training fund
Field of
University level training
College level training in
medicine
in the course of the whole
the course of the whole
and
training period
training period
dentistry
Financing group
1
2
3
4
5
6
7
Norm
670000 540000 380000 220000 480000 290000 180000
(HUF/capita/year)
(1 € ≈ 250 HUF)
The scientific fund
The scientific fund, as part of the training and maintenance fund, consists of the following
amounts:
- the product of the calculated number of lecturers and researchers working full-time
and lecturer-researcher norm which is 750000 HUF/capita/year, taking into account a
50
-
-
double norm for full-time “special category” (having PhD and equivalent degrees)
teaching staff;
the product of the number of state financed PhD students and the norm of the PhD
students which is 700000 HUF/capita/year in the case of natural sciences,
agricultural science, technological and medical sciences. The value of the norms is
400000 HUF/capita/year in the case of social sciences, arts, theology;
Fund of research activities calculated on the basis of Act LXXX on Higher Education
of 1993, 9/E. § (1);
Fund of research institutions.
The maintenance fund
The maintenance fund, as part of the training and maintenance fund, consist of the following
amounts:
- the product of the total number of the institution’s employees except those financed by
the National Health Insurance Fund and those carrying out jobs concerning public
education and the value of maintenance norm concerning the employees which is
450000 HUF/employee/year;
- the product of the total number of students and the maintenance norm concerning the
students which is 60000 HUF/capita/year;
- In case of specific fields, the institutions are entitled to additional maintenance fund, if
the places of training are institutionally separated. The value of the additional
maintenance norm is 180000 HUF/capita/year concerning the field of medicine, 75000
HUF/capita/year in the case of veterinary surgeon and the agricultural fields and at last
50000 HUF/capita/year concerning the fields of primary, secondary school teachers
and kindergarten teachers. The fund is defined as the product of the calculated number
of students attending the specific fields and additional maintenance norm described
above.
4. Challenges and Problems in Hungary
Similarly to other European countries the new challenges, the increasing social demands and
expectations urge Hungarian higher education to reconsider state involvement, the extent of
fulfilling tasks from public funding and the simultaneous fulfilment of the demands of mass
and elite education along with the planned changes in the course structure. The new approach
requires new financing methods. At the same time the possibility of involving new types of
financing sources must be created. The first step is bringing closer the strict budget system to
a more entrepreneur financing system.
The objectives of the planned new act are:
 To create a framework for a modern course structure that will also be able to better
respond to demands of the labour market;
 To provide higher education institutions with sufficient public funding taking into
account budgetary constraints and democratic (equal) access rights;
 To create more favourable conditions for private involvement in funding higher
education;
 To endow institutions with sufficient flexibility to make use of the rapidly expanding
service market more effectively;
51




To create the conditions for the development and the support of excellence and the
possibility of long-term planning for this;
To increase the research sources of higher education institutions and improve their
independent, transparent use;
In order to achieve the above to make institutional management structure capable of
reacting to both the variable needs of the given institution and the expectations of the
society. To this end effective decision making and advanced administration and
financial management capacity are required;
To create a funding system that makes the accounting of public money effective and
transparent.
Preparations have been made to increase institutional autonomy not only in academic affairs
but also in financial management and strategic decisions as well as matters of institutional
structure, whereas all the responsibilities will be defined more transparently. In financial
management the main proposed changes are:
 funding for development projects based on performance contracts,
 increased support for research based on performance,
 more performance based employment,
 a higher level of institutional control over assets,
 easier access to loans for institutions.
The problems are similar like in the EU8 countries:
 The financial economy of the HEIs is not efficient enough. In most cases there are a
lot of parallelisms regarding the programmes, courses, professorships.
 The allocation mechanism of the state funds doesn't motivate HEIs to spend money
efficiently.
 Regarding the engineering and natural sciences, in the past 15 years too few students
were attending these programmes.
 The equilibrium between mass and quality education: highly expanding number of
students and increasing student/staff ratio.
 The ageing of the academic and scientific staff in HEIs.
5. The Role of Central Government in Hungary
As we mentioned formerly, Hungary will have a whole new Act on Higher Education this
year which will resolve most of the above mentioned problems.
Regarding this, the role of the State will shift from the former maintainer, service provider
and owner to a customer of services whereas a stricter control over the efficient and lawful
use of public resources will be introduced. Fewer tasks will appear on the public
administration level, more decisions will be delegated to lower levels. A lot more of those
decisions will become institutional responsibility, at the same time the role of intermediary
institutions will increase.
Following the example of countries where mass higher education has been in the system for
some time, the content of institutional autonomy will also change. The state has no intention
to interfere with matters of academic autonomy, on the contrary, regulations are intended to
increase the institutional scope to generate more flexible market oriented institutional
reactions. As far as financial autonomy is concerned control will be exercised through the
52
Board of Directors that will be delegated by the state, and social and economic organizations.
The changes initiated in the management of institutions will enable higher education
institutions to make more responsible and informed decisions similarly to other players of the
market.
53
Government Decree No. 8/2005. (I. 19.)
on financing higher education institutions based on normative (per capita) funding for training
and maintenance
Pursuant to the authorization granted in Subsection (3) of Section 9/B. of Act LXXX of 1993
on Higher Education, the Government hereby orders the following:
1. § (1) This Decree shall apply, save for those set forth in Subsection (2), to
a) state higher education institutions,
b) church-owned higher education institutions, and
c) private and foundation higher education institutions in accordance with a separate
agreement, (hereinafter jointly referred to as “higher education institutions”).
(2) This Decree shall not apply to military and police higher education institutions.
2. § (1) State-financed students of a higher education institution shall mean state-financed
students who have legal relationship with the relevant institution for
a) their first full-time or part-time (evening or correspondence) two-year higher vocational
programmes, or
b) their first full-time or part-time (evening or correspondence) Bachelor’s or Master’s
degree programmes, or
c) their first full-time complementary (to an already existing Bachelor’s degree) Master’s
degree programmes.
(2) For the purpose of this Decree the following students shall also be considered statefinanced students of a higher education institution:
a) students attending their first state-financed Bachelor’s or Master’s degree course for
teaching a common knowledge subject, or for teaching religious studies in primary schools
(for children aged between 6 – 14); or students taking part in joint training programmes run
by several institutions but they are state-financed only for the Hungarian language component
of the training programme; and students attending their second Bachelor’s or Master’s degree
courses of teaching a common knowledge subject for the duration of the maximum training
period defined in the qualification requirements of the second teaching degree courses that the
students have taken up for the first time on a full-time or part-time (evening or
correspondence) basis,
b) students having been admitted to state-financed Hungarian language higher education
having a legal relationship with the relevant institution for attending any degree course the
qualification requirements of which oblige them to acquire a Bachelor’s or Master’s degree,
c) a student attending any degree course who, in accordance with the decision of the
institution, has been transferred from a non-state-financed degree programme to a statefinanced one for a duration of time remaining from the training programme of a state-financed
student who has dropped out,
d) foreign students considered on equal footing with Hungarian students pursuant to an
international agreement or a legal regulation provided they meet further requirements
stipulated in any Subsection of this Section
(3) In accordance with the joint proposal of the Minister of Education and the Minister of
Finance the Government may extend the possibility of starting state-financed courses to
certain professional higher education training programmes (offered as specialised further
training to Bachelor’s or Master’s degree holders) and to the Bachelor’s or Master’s degree
programmes for students acquiring their second or third degrees as well as to degree
54
programmes offered in foreign languages to be funded from the budget available for the total
number of state-financed students who can be admitted yearly to higher education institutions.
3. § (1) State-financed students’ higher education training is financed from the state budget
through normative (per capita) funding for training and maintenance, which is complemented
by additional funding for certain special tasks.
(2) The normative funding for training and maintenance consists of:
a) training funds,
b) scientific funds, and
c) maintenance funds.
4. § (1) Training funds shall mean the total sum produced by the multiplication of the
calculated number of state-financed students attending courses, course groups at higher
education institutions, detailed in the Annex to this Decree, on the one hand, and the training
norms as indicated in the Annex, on the other hand.
(2) The calculated number of students shall mean the statistical number of students as of
15th October of the year preceding the budgetary year, after adjusting the number of students
attending programmes of odd number of semesters to the annual number of students. In
respect of the calculated number of students one full-time student shall be regarded as one
person, and one part-time student attending an evening or correspondence or distance course
shall be regarded as 0,5 person, irrespective of the fact that a student attends one course or
more than one courses. If a student attends several degree courses, he/she shall be classified
on the basis of the one that gets the highest normative funding for training.
5. § (1) Scientific funds consist of four parts:
a) the total amount produced by the multiplication of the calculated number of full-time
teaching staff and research staff, on the one hand, and the scientific norms, indicated in the
Annex, taking into account a double norm for full-time “special category” (having Ph.D. and
equivalent degrees) teaching staff, on the other hand;
b) the product of multiplication of the number of state-financed full-time Ph.D. students and
the norms for Ph.D. students, as indicated in the Annex;
c) the amount of the normative research support calculated pursuant to Subsection (1) of
Section 9/E of the Act on Higher Education, which is the same as the support in 2004;
d) support allocated to research institutes.
(2) For the purpose of this Decree research staff and teaching staff of higher education
institutions shall mean researchers and full-time teachers filling the posts listed in Annex No.
2 of the Act XXXIII of 1992 on the Legal Status of Public Servants. The calculated number of
research staff shall be established in accordance with the labour statistics of the Central
Statistical Office.
(3) For the purpose of this Decree “special category” teaching staff shall mean full-time
teaching staff who
a) have been granted a scientific degree or Doctor of Liberal Arts degree pursuant to
Subsection (1) of Section 119 of the Act on Higher Education, or
b) have been granted prizes or places or awards pursuant to Subsection (8) of Section 123 of
the Act on Higher Education.
6. § (1) The maintenance funds consist of three elements:
a) the total amount produced by the multiplication of the total number of the employees of
an institution – except the employees employed from the resources made available by the
National Health Insurance Fund and the employees employed in public education (performing
public education duties) – and the maintenance norms, as indicated in the Annex;
b) the total amount produced by the multiplication of the total calculated number of students
of an institution and the maintenance norms, as indicated in the Annex;
55
c) in case of training places separated institutionally, the total amount of support is
produced by the multiplication of the number of state-financed students attending the courses
belonging to the course groups set out in the Annex and the complementary maintenance
norms listed in the Annex.
(2) The total calculated number of students shall include, irrespective of the type of funding,
all students, except those attending professional higher education further training
programmes, provided that the calculated number of students taking part in non state-financed
training considered in the calculations does not exceed the number of calculated statefinanced students.
7. § Pursuant to the provisions of this Decree the normative funding for training and
maintenance provided for higher education institutions shall be considered as post-financing.
8. § (1) Institutions shall be allocated normative training funding for the students of two-year
higher vocational training programs on the basis of the training norms provided for
Bachelor’s degree courses.
(2) Institutions of higher education shall be allocated complementary normative funds, as
indicated in the Annex, based on the actual number of students with disabilities. The
complementary normative funding shall be paid from the target funds earmarked under the
chapter of the Ministry of Education in the central state budget. This funding shall be made
available subject to a separate survey conducted in the course of the academic year and it shall
be strictly accounted for. The complementary normative fund shall be used for financing the
tasks required to improve the conditions meeting the special needs of students with
disabilities.
9. § The Ministry of Education shall allocate support to the higher education institutions –
under the heading of institutional budgets – pursuant to those set forth in Section 9/D of the
Act on Higher Education, subject to strict accountability, which may be used according to the
type of the tasks.
10. § (1) The aggregate amount of the normative funds for training and maintenance,
determined for the state higher education institutions pursuant to this Decree, and the support
allocated for special tasks may not be less than 98%, or more than 105%, of the actual state
budgetary funding granted for 2004. The adjustment shall be effected – to the possible extent
– in the program-financing target fund.
(2) For the non-state higher education institutions the amount of the normative funding for
training and maintenance determined in accordance with this Decree, set out in the
agreements concluded with such institutions, may not be less than 98%, or more than 105%,
of the respective budgetary funding allocated for 2004.
(3) The extent of the state budgetary funding provided for the institutions may change in the
course of the year, taking into account the conditions specified in the annual budget, however,
no additional funding may be claimed in addition to the target funds provided in the budgets
of the institutions.
11. § (1) The institutions are free to decide on the use of the state-budgetary funds allocated to
them, while observing the provisions of the relevant legal regulations. These state-budgetary
funds are destined to fund the core activity of the institution and are established on the basis
of the legal titles specified in this Decree.
(2) The institutions shall decide on the application of the state-budgetary funds allocated for
them by way of their internal regulations, while taking into account their institution’s specific
characteristic features and preserving its operational stability. It is the responsibility of the
boards of management of the institutions to decide on the division of the allocated state
budgetary funds into centralised and decentralised parts, and on the order of forwarding the
latter to organizational and financial units.
56
12. § This Decree shall enter into force on the 5th day after its promulgation, and its provisions
shall apply as from 1 January 2005.
Annex to Government Decree No. 8/2005. (I. 19.)
Values of Training, Scientific and Maintenance Norms
(Thousand HUF/capita/year)
Training norms
Scientific
norms
Description
for
universities
Degree courses, course groups
Physician, Dentist
Artistic degree courses
Health
Pharmacist
Veterinary Science
Aircraft engineering
Agrarian
Technical
Natural Sciences
Information Technology
Body Culture
National Minorities Language Teacher
Special Education Needs, Conductor
Social Sciences, Psychology
Economics
Law, Administration
Humanities
Kindergarten and Lower Primary Teacher
Religious Studies
670
540
540
540
540
380
380
380
380
380
380
480
380
220
220
220
220
for colleges
480
480
540
290
290
290
290
290
290
480
290
180
180
180
180
180
Full-time teaching staff
Number of calculated research staff
750
750
State-financed Ph.D. students
- Social Sciences, Artistic
- Natural Sciences and Arts, DLA (Doctor of Liberal Arts)
400
700
Calculated statistical number of employees
Number of all calculated students
Students of kindergarten, primary school and secondary
school teacher’s courses
Students of the medical and dental faculty
Students of the agrarian degree courses
Complementary support for students with disabilities
Maintenance
norms
450
60
50
180
75
100
57
Latvia
1. Higher Education system
Legislation: The system of the higher education in Latvia is regulated by several legal acts:
laws and Cabinet of Ministers Regulations. Some of them: The Law “On Education” (1991),
new version adopted in 1998, The Law “On Higher Education Establishments” (1995),
amended version in 2000, The Law “On Scientific Activity” (1992) with amendments in
1996 and 1998, new version in Parliament, Cabinet of Ministers Regulations No.370 “On
Accreditation of Higher Education Establishments” (1995), Cabinet of Ministers Regulations
No.238 “On Licensing of Higher Education Establishments” (1996), Cabinet of Ministers
Regulations No.220 “On the Procedure of Granting, Repayment and Cancellation of Study
Loans and Student Loans Paid by Credit Institutions with State Provided Guarantees” (2001).
The Law on Higher Education Establishments (1995) defines the status, tasks, system of
management and administration of a higher education establishment, principles of staff
recruitment, fundamental financing principles, research and business activity. The law for the
first time introduces accreditation and licensing of higher education institutions and study
programs. The Law on Higher Education Establishments is applicable to all higher education
establishments of Latvia regardless of their founders, financing and specialization.
The administrative structure of the higher education in Latvia consists of:
The Saeima (Education, Culture and Science Commission) - approves the concept of
education for the following four years, adopts legislation in the area of higher education,
approves constitutions of universities and allocates state budget funds to higher education
establishments;
The Cabinet of Ministers - establishes, reorganizes and liquidates higher education
institutions and colleges; approves constitutions of non-universities, except colleges;
approves and removes from office candidates to the Rector’s position in a higher education
institution; carries out other functions as prescribed by the law;
The Ministry of Education and Science - the central executive institution of the state
administration, which is responsible for implementing state policy in the area of higher
education, research and development;
Higher Education Council - participates in the development of higher education
strategy and the decision-making process, supervises the quality system of higher education,
co-ordinates co-operation between higher education establishments and international
institutions;
The Council of Rectors - is basically engaged in co-ordination of co-operation
between higher education institutions and addresses common problems of these institutions;
The Latvian Science Council - key functions in the area of higher education refer to
supervision of assigning the Doctor’s degree, delegation of the Doctor’s degree awarding
function to higher education establishments, surveillance of promotion criteria and
procedures;
Higher Education Quality Evaluation Centre - organizes quality assessment of higher
education establishments and study programs and co-ordinates the process of accreditation;
Foundation of Studies - is responsible for crediting of students;
Academic Information Centre - carries out expert evaluation and recognition of
foreign diplomas in Latvia and, within its competence, co-operates with diploma recognition
institutions in other countries;
58
Higher education establishments – at the beginning of 2005 there were 56 higher
education establishments, of which 5 were universities (state established).
2. Higher Education statistics
Table II.6. Attainment (source – www.csb.gov.lv – Central Statistical Bureau of Latvia)
EMPLOYED POPULATION BY EDUCATION QUALIFICATION
1996 1997 1998 1999 2000 2001 2002 2003
Higher education 19.3 17.6 19.3 20.3 21.3 21.4 21.8 20.2
Enrolment (source – Ministry of Education and Science)
Figure II.8. Change of the number of students in Latvia in 1990/91 – 2004/2005
140000
126756
118845
120000
100000
130693
110500
101270
80000
89510
76620
60000
64948
56187
40000
46300
46000
20000
41900
46696
39260
37500
01
/2
00
2
02
/2
00
3
03
/2
00
4
04
/2
00
5
00
/0
1
99
/0
0
98
/9
9
97
/9
8
96
/9
7
95
/9
6
94
/9
5
93
/9
4
92
/9
3
91
/9
2
90
/9
1
0
Figure II.9. Number of students per 10 000 residents in 1990 - 2004
600
539
556
496
453
500
386
400
342
264
300
200
172 173
158 138
183
314
227
152
100
0
90
91
92
93
94
95
96
97
98
99
0
1
2
3
4
59
Figure II.10: Share of students in total population of the respective age group in
2004/2005
34,6%
35%
28,9%
30%
25%
16,5%
20%
10,4%
15%
10%
3,5%
5%
0%
18-20
21-23
24-26
27-29
above 29
Figure II.11. Number of Higher Education Institutions in 1991 -2004
40
35
30
25
20
15
10
5
0
36
28
18
17
14
13
10
6
20
19
14
17
20
13
9
2
1990
1992
1994
1996
State institutions
1998
2000
2002
2004
Private institutions
(source – Ministry of Education and Science)
Labor market outcomes
Table II.6. Unemployment rate of HE graduates (source – State Employment Agency,
Ministry of Education and Science)
2001
2002
2003
2004
Graduates
20308 18945
20762
22726
Unemployed persons 171
176
232
287
Rate
0,8%
0,9%
1,1%
1,3%
60
Earnings premium – HE over upper secondary
Table II.7. Average gross monthly earnings (without any irregular bonuses) by level of
education in October 2002 (source - Central Statistical Bureau of Latvia, Results of earnings
structure survey 2002)
Level of education
Average gross
monthly earnings,
lats
TOTAL
168,20
Scientific degree
323,72
First stage of tertiary education - General
270,62
First stage of tertiary education - Technical
176,44
Post – secondary non –tertiary education
147,35
Upper secondary education
139,84
Lower secondary education or second stage of basic
129,27
education
Primary education or first stage of basic education
135,50
Pre – primary education
129,38
3. Higher education finance
(source – Ministry of Education and Science, Central Statistical Bureau of Latvia)
Figure II.12. Total public expenditure on education as % of GDP
8
7
6
6.4
6.6
2000
2001
6.8
6.4
5
4
3
2002
2003
61
Figure II.13. Total public expenditure on tertiary education as % of GDP
1,0%
0,9%
0,8% 0,90%
0,7%
0,82%
0,77%
0,77%
0,6%
0,74%
0,70%
0,5%
0,65%
0,61%
0,52%
0,4%
0,3%
0,2%
0,1%
0,0%
1995
1996
1997
1998
1999
2000
2001
2002
2003
Figure II.14. Total public expenditure on tertiary education as % of total public
education expenditure
16
14
12
10
8
6
4
2
0
13,4
11,4
1997
1998
10,7
10,2
1999
2000
9,4
8,6
2001
2002
8,5
2003
Extent of cost recovery
In the last ten years the number of students who study for pay is increased considerably. All
part time studies and more than 60% of full time studies are for fees.
Figure II.15. Share of students in state budget founded and commercial studies
51%
57%
64%
76%
77%
33%
30%
27%
24%
23%
04
/2
00
5
98
/9
9
99
/0
0
36%
97
/9
8
73%
43%
32%
96
/9
7
70%
02
/2
00
3
03
/2
00
4
44%
49%
67%
01
/2
00
2
56%
00
/0
1
68%
19
95
/9
6
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Commercial
students
State
budget
funded
students
62
The development of loan system of students and studies becomes an important phase in the
development of higher education and expansion of opportunities in condition of increasing
tuition fees and the growing number of students who study for pay. Such system is in place in
Latvia since 1997 with some changes in 2000 – the Cabinet of Ministers passed to a new
source of funding loans from resources of the banks instead of funding loans from the state
budget. General conditions for award the loans for students (including also for studies abroad)
is that holder of loans must be enrolled in a recognized HEI or on recognized courses. Both
full time and part time students may apply for the loans which are firstly performance based
and, if performance is equivalent, means – tested based. The total number of disbursed loans
is increased from 6725 in 1998 to 55212 in 2004.
4. Financing system for HE
The financing system for higher education in Latvia has been widely debated in the last few
years. The main reason for debates is the situation when with the massive increase in the
number of study applicants the ability of the state budget to accordingly increase budgetary
allocations is on the whole rather limited. In the result, approximately one fourth of the total
number of students is financed from the state budget, the remaining part of students is forced
to pay their tuition fees themselves thus covering cost of studies in a private or state founded
higher education establishment.
According to the Law on Higher Education Establishments the number of study vacancies
paid from the state budget is annually declared by the Minister of Education and Science. The
number of study places in commercial programs and also the amount of tuition fees to be paid
is determined by each establishment individually depending on conditions in the
establishment. The size of tuition fees is very different in different higher education
establishments and study programs: it varies from 180 Ls till 2120 Ls per academic year at
state establishments and 300 - 3500 Ls at private establishments in 2004.
In total terms, financing of higher education comes from three sources – state budget, private
funds (tuition fees) and other resources, which mostly consist of revenues of higher education
establishments earned from scientific contracts, including international agreements and a wide
range of commercial services.
Figure II.16. Financing of HE from the State budget and other sources 1995-2003
(source – Ministry of Education and Science)
Milj.lats
40
35
30,9
33,3
37,1
30
28
20
15
10
5
0
31,9
30,1
25
21,2
23,1
9,9
3,6
5,8
28,1
24,8
State budget
33,1
26,6
Other sorces
20,8
13,9
7
2,6 4,7
1,9
1995 1996 1997 1998
Tuition fees
16,9
14,1
13,1
9,7
1999
11,5
11,1
2000
2001
2002
2003
63
A united for the whole country system of normative funding of higher education from
the state budget resources was introduced in Latvia in 2002. According to this system,
financing of higher education establishments is formula-based defined in the Regulations of
the Cabinet of Ministers.
The amount of financing is determined on the basis of the state study vacancies identified for
the respective higher education establishment, base (reference) costs of a study vacancy and
indexes of costs of education by subject fields and is allocated only to full time studies on the
basis of the contracts between higher education institutions and ministries which are
responsible for higher education institutions.
According to the Regulations of the Cabinet of Ministers the transition from the minimal
factor values (indices) of study costs to the optimal values will take place gradually in the
course of 10 years, augmenting the minimal value by one tenth part every year. Study cost
indices in Master programs are one and a half times and in doctoral programs three times
higher than the respective index value established for the same study field in Bachelor or
professional programs.
When the new system was introduced it was very important to correctly establish the base
(reference) cost and study field index values to ensure that higher education institutions
received adequate financing in line with the number of study vacancies identified by the state
without deteriorating quality of studies. Transition to the new normative system of funding
higher education establishments was carried out within the frames of the existing financing.
This means that base costs which comprise wages of the staff, compulsory social insurance
contributions, costs of utilities, etc. were estimated using wage rates, prices, etc. that were
effective in 2001.
Notably, that minimal wage rates established for the academic staff of education
establishments in 2001 were not able to compete with average wages for the same
qualification work in the private sector. Therefore, it is very important to streamline the
system of wages of academic staff as established in relevant regulations, which will allow
increasing the value of base costs of a study vacancy.
5. Problems
The main problem is insufficient funding of the HE. While the public expenditure on tertiary
education annually slightly increases nevertheless it’s % of GDP continues to decrease (from
0,9% of GDP in 1995 to 0,52% of GDP in 2003). Although the private expenditure on tertiary
education annually increases faster the total funding, it is not enough for regular renovation
and modernization of HE infrastructure, funding of new study places in engineering and
natural sciences, sufficient financial support to students in the form of grants (to ensure
increased amounts and number of the grants), providing competitive salaries for the staff.
The number of staff with PhD degree is decreasing. There are problems with age structure of
academic and scientific staff at universities: in 2004 more than a quarter of academic staff is
more than 60 years old and the other quarter is in the age from 50 to 59.
Although there are public funded study places in engineering and natural sciences, too few
students are attending these programs.
64
6. Role of government
Except for the fact, that the existence of the governments in Latvia in average is not longer
than 9-12 months (in 2004 we had 3 governments) there are some positive features in the
development of HE. The legislation in the field of HE at large is completed.
The persistent procedure of the accreditation of higher education institutions is built up and
operates successfully.
The transition from historical funding of HEI to formula-based system was very important
and gave an opportunity to provide transparent, accountable funding from the state budget
according to study places set by the government for the respective higher education
establishment and to reallocate public funds to the fields of study important for the
development of the state such as engineering and natural sciences.
The development of loan system for students and studies have an affirmative impact to
growth of student population and improvement of student’s social assistance.
In 2004 the government started to reform the salaries of academic staff at universities and
other HEI.
The EU funds for the renovation and modernization of HE infrastructure, for development of
PhD studies, centers of excellence and some other objectives are coming into operation.
The government has committed to provide increase of public funds for HE at least for 0,1%
of GDP annually.
With reference to the needs for public benefit the preparation of new Law of HE has been
started.
65
Lithuania
1. Brief description of higher education system
There are two types of higher education institution in Lithuania, universities and (nonuniversity) colleges, most of them operated by the state, with a total enrollment of 145,700
students (Table II.8).
Table II.8: Higher education institutions by level, ownership and number of students,
2002/03
Number of institutions
Number of students
('000)
State
NonTotal State
NonTotal
state
state
Universities & university-type
15
4
19
118.2
1.3
119.5
institutions
15
9
24
20.9
5.3
26.2
Colleges
30
13
43
139.1
6.6
145.7
Total
Source: Statistics Lithuania, Education, Vilnius 2003.
Colleges, which emerged from the amalgamation of about seventy post-secondary institutions
in 2000, are intended to provide a more practical/ vocational tertiary alternative to
universities. The most popular specializations at this level are business and administration
(49 per cent of enrollment), law (10 per cent), engineering (9 per cent), health care (7 per
cent), social services (5 per cent), computing (4 per cent) and teacher training (4 per cent).
University studies are organized in three cycles: first cycle (bachelor and professional),
second cycle (master) and third cycle (doctoral and postgraduate art studies and medical,
dental and veterinary studies). The most popular specializations among the 97,000 first cycle
students are teacher training and education (18 per cent), engineering (13 per cent), law (9 per
cent), humanities (6 per cent), social and behavioral sciences (6 per cent), architecture and
building (5 per cent), computing (4 per cent) and health care (3 per cent).
2. Higher education statistics
Lithuania's gross enrollment rate in higher education has increased fast since 1993 and, at 64
per cent, is one of the highest among the EU8 countries. At 70 per cent in 2002, the
progression rate from upper secondary general school to higher education is also one of the
highest. Universities take around 79 per cent of the intake at this level, threatening the
viability of non-university colleges. The number of tertiary graduates per 1,000 people in the
20-29 age group, at 63, is also well above the EU15 and EU8 averages, as is the proportion of
the 25-64 age group with higher education – at 25 per cent, higher than France and exceeded
only by Estonia among the EU8.
Given this explosion in access to and graduation from universities and colleges, it is not
surprising that Lithuanian graduates appear to gain less in the labor market from their higher
education than do their counterparts in many other EU countries. As Table III.3 of Volume I
shows, they earn only 46 per cent more than upper secondary school leavers in the 25-64 age
group, the lowest earnings premium among the EU8 countries for which data are available,
and the unemployment rate among tertiary graduates below the age of 39, at 7 per cent, is
lower than that of their less educated counterparts, but by less than in all other EU8 countries
except Estonia. Nevertheless, given the big state subsidies at this level, these figures imply a
high private rate of return to higher education.
3. Higher education finance
Lithuania's public expenditure on education accounts for 5.9 per cent of GDP, second only to
Slovenia among the EU8, and has increased faster since 1995 than in any other EU country
Lithuania is also top of the EU8 league table in the share of public expenditure on tertiary
education in GDP (1.3 per cent) and in total public educational expenditure (23 per cent).
However, the fast expansion in the number of students means that the country is at the bottom
of the table of all EU8 and EU15 countries for expenditure per student – the €3,582 recorded
in 2001 is only slightly more than half the figure for Hungary, for instance, adjusted for
purchasing power differences.
As Table II.9 shows, national budget expenditure per full-time equivalent student is 47 per
cent higher in universities than in colleges. The proportion of students paying fees is also
higher in universities than in colleges. Since 2002, fees for higher education have been set at a
nominal level (1,000 litas per year regardless of specialization) for half of the full-time
students in universities, 20 per cent in colleges, while the rest are totally funded from the state
budget. Thus, fee income is equivalent to less than 10 per cent of national budget expenditure
per full-time university student, and less than 6 per cent in the case of colleges. Exemption
from fees is awarded to students based on their academic performance. Commercial fees are
paid only by extra-mural, evening and postgraduate students. This is a classic 'dual track'
system of the kind described in the main body of the chapter.
Table II.9: National budget expenditure per full-time equivalent student, colleges
compared with universities, 2002
National budget
Number of
Number of
Number of
Full-time
Expenditure per
expenditure ('000
daily
evening
extra-mural
equivalent
FTE student
litas)
students
students
students
students
(litas)
134,849
27,427
825
20,351
38,263
3,524
Colleges
524,320
77,792
9,198
32,558
101,429
5,169
Universities
Note: One evening student = 0.8 daily student; one extra-mural student = 0.5 daily student for costing purposes.
Source: Statistics Lithuania, 2002 Education, Tables 1.14 and 1.25.
Full-time state-funded students are eligible for small scholarships: some, chosen on academic
merit, get 250 litas per month, some, classified as disadvantaged, get 125 litas per month. The
Lithuanian National Union of Students estimates that only about 35 per cent of students get
scholarships. Each university is responsible for administering its own scholarships scheme.
The Lithuanian State Science and Studies Foundation runs a student loan scheme, with a
state-funded budget for this purpose of 18 million litas in 2004 (compared with 13 million
litas two years earlier). This budget can cover a very small proportion of full-time higher
education undergraduates – about 8 per cent. Colleges and universities select students for
loans on the basis of academic performance and family situation: socially disadvantaged
students qualify for loans if they are paying fees and their family's annual income is less than
a quarter of the Lithuanian average. The standard amount of a loan is 4,500 litas per year for
living expenses + 1,000 litas to meet fees (which goes straight to the institution and is
available to all students paying tuition fees); those studying abroad can borrow an extra 4,500
litas per year. Interest is payable at 5 per cent per year. Payment of interest and repayment of
the loan begin two years after completion and are spread over 15 years, but with incentives for
early repayment: postponement is possible in the case of unemployment, illness, maternity
67
leave, etc.. Repayments do not revert to the MoF but go into a revolving fund usable for
future loans.
4. Financing system for higher education
In 2004 an experimental student's basket method was used to allocate funds to colleges, which
are directly funded by central government, along the following lines:
- funds needed for state-funded students are calculated by study area, on the basis of the
standard number of teachers and teaching-administration employees required per student,
average personnel costs per staff member, funds for study-related goods and services (15
per cent of salaries per student in the case of humanities, rising to 30 per cent for
veterinary medicine), funds for organization of cultural, sports and social activities (no
less than 20 per cent of the minimum standard of living), with adjustments made for extramural and evening students (treated as 50 and 80 per cent of full-time students
respectively);
- colleges have to work within the salary-fund limit set by their approved budget, so
calculations may have to be adjusted;
- funds for research, publishing, conferences, seminars, in-service training etc. are based on
the previous year's pattern of allocation between colleges, with 3 per cent of the total
reserved for research;
- funds for administration, housekeeping and maintenance are proportionate to the funds
allocated for studies, with a minimum set for maintenance of 70 per cent of non-personnel
expenditure;
- funds for student grants, investment funds and funds for the development of international
exchange are allocated separately in line with normal procedures.
In addition to the above, colleges also get some money from national programs (such as the
national program for information technology, and the library modernization program), from
international programs (particularly from the EU), and from fees for special courses, leasing
premises and equipment, commissioned research and consultancy etc.. Of these non-budget
funds raised by faculties, 20 per cent goes to the college Director.
For universities, the Ministry of Education and Science (MoES) introduced an experimental
student's basket system in 2004, similar to that used for colleges. The yearly cost of study
per state-supported student, which varies according to type and level of program is calculated
by aggregating:
- salaries and social security costs for teaching and support staff per student;
- the cost of goods and services needed for study purposes per student (30 per cent or more,
depending on the type and level of program, of salary and social security costs per
student);
- funds for the organization of student, cultural, athletic and civic activities (7 per cent or
more, depending on the type and level of program, of the sum of the first two categories).
In addition to the student's basket, funds for research and art (apart from 18.5 million Litas for
the special research-funding programs of the Lithuanian State Science and Studies
Foundation) are allocated 24 per cent to humanities, social studies and art, and 76 per cent to
physics, biomedicine and technology. Allocations to particular institutions depend on:
- in the case of humanities, social studies, physics, biomedicine and technology, scholarly
output (publications), for which a points system is used, adjusted by a coefficient to reflect
the qualification levels of members of academic staff;
68
- in the case of art, assessment results.
Funds for administration are partly allocated to specific items, and partly in proportion to
other parts of the budget. Funds for the care of cultural assets are allocated per area of floor
space of buildings listed in the registry of cultural assets, and there is a separate fund for
increases in salaries of teaching and research staff, proportionate partly to the number of
teaching staff and partly to the allocation for research and art.
This provisional attempt at a student's basket approach to funding universities was a welcome
step towards transparency. Unfortunately, however, the logic of the formulae was not
allowed to prevail – the process became politicized. The budget of each university is still
subject to parliamentary approval, and Rectors at risk of losing resources from the application
of the new methodology lobbied effectively to change the results. For the basket system to
work properly, the role of parliamentarians should be limited to approving the total amount of
public expenditure and the methodology for allocating it: they should not get into discussions
about particular institutions.
Since the student's basket gives an incentive to universities that are short of resources to
recruit more state-financed students, the MoES tried to limit student numbers by penalizing
enrolment over an agreed limit and rewarding enrolment below that limit. A university that
was 5 per cent above or below the agreed figure would get the same total amount as if it had
stuck to the limit. This did not have the desired effect in 2003: no university admitted fewer
students than its target. One third of universities also ignored an agreed limit on the number
of full-fee students. Since then the ministry has apparently gained control over the number of
admissions, but resources remain inadequate.
5. Governance
The extent of autonomy enjoyed by Lithuania's universities, compared with those in other
European countries, is disputable. They can spend their budgets flexibly, set their academic
structure and course content, and recruit and dismiss academic staff. They can, however,
borrow money only with difficulty, pay above-scale salaries only with non-budget funds, and
set fee levels only for a limited category of full-fee-paying students. An effective limit
appears to have been imposed on the number of students they can admit. And, in contrast to
their counterparts in many comparable countries, they own their equipment but not their
buildings – an important constraint on their flexibility.
There is less doubt about the relative lack of accountability of universities: rectors are elected
by senates (consisting of members of academic staff), rather than appointed by university
councils. Moreover, Lithuania is one of a number of EU8 countries in which a rector elected
by academic staff does not need government approval and can be renewed for another round.
While it is true that there is no mechanical connection between the method of selecting a
university leader and propensity to reform, there is no denying the logic of the widespread
critique that:
- senates tend to elect rectors who will look after them;
- Boards vary in their composition (extent and nature of external representation)6, quality,
function and energy but in general leave management to the deans;
6
One third of the members of every university council is appointed by the Rector, one third by the
Ministry and one third by negotiation, but the extent to which this results in strong representation of social
partners varies from institution to institution.
69
- there is little involvement of social partners in active management of universities; and
- academics are accountable only to themselves.
Colleges enjoy less autonomy than do universities. They plan their budgets but the allocation
to them is by line item and subject to central control. Limits on student numbers are set by
the MoES, and the Directors stick to them. Directors are not elected by colleagues but
appointed by college boards, of which two thirds of members are external (including social
partners and university representatives). The decisions on amalgamation were taken by the
MoES.
6. Issues
Expanding student numbers, increasing student/ staff ratios and falling income per student are
a threat to the quality of higher education in Lithuania, which is deteriorating because:
- of pressure of numbers on staff and equipment;
- students in the lower reaches of the ability range are admitted;
- lower expenditure per student is reflected in reduced availability of books, teaching
materials etc..
At the same time, the low expenditure per faculty member increases the need for
supplementation of income by outside work, at the expense of time available for teaching: an
international quality assessment found that teachers in the prestigious law faculty in Vilnius
University were highly qualified but were not spending enough time with their students. It
also makes it difficult to renew the cadre of higher education teachers: a high proportion is
over the age of fifty, to the detriment of propensity to reform.
A solution to these problems could be sought along the following lines.
- Tuition fees would be increased from the present level of 1,000 litas per year to an
average of, say, 2,000 litas7 (but varying by type and level of course, and by type of
institution – with lower fees in colleges to reflect their lower costs), and would be payable
by all state-financed students.
- Grants, to cover fees and living expenses fully or partially, would be available only to
students from disadvantaged backgrounds, and would be administered by the Ministry of
Social Services and Labor, not by higher education institutions. Higher education
institutions would be at liberty to use part of their student's basket to offer scholarships to
students of high academic quality but would not be reimbursed for these.
- Student loans would be expanded, using banks as well as the existing Foundation.
A package of this kind would reduce the private rate of return on higher education in general
and on university relative to college education and on higher-fee relative to lower-fee
specializations. It could thus be expected to reduce the number of applications for places in
higher education institutions, particularly in universities, and in some faculties relative to
others. Without any increase in the share of higher education in GDP, the student's baskets
could be increased as the same amount of money would be spread over a smaller number of
students, to the benefit of the institutions' income and the quality of their teaching; colleges
would benefit differentially from this, because their share of higher education students would
be likely to increase. Students from disadvantaged backgrounds would not be deterred from
proceeding to higher education by the increase in fees, since they would qualify for grants –
indeed (because the previous recipients of fee exemptions are likely to have been mainly from
7
This is an arbitrary, and relatively modest, figure for illustrative purposes. It would imply that less than
20 per cent of university income would come from fees paid by state-financed students.
70
privileged backgrounds) the equity of the system would be improved by this combination of
fees for all + means-tested grants for some. Students who have borrowed money to pay fees
and living expenses would be a pressure group for maintenance of and improvement in the
quality of teaching. Faculty salaries could be increased to a level that would enable
academics to live entirely from their university salaries and those who did paid outside work
could be expected to go off-salary for the time involved, releasing funds for hiring extra
teachers – again to the benefit of the quality of teaching.
Such reforms of financing could usefully be reinforced by reforms in university
governance. The trend in Europe is clearly towards a redefinition of the functions and
composition of university Boards or Councils, with a greater role in management and more
representation from outside the world of academe. Such Boards then take over the function of
appointing university leaders from shortlists that emerge from a wide-ranging search. A
move in this direction would help Lithuanian universities to implement the financial reforms
that are needed to overcome their current crisis. In return for a move towards greater
accountability, universities could be offered greater autonomy: in particular, it would be
reasonable to allow them to take over ownership of their property, to the benefit of its
efficient use. Convergence in the governance systems of universities and colleges could be
encouraged.
At the same time, it would be useful also to clarify the role of government in relation to
higher education. Universities are right to be worried about threats to their autonomy and
colleges to aspire towards the same status as universities in this respect. But there is a
national interest here, which the MoES should represent, in such issues as:
- the proportion of secondary school leavers who should proceed to higher education,
- the quality of education that is being provided at this level, and
- the composition of graduates by specialization (at least to the extent of ensuring that there
are adequate numbers in specializations that are considered of national importance).
Rather than detailed interference in academic processes, this can be done by a combination of
standard setting and financing systems designed to ensure high-quality outcomes. Higher
education would work within an assessment and quality control framework provided by the
MoES, and including international peer reviews. And the methodology for allocating funds
would include formulae to encourage quality in teaching as well as research. The private rate
of return on higher education as a whole and on different types and specializations could be
influenced by fee levels, for which the MoES would retain responsibility. The rest could be
left to universities and colleges, autonomous but accountable in their governance
arrangements.
71
Poland
1. The Organization of Higher Education in Poland
The establishment, organization and activity of higher education institutions in Poland are
governed by the 12 September 1990 Act on Schools of Higher Education (with further
amendments). The vocational higher education sector is regulated by the Act on Higher
Vocational Schools of 26 June 1997 (with further amendments). Currently there are two
proposals on a new Act on Schools for Higher Education being discussed in the Parliament;
the adopted one will replace the two currently in place. The awarding of academic degrees
and titles is ruled by the 14 March 2003 Act on Academic Titles and Academic Degrees. A
structure of three levels of degrees exists in the higher education system: the Bachelor’s
degree, introduced by legislation in 1992, the Master’s degree and the Ph.D. The financing of
Research and Development is regulated by the 8 of October 2004 Act on Financing of
Science, that became effective on February 5th, 2005.
Higher education in Poland is organized into:

schools of higher vocational education,

first cycle of university type courses

teacher training colleges and,

schools of higher education with uniform Master-degrees studies.
Table II.10. Higher education institutions by type and the number of students in the
academic year 2003/04
Higher education institutions by type Institutions Students in ‘000
Universities
17
543.4
Technical universities
22
342.4
Agriculture Schools
9
104.1
Schools of economics
93
382.3
Teacher education schools
17
137.2
Medical Academies
10
42.3
Maritime schools
2
12.2
Academies of physical education
6
24.9
School of arts
22
14.6
Schools of theology
14
10.2
Higher vocational schools
151
166.8
Other
37
78.3
Total
400
1858.7
Source: Higher schools and their finances in 2003, Central Statistical Office, Warsaw 2004.
2. Higher Education Statistics
There has been a more than threefold increase in the number of students in higher education
in Poland between 1990 and 2000.
72
Table II.11. Participation Rates in Higher Education in Poland
1990/91 1995/96 2003/04
Student # in ‘000s
403.8
794.6
1858.7
Participation Rate* in %
Gross
12.9
22.3
46.4
Net
9.8
17.2
35.3
Source: GUS, Higher Schools and their Finances in 2003.
*) The gross participation rate is based on the number of students, regardless of age, enrolled at a given level of
education divided by the total population that corresponds to the theoretical age group specified for that level of
education. The net participation rate is based on the number of students in a specified age group (corresponding
to legislated standards) enrolled at a given level of education divided by the total population in the same age
group.
The rapid increase in the number of students was accompanied by a mushrooming of nonpublic HEIs, from approximately 15 in 1992 to more than 270 in 2003. Much of the
enrolment growth in higher education has occurred in institutions classified as non-public or
in paying forms of studies at public universities. The growth was made possible, in part, by
some of the staff of public institutions also teaching in private institutions. Another outcome
of the rapid increase in the number of students was the creation of fee-paying forms of
studying at public HEIs.
Figure II.17*. Number of Higher Education
Students in Poland. In fee-paying and nonpaying forms of studies, 1990 – 2003.
Figure II.18. Number of Higher Education
Institutions in Poland. Public and Nonpublic, 1991 – 2003
# of
students 800
in
thousands
# of HEI
300
700
Non-public
Public-paid
250
Public-free
Public
600
Non-public
200
500
400
150
300
100
200
50
100
0
0
1991
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
School year starting in
School Year starting in
Source: GUS, Higher Schools and their Finances in 2004.
Source: GUS, Higher Schools and their Finances in 2004.
*) Figure III.2 in Main Chapter illustrates Poland’s position
relative to other EU8 countries.
Along with Lithuania, Poland, has one of the lowest per-student outlays in all the EU8
countries for which data are available. Given the growth in enrolment, public expenditures
for higher education have actually declined significantly on a per student or unit cost basis.
Table III.3 of Volume I shows that Polish students earn 61% more than upper secondary
school leavers in the 25-64 age group; the unemployment rate among tertiary graduates
below the age of 39, at 10% , is considerably lower than that of their less educated
counterparts. These figures imply a high private rate of return to higher education.
73
Higher Education Finance
Poland’s total public expenditure on education amounts to 5.6% of GDP. Total public
expenditure on higher education equals 1.1% of GDP ( see also columns 1 and 3 in Table
III.4 of Volume I). Even when differences in purchasing power of the currency have been
taken into account, per-student public spending on tertiary education in Poland is less than
half of the OECD average. This is not necessarily a bad thing, but a shortage of finance is a
potential threat to the quality of public institutions, and long-run educational competitiveness.
No statements can be made on internal efficiency because data on unit costs are generic and
do not give a breakdown of costs by degree course in either public or private institutions.
The Constitution of the Republic of Poland guarantees that education is free of charge in
public sector institutions. However charges are legal for certain educational services provided
by public higher education institutions. This legal framework set the ground for the creation
of fee-paying forms of studies in public universities and in non-public HEIs, as an overall
response to the growing demand for higher education. Table III.6. of Volume I has 1998/9
data on higher education expenses borne by parents and students. Since then, as financing of
tertiary institutions from the State budget did not increase in proportion to the growth in the
number of students, it is generally believed that unit costs have declined and students and
their parents now pay more of the indirect costs. It is also thought that savings have been
made to the costs of the staff of HEIs (more students per academic employee, more working
hours).8 Non-public institutions often have no proper infrastructure or libraries. Their
students use the resources of public HEIs without any formal agreement or financial
compensation. The costs of this indirect State support for students of non-public institutions
are a burden for public universities.
In response to rising demand, there has been an increase in places as well as in the number of
fee-based (paid) forms of studies in public HEIs which now have four distinct sources of
financial support, of which revenue from the state budget and private sources constitute the
largest shares. By contrast, non-public HEIs are almost entirely dependent on tuition fees.
The increase in places as well as in the number of fee-based (paid) forms of studies in HEIs
has had a strong impact on their budgets. Figure III.19 shows the degree of dependence of
non-public HEIs on tuition fees.
Figure II.19. Higher Education Institutions’ Total Income Structure by Source
1995 and 2003
Non-public HEI
2003
1995
Public HEI
2003
1995
0%
10%
20%
30%
40%
50%
Budget Subvention for teaching
Tuition fees
Source: GUS, Higher Schools and their Finances in 2002.
8
60%
Dabrowa-Szefler, M., NiSW 2/20/2002.
74
70%
80%
90%
Research
100%
Other
Fee-based forms of study programs are primarily created in areas and subjects, which are in
high demand and do not require extensive capital investment in expensive infrastructure and
equipment: management, economics and finance, law, social sciences, humanities, and
teacher training studies. The popularity of these subject areas is also connected to the fact that
some established disciplines (e.g. engineering and agriculture schools) have been losing
students. In their search for a continuous supply of students HEIs have been developing new
‘fashionable’ study programs. For example, during the 1990s, almost all technical universities
and many agricultural universities created management schools. While this is not, in itself,
necessarily a bad development, its usefulness ultimately depends on labor market demand
and whether the graduates can be absorbed in jobs that require them to use and further
develop the knowledge acquired through education. Moreover, stringent quality requirements
especially related to the qualification of the teaching staff have not always been enforced.
3. Allocation Mechanisms
State support for higher education in Poland comes from two main sources: (i) a major part
from the Ministry of National Education and Sports MoNES for the core activities of HEIs
including staff salaries and infrastructure investment; and (ii) a smaller part from the Ministry
of Scientific Research and Information Technology for research.
In 2004, the MoNES switched back to using the funding algorithm that had been introduced
in the early 1990s with encouragement from OECD and thereafter abandoned. This formula
was designed to promote the expansion of enrollment and to encourage HEIs to employ
greater numbers of professors with doctorates. The new version of the algorithm addresses
issues of quality and includes criteria that are based on the National Accreditation
Commission evaluations. The formula includes cost analysis of different programs; numbers
of students, including PhD students and numbers of PhD degree faculty in both research and
teaching.
Student Support Programs. According to the current law in public HEIs and since 2001 in
non-public HEIs, full-time day students are eligible for participation in financial support
programs. These programs include stipends to cover living expenses, special stipends for the
disabled, stipends for high achievers, grant-in-aid, and subsidies for boarding and meals. The
decisions regarding the granting of this aid lie with the Rector of the HEI and the selfgoverning student body.
Figure II.20. Share of tertiary students Figure II.21. Credits Granted in years
receiving social stipends, 1998 – 2003
1998-2003 (as a % of the number of students in
HEIs.)
% 14
% 10
12
9
10
8
7
8
6
6
5
4
4
3
2
2
1
0
1998/99
1999/00
2000/01
2001/02
2002/03
0
2003/04
1998/99
Public HEI
Non-public HEI
1999/00
2000/01
2001/02
2002/03
2003/04
% of students receiving social stipends
Public HEI
Non-Public HEI
Note: data on non-public HEI may be incomplete
Source: GUS, Higher Schools and their Finances in 2002. MoNES. Kredyty Studenckie w latach 1998-2003. Internal Report
75
In August 1998, a preferential Student Credit program was introduced whereby students,
whose family income was low, would be eligible to receive a Government-subsided credit
from commercial Banks to be paid back starting one year after graduation. The new law on
higher education proposes to broaden access to these preferential student credit programs by
including doctoral students and civilian students in military schools. Moreover, the new law
foresees the lengthening of the grace period for repayment to two years after graduation.
While the program seems to be operating satisfactorily, it is curious that the low take- up rate
in 1998 has declined yet further to an almost negligible number of students in 2003 (see
Fig.5). Table III.5 of Volume I shows that Poland spends the smallest percentage of its
higher education budget on stipends among all the EU8 countries.
It seems that the credit and loan program is not designed to attract significant amounts of
private financing into the higher education system. Because the take up rate of the program is
low, however, there is still substantial private expenditure borne by the students or their
families for living expenses.
4. Governance
As Table III.8 of Volume I shows, Polish Universities enjoy more autonomy than many other
EU countries for a range of academic and budgetary functions. However, systems of
governance are narrow, with little opportunities for outside stakeholders, such as the
scientific and business communities, to exert any influence on the appointment of leaders.
While the autonomy and integrity of higher education institutions must be safeguarded, there
is a need to address institutional rigidities and to introduce incentives that will improve
flexibility and make institutions more accountable both to Government and to stakeholders in
the world of work. Closer links with the private business sector might improve institutional
responsiveness to labor market requirements and attract corporate financing into universities.
5. Issues
Although Poland has recognized the need to accredit new non-public institutions and has
already taken steps towards a comprehensive quality assurance system through the
establishment and further development of both the State Accreditation Commission and other
HEI based committees, the quality of many higher education programs remains an issue.
The rapid growth of non-public HEIs and increased participation rates are frequently blamed
for this decline. Although there are examples of non-public HEIs which provide innovative
courses of recognized quality, in many non-public institutions this rapid response to market
demand has come at the expense of acceptable standards.
The re-introduction of the algorithm for allocating budgets in 2004 may make the allocation
system more transparent and provide incentives to encourage institutions to be efficient and
achieve economies of scale through combining courses, sharing facilities and staff between
faculties, and developing cost-saving and income generating activities. However, it is
currently unclear whether there is any way to ensure that capital spending is properly
prioritized – i.e. by encouraging HEIs to develop strategic plans on a competitive basis.
As discussed above, the current system of charging tuition fees in both public and private
HEIs is inequitable. Because the take-up rate of the student credit and loan programs is low,
there is still substantial private expenditure borne by the students and/or their families for
living expenses. Further analysis of these student support programs would be necessary
before judgments could be made about the profile of the students who do avail of them and
about the longer-term outcomes. Based on the available studies and reports, it can be pointed
76
out that access to higher education for young people from uneducated families is much more
limited than for their peers from families with a tradition of higher education.
Within public institutions, non-paying students tend to get priority attention, as they are the
best students selected through competitive admission procedures. Often, these students come
from more privileged backgrounds. Fee-paying students are academically weaker as a rule,
because they enter fee-paying forms of study programs having been unsuccessful in the
competition for free-of-charge study programs. Moreover, where academic staff are taking
multiple teaching posts in non-public HEIs, they are unlikely to devote much time to the
needs of students in these institutions who are frequently paying for these courses in
distinctly inferior conditions
Means to attract additional private funding through private endowments and donations from
the business community are either absent or insufficient. Financing mechanisms, such as
performance based contracts, to encourage innovations; technology transfers to
commercialize knowledge and a means of sharing the proceeds of consultancy work do not
exist. The current legal status of universities needs to be changed in order to allow them to
engage in business activities.
Reform requires Leadership: At present there is no coherent Government view of the
direction in which the higher educational system should be evolving. The policy-making role
of MoNES should be strengthened in order to lead the debate on education reform in general
and on the development of higher education in particular. Both the General Council for
Higher Education and the Conference of Rectors need to become formal partners in shaping a
vision of the eventual system, and in reaching difficult decisions about the trade-offs that
need to be resolved.
77
Slovakia
1. The Organization of Higher Education in Slovakia
Slovak higher education is governed by Act no. 131/2002 on Higher Education Institutions.
The 2002 Act brought in a number of key reforms of the previous 1990 law, most notably
greater independence of institutions in their financial management including dealing with
their property and a shift of statutory powers from the level of individual Deans of Faculties
to the level of the Rector. The Act and its subsequent amendments have introduced full legal
harmonization within the Bologna process with gradual shift to a three-level degree structure
and mandatory application of the European Credit Transfer System. The framework for
financing is also affected by the Act no. 132/2002 on Science and Technology and the Act
no. 203/2001 on the Agency for the Support of Science and Technology. Over the past year,
the Ministry of Education had been trying to convince parliament to pass a new Act on
Student Loans, which would have introduced fees for students of public universities but this
effort has failed for now.
To be recognized by the state and allowed to provide higher education, all institutions are
required to undergo accreditation for each study program, at each degree level, by the
Accreditation Committee, serving as an advisory body to the Government. The final decision
on accreditation is made by the corresponding minister. The Accreditation Committee checks
a number of input criteria to establish whether the given institution is capable of awarding the
degree in the study field (staff, facilities, research activity). Before the 2002 Act on Higher
Education Institutions was introduced, private universities required parliamentary approval
for their activities. At present, they require consent of the Government, while public
institutions are established by Parliament.
The majority of higher education institutions are public higher education institutions. The
2002 Act foresees that university can acquire the status of “research university” based on a
proposal of the Accreditation Committee in the process of Complex Accreditation, which is
yet to be launched. As of September 2004, in addition to 20 public universities, there were
three state universities (military, police and health academies) and four accredited private
higher education institutions (focused respectively on economics, management, healthcare
and law). Further private HEIs have since requested accreditation.
In addition to accredited institutions a number of organizations, which are not recognized as
higher education institutions, have begun offering degrees, awarded by foreign (mostly
Czech) universities and charging tuition fees. The Ministry of Education has sought to curb
the practice as it violates the notion of exclusive right to provide higher education by
accredited universities. A recent amendment to the 2002 Act allows for severe fines. The
students in these programs are not covered by available statistics.
2. Higher Education Statistics
The higher education sector has undergone massive expansion in capacity in the course of the
1990s. Between the academic years 1990/1991 and 2004/2005, the number of students in
public and private universities has risen by a factor of 2.5. While the number of full-time
students has doubled, the number of part-time students has risen by a factor of 5.6 with the
present share at a third of the total number of students. The ratio of 19-year olds to the
78
number of newly admitted students in higher education has risen from about 20% in 1990 to
54.9% in 2004. The number of institutions has also increased, especially in the mid-90s, from
13 to the present 20 with a large public university now located in each of the eight capitals of
Slovak regions. The two largest university locations are Bratislava in the West and Kosice in
the East. The student/staff ratio has increased significantly as the rise in staff did not by far
match the expansion in the number of students: teaching staff rose from 7,817 full-time and
1,770 part-time in 1990 to 9,935 and 1,970 in 2003.
Table II.12. Number and proportion of full-time and part-time students - including
public and private HEIs
Full-time
Part-time
Parttime/fulltime
Part-time
as share
of total
90/91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99 99/00 00/01 01/02 02/03 03/04 04/05
54,350 53,965 57,030 58,843 69,042 74,322 79,770 83,942 87,117 89,608 92,836 94,716 100,594 101,298 107,022
9,434 7,307 7,281 8,351 8,279 10,457 13,323 18,040 23,590 29,240 33,073 38,980 39,042 45,192 53,018
0.17
0.14
0.13
0.14
0.12
0.14
0.17
0.21
0.27
0.33
0.36
0.41
0.39
0.45
0.50
0.15
0.12
0.11
0.12
0.11
0.12
0.14
0.18
0.21
0.25
0.26
0.29
0.28
0.31
0.33
Source: Own calculations at the basis of data provided by Institute of Information and
Forecasting in Education
There was little growth in the number of private institutions throughout the 1990s but in the
last two years about 10 new institutions have emerged seeking accreditation mainly in law,
economics and other social sciences. Private institutions presently account for just over 2% of
all students. The government’s rejected proposal of extending public funding for private
institutions would have likely led to significant further expansion.
While Slovakia has a very high share of population with completed upper-secondary
education it has one of the lowest shares of population with tertiary education among OECD
countries. According to 2002 OECD data 86% of 25 – 64-year olds in Slovakia have
completed upper-secondary or higher education, of that 11% higher compared with an OECD
average of 64% and 23% respectively. This may account for the very low levels of
unemployment among university graduates – in 2002 unemployment of university graduates
was 4.7% compared with 14.0 – 17.6% for graduates of secondary schools with a state school
leaving certificate (maturita). This in turn reduces labor market pressure towards internal
reallocation of capacity.
3. Financing of Higher Education
Slovakia has a fairly low level of public expenditure on education among all OECD countries
– 4.0% of GDP in 2001, according to OECD data. But expenditure per student in tertiary
education was fairly high - $4,949 based on PPP-adjusted exchange rate, compared with
Poland’s $3,222 but lower than the Czech Republic’s $5,431 and Hungary’s $7,024. The
combined public and private expenditure on tertiary education as a share of GDP reached
0.9% in 2001, well below the OECD countries’ average of 1.8% but comparable with the
Czech Republic’s 0.9% and Hungary’s 1.2%. Due to the rapid expansion of capacity, per
student expenditure largely stagnated during the 1990s in nominal terms and thus declined in
real terms.
Financing of public institutions is largely dominated by direct teaching and research funding
from the state budget through the Ministry of Education. Since 2001 teaching funding is
allocated on the basis of the number of students using coefficients of staff-intensity of
individual fields. In the 2004 budget public funding for tuition and operation of universities
79
accounted for 87% of the total funding. Funding for science and technology had to a large
degree been allocated on the basis of existing research capacity rather than output but in
recent years, the Ministry of Education has been gradually adjusting the funding formula to
emphasize the quality of research projects proposed by HEIs. Considerable amount of
additional funds for research is allocated according to the volume of research grants obtained
by the HEI on competitive basis from domestic as well as foreign sources and according to
the performance of the university in PhD study.
Table II.13. Program structure of HE budget
in thousands
2002
7,457,874
077 – 7University tuition and science
077 01 – Tuition and operation of
5,841,658
universities
077 02 – Science and technology at
606,700
universities
077 02 01 – Operating and development of
442,700
infrastructure for R&D
077 02 02 – University basic research
90,000
initiated by researchers (grant agency
VEGA)
40,000
077 02 03 – University applied research
077 02 04 – International scientific and
20,000
science and technology cooperation of
universities
077 02 05 – University R&D tasks for
14,000
education development (grant agency
KEGA)
345,786
077 03 – Tertiary education development
077 04 – Regulation, coordination and
18,467
assistance to tertiary education activities
69,982
077 05 – Tertiary education transformation
077 06 – Social scholarships and students
108,806
subsidies
077 07 – Subsidy of catering,
466,475
accommodation, sport and culture activities
of students
Source: Ministry of Education
2003
2004
2005
8,840,865
9,798,649
10,423,622
7,151,358
7,812,688
8,023,612
722,512
928,472
1,066,388
497,992
570,261
616,388
129,779
240,366
280,000
53,840
61,845
80,000
19,920
25,000
30,000
20,981
31,000
60,000
225,537
226,333
400,000
20,700
89,745
73,622
16,459
330
50,000
201,018
220,142
300,000
503,281
520,939
510,000
The Constitution of the Slovak Republic stipulates that “Citizens have the right to education
free of charge in primary schools and secondary schools, depending on the citizen’s ability
and the society’s capabilities also in higher education institutions.” According to the Act on
Higher Education Institutions, institutions are allowed to charge fees only for a very limited
range of services. Students do not pay regular tuition other than in special circumstances,
such as when the maximum length of study is exceeded. In part-time studies, however, many
institutions charge indirect fees collected through their own not-for-profit agencies or through
outside cooperating institutions. The government has fought these in the course of the 1990s
but has failed to fully stamp out this practice.
Demand for places in public institutions tends to exceed supply in the more popular fields
(the greatest demand overhang is reported for law, fine arts and economics and management
80
programs). In recent years due to continued expansion, growth in the number of students
studying abroad (notably in the Czech Republic where over 7,000 Slovak students presently
study free of charge), certain types of study programs, especially in higher education
institutions focused on technology, have been unable to fill their capacity. With the exception
of some of these institutions, the rest of public universities select students through entrance
exams, which are still viewed by many as suffering from corruption. However, the increases
in capacity combined with greater opportunities to study abroad and demographic factors
have reduced the competition for many study programs and institutions. In the past, a portion
of the unmet demand was absorbed by part-time study programs, which often charged semilegal fees. Although exact data are not available, fresh secondary school leavers were
estimated to constitute the majority of new part-time students in recent years.
Student support takes the form of student loans at reduced interest rates, which are mainly
allocated to students with a social need or disability, with lower priority awarded to students
on the basis of merit, if funds are left over. In 2003, 5.6% of all full-time students were
receiving a loan from the Student Loan Fund. In addition to loans, students receive social
scholarships in cash paid by their universities from a direct state allocation. Throughout the
1990s only a very small share of students (about 1%) received these but since a change in
rules governing the scholarships the share has risen rapidly. In 2003, 10% of full-time
students received scholarships averaging SKK 19,958 per year. The top limit on these
scholarships is fairly low, well below the average costs for students as estimated by surveys.
Finally, student support is channeled through producer subsidies to universities for student
housing and dining regardless of student’s means.
For two years the government had been attempting to prepare and pass a new Act on Student
Loans to introduce tuition fees at a level determined by each HEI between 5% and 30% of the
average expenditure per student in the whole system. The proposal also contained a new
system of a sort of income-contingent loans to cover tuition at interest rates corresponding to
the government’s cost of borrowing repayable after the student completes his or her studies
and reaches at least the minimum wage. In addition, the proposal would have significantly
expanded means tested social stipends in scope and amount, to cover at least a third of fulltime students. The proposal became the subject of a broad and involved public debate but was
shown extremely unpopular in public opinion polls. Following several unsuccessful attempts
at passage in parliament, the proposal was voted down in May 2005 and it is thus very
unlikely that tuition would be introduced in the present electoral term (ending in 2006).
Wage costs represent a disproportional portion of university expenditure (55% in 2001, rising
from 36% in 1990 and 45% in 1995). Furthermore, these costs are mostly obligatory (based
on the pay scales and mandatory insurance contributions). Pay scales, which universities can
opt out of, but have chosen not to, tend to reward seniority. Resulting age structure contains
almost 50% of academic staff with 24 or more years of experience.
Table II.14. Distribution of wages in HEIs
March 1, 2000
Work experience by
pay grade
Persons Share
0-6
6-9
9-12
12-15
15-18
1,276
442
441
899
634
81
14.1%
4.9%
4.9%
9.9%
7.0%
March 1, 2003
Persons
1,427
595
459
506
610
Share
14.7%
6.1%
4.7%
5.2%
6.3%
18-21
21-24
24-27 (2000), 28
(2003)
Over 27 (2000), 28
(2003)
Total
Source: Ministry of Education
592
787
6.5%
8.7%
643
658
6.6%
6.8%
815
9.0%
1,145
11.8%
3,164
35.0%
3,641
37.6%
9,050
100.0%
9,684
100.0%
4. Governance Issues
Autonomy of higher education institutions has been guaranteed by the Act 172/1990 on
Higher Education Institutions since 1990. At present, universities are run by a Rector elected
by the Academic Senate. The Senates have broad powers but due to their size, little
accountability. This has been pointed out by the EUA9 and recently the Accreditation
Commission expressed concern, that the law does not stipulate the composition of Senates
and “these often become representative organs of less able employees and thus naturally
inhibit the development of the school”.
Governing Board is a new institution introduced by the 2002 HEI Act, to strengthen the ties
to the society and involve outsiders in oversight of HEIs. The Board at each public HEI has
14 members appointed by the Minister of Education, of them six proposed by the Rector with
the Senate’s approval, six proposed by the Minister and reviewed by the Rector and two
proposed by the Senate (one of them nominated by the student part of the Senate). Its main
powers are to vet Rector’s proposals to purchase or transfer real estate or property of high
value and establish legal entities, as well as review strategic documents, budgets, and annual
reports.
Recent financial difficulties at a university related to mismanagement have shown that the
Ministry of Education is severely limited in its influence due to the strong role of formal
representative organs of the sector. The Ministry tried to use its legal power of restricting the
autonomy of the institution but was unable to do so due to a veto from the organs
representing Rectors, HEIs and students.
5. Current Problems
Discussion has increased on the issue of quality of Slovak higher education, in particular in
connection with the government’s plans to introduce tuition fees. There is a significant lack
of information on quality and deficiencies in quality-assurance procedures. The Accreditation
Process focused exclusively on input factors (qualification of teachers, compliance of
curricula) but does not involve any interim or ex-post assessment of the quality of teaching
and learning outcomes. The financing system therefore makes no distinction for quality and
funds programs awarding degrees in the same field on a per student basis with adjustment for
qualifications structure of staff. The Ministry of Education has hinted at plans to create a
quality rating agency and private initiatives have also emerged but there is no definite system
yet in place. Internally, quality assurance procedures also vary greatly within institutions and
are only formal in many of them. There is special concern as to the quality of part-time
education in comparison with full-time, which is highly relevant in the view of the sizable
share of part-time study.
9
European University Association Reviewers’ Report – The University of Zilina, 2002.
82
Although the bachelor’s degree has formally existed prior to the Bologna process,
traditionally the vast majority of Slovak students have pursued mostly five-year master’s and
engineer degrees. The bachelor’s apparently lacks sufficient public recognition and even after
the introduction of mandatory separate BA and MA-level studies students are expected to
mostly pursue MA degrees as their first terminal degrees. This is taxing on per student
resources and capacity of higher education institutions, while many graduates would be
sufficiently qualified for the jobs they take with a bachelor’s.
The per student financing system has contributed to the expansion of capacity at universities.
Step by step, this reform has been accompanied by reform in research financing, with over a
quarter of the budget allocated on the basis of research capacity and quality in 2005.
Nonetheless, the emphasis on teaching funding in previous years has hurt some of the leading
research departments, which carry out comparatively less teaching.
The government has pursued a policy of a closed system dependent largely on public
financing. The excess private demand and willingness to pay has been demonstrated both by
interest in part-time programs that charge hidden tuition and in various non-accredited
programs awarding foreign degrees and charging fees. At the same time, the government has
limited leverage to influence and control public universities because of academic autonomy.
Without increasing competitiveness, Slovak higher education institutions are likely to
increasingly lose the most qualified students to other EU countries. This is a challenge not
only for education policy, since if these students do not return to Slovakia after concluding
their degree, the quality of the labor force will suffer.
83
Slovenia
1. Higher education system in Slovenia
1.1 General description
Higher education together with higher vocational education forms Slovene tertiary education.
Figure II.22. Structure of Tertiary education in academic year 2005/06
Note: Post-secondary vocational education is higher vocational education.
Higher vocational education
Higher vocational education is organised in parallel with higher education, and not as an
integral part of it. First vocational colleges were established in 1996/97. Programmes are
markedly practice-oriented and tightly connected with the world of work. In these courses,
practical training accounts for around 40% of the curriculum and is completed within
companies. Higher vocational education lasts for two years ending with a diploma
examination, which enables graduates to start working in specific occupations. Until June
2004 when the parliament passed a new Higher vocational education Act this type of
education was regulated by Vocational and Technical Education Act and Adult Education
Act. In academic year 2003/04 42 vocational colleges (21 public and 21 private) enrolled
12.116 students.
Higher education
Since 1993 Slovene higher education is regulated by Higher Education Act. It was first
amended in 1999 and introduced a number of solutions that were a result of an open public
discussion on the development of higher education and the functioning of higher education
institutions (universities and their autonomy, funding system, participation of students) and
laid new foundations for a further development of universities and other higher education
institutions. Three additional amendments were adopted in 2000, 2003 and June 2004. The
last amendment to Higher Education Act introduced new structure of higher education studies
according to the bologna guidelines.

First cycle has binary system of academic and professional study programmes. Both
studies can be offered by universities and free-standing higher education institutions. While
faculties can offer both academic and professional study programmes, professional colleges
can offer only professional study programmes. University members can be faculties, art
academies and also professional colleges.

Second cycle offers only one type of studies. Master study programmes can be offered
by universities and faculties. Professional colleges can offer this type of study programmes in
cooperation with universities, faculties and art academies or by themself, if they fulfil the
conditions regarding staff and research.

Third cycle is Doctor of science.
First ‘post-reform’ study programmes will start with academic year 2005/06. New study
programmes will be introduced gradually, so that in academic year 2009/10 only ‘postreform’ study programmes will be offered. Until then Slovene higher education institutions
will offer both ‘pre- and post-reform’ study programmes. The last time students will be able
to enrol in ‘pre-reform’ study programmes is in academic year 2008/09 and they will have to
finish their studies by 2015/16. Once new study programmes are adopted, they gradually
replace the existing pre-reform ones.
According to the Higher Education Act from 1993 higher education institutions may be
established by the state or by the private (national and foreign) natural and legal persons.
Public higher education institutions are established in order to provide public services. Under
certain conditions, private higher education institutions can be granted a concession for public
service (and consequently public co-financing) by government decree on the basis of a public
tender. In such cases private higher education institutions are co-financed under the same
conditions as the state ones. In academic year 2003/04 three out of five free-standing higher
education institutions delivered undergraduate programmes with concession.
First two private higher education institutions were founded in 1995, another four in 1996 and
then in average by one per year until 2004. In 2003 four private higher education
institutions joined newly founded public University of Primorska. In academic year
2003/04 higher education was offered by:

3 public universities that enrolled 68.506 undergraduate and 6.614 postgraduate
students:

University of Ljubljana, which consist of 23 faculties, 3 art academies and 1
professional college.

University of Maribor, which consists of 12 faculties and 1 professional college and

University of Primorska, which consists of 3 faculties, 2 professional colleges and 2
research institutes and

7 free-standing higher education institutions – 4 faculties of which only one offers
also undergraduate studies and 3 professional colleges – enrolled 3 % of all
undergraduate students.
85
1.2 Higher education in figures
Table II.15. Population aged 15 years or over by education attainment and sex (1991,
2002)
1991
Education attainment
Total
TOTAL
No education
Incomplete education
Basic
Upper secondary
Higher vocational
Higher
Unknown
2002
Men
Women
Total
Men
Women
1.514.722
100
9.848
0,7
253.630
16,7
451.222
29,8
652.292
43,1
69.509
4,6
65.240
4,3
12.971
718.867
100
3.611
0,5
111.209
15,5
169.473
23,6
358.887
49,9
30.303
4,2
39.146
5,4
6.238
795.855
100
6.237
0,8
142.421
17,9
281.749
35,4
293.405
36,9
39.206
4,9
26.094
3,3
6.733
1.663.869
100
11.337
0,7
104.219
6,3
433.910
26,1
899.341
54,1
84.044
5,1
131.018
7,9
-
804.286
100
4.092
0,5
42.400
5,3
169.509
21,1
487.288
60,6
36.083
4,5
64.914
8,1
-
859.583
100
7.245
0,8
61.819
7,2
264.401
30,8
412.053
47,9
47.961
4,6
66.104
7,7
-
0,9
0,9
0,8
-
-
-
Source: Statistical Office of the Republic of Slovenia: Census of population, households and housing, 2002
According to the Population Census results in 2002 13 % of population aged 15 years or over
attained tertiary education, which is 5 percentage point more then in 1991.
Table II.16. Undergraduate students (1985/86, 1990/91 to 2003/04)
Academic
year
1985/1986
1990/1991
1991/1992
1992/1993
1993/1994
1994/1995
1995/1996
1996/1997
1997/1998
1998/1999
1999/2000
2000/2001
2001/2002
2002/2003
2003/2004
Comparison of student growth between
the years (index)
Undergraduate students
Total
29.601
33.565
36.504
37.362
40.239
42.961
45.951
50.667
55.845
64.072
66.198
68.427
70.775
72.344
70.774
Full-time
students
22.030
27.774
30.744
30.788
32.728
33.794
35.998
37.314
40.304
43.654
44.837
46.022
47.835
49.818
50.462
Part-time
students
Total
7.571
5.791
5.760
6.574
7.511
9.167
9.953
13.353
15.541
20.418
21.361
22.405
22.940
22.526
20.312
/
/
108,76
102,35
107,70
106,76
106,96
110,26
110,22
114,73
103,32
103,37
103,43
102,22
97,83
Full-time
students
/
/
110,69
100,14
106,30
103,26
106,52
103,66
108,01
108,31
102,71
102,64
103,94
104,15
101,29
Part-time
students
Part-time
students in
total (%)
/
/
99,46
114,13
114,25
122,05
108,57
134,16
116,39
131,38
104,62
104,89
102,39
98,20
90,17
Note: Undergraduate students include all enrolled undergraduates students without absolventi (To finalise undergraduate
studies, an additional year of studies, called absolventsko leto, is added. Students who use this year are called absolventi.)
Source: Statistical Office of the Republic of Slovenia, Rezultati raziskovanj (for academic years 1985/86, 1991/92 to
2003/04);
86
25,58
17,25
15,78
17,60
18,67
21,34
21,66
26,35
27,83
31,87
32,27
32,74
32,41
31,14
28,70
In 1993, when the Higher Education Act was adopted, Slovenia had 40.239 undergraduate
students (81.3 % full-time and 18.7 % part-time), who were all enrolled in one of the two
existing public universities – University of Ljubljana and University of Maribor. The number
of undergraduate students increased by 10 % in comparison with the academic year 1991/92,
the first after Slovene independence, and by 36 % in comparison with academic year 1985/86.
In academic year 2003/04 the number of enrolled undergraduate students increased by 76 %
since 1991/92 and by 139 % since 1985/86, but decreased in comparison with academic year
2002/03 by 2.2 %, which can be contributed to smaller enrolment of part-time students.
Enrolment is increasing also in post-graduate studies in academic year 2003/04 6.774 students
were enrolled, which is 125 % more then in academic year 1998/99 when 3.006 students were
enrolled.
Table II.17. 19-year old students (1991/92 to 2003/04)
Academic
year
1991/1992
1992/1993
1993/1994
1994/1995
1995/1996
1996/1997
1997/1998
1998/1999
1999/2000
2000/2001
2001/2002
2002/2003
2003/2004
Population
aged 19
29.189
29.286
29.088
29.745
30.474
30.012
30.233
30.216
30.086
29.244
28.206
27.321
26.545
Students aged 19
Total
7.965
8.087
8.524
9.305
9.595
9.735
10.221
10.664
11.043
10.759
10.927
10.650
10.804
Full-time
Percentage of students per cohort (%)
Part-time
7.346
7.429
7.704
8.101
8.559
8.486
8.784
9.081
9.342
9.347
9.493
9.367
9.586
622
658
820
1.204
1.036
1.249
1.437
1.583
1.701
1.412
1.434
1.283
1.218
Total
27,29
27,61
29,30
31,28
31,49
32,44
33,81
35,29
36,70
36,79
38,74
38,98
40,70
Full-time
25,17
25,37
26,49
27,23
28,09
28,28
29,05
30,05
31,05
31,96
33,66
34,28
36,11
Part-time
2,13
2,25
2,82
4,05
3,40
4,16
4,75
5,24
5,65
4,83
5,08
4,70
4,59
Source: Statistical Office of the Republic of Slovenia: Rezultati raziskovanj – Študentje v Republiki Sloveniji (for academic
years 1991/92 to 2003/04)
Statistical Office of the Republic of Slovenia: Statistical Yearbook (1992 to 2004)
Unemployment by school attainment in Slovenia (2002 to 2004)
Unemployment did not represent a bigger problem until the 1990s. The changes in economy
since 1991 brought also changes in the labour market and resulted in growth of
unemployment rate.
According to labour survey results conducted by Statistical Office of the Republic of Slovenia
(Rapid Reports: Labour Market, No100/2004 and 85/2005) the ILO unemployment rate in the
4th quarter 2002 was 6,5 %, 6,7 % in 2003 and 6,4 % in 2004. According to the same survey
the ILO unemployment rate for unemployed with higher education was 3 % in 4th quarter
2002 and in the same period in 2003 3,5% and 2,5 % in 2004. The unemployment rate for
unemployed with higher education in all unemployed regardless the education was in 4th
quarter 2002 4,9 %, 6,1 % in 2003 and 5% in 2004.
87
Table II.18. Average monthly gross earning in enterprises, companies and organisations
by level of school education in Republic of Slovenia (1999, 2002)
Year
1999
2002
Gender
Total
Men
Women
Total
Men
Women
Average monthly
Average monthly
gross earnings in gross earnings with
Republic of
general or technical
Slovenia
secondary education
100,00
100,00
100,00
100,00
100,00
100,00
Average monthly
gross earnings with
higher vocational
education
99,90
101,55
99,98
92,59
92,98
93,77
141,99
154,01
137,67
138,63
143,79
137,16
Average
monthly gross
earnings with
higher
education
203,93
214,78
193,01
196,53
207,50
186,29
Source: Statistical Office of the Republic of Slovenia: Statistical Yearbook 2001, 2004
Average monthly gross earning in enterprises, companies and organisations differ by level of
school education. Table II.18. shows the trend that earnings increase in parallel with level of
education.
Table II.19.: Public expenditure on higher education (2001, 2002 and estimate for 2003)
Year
Public
expenditure on
education (% of
GDP)
2001
2002
2003*
6,13
6,02
6,09
Public expenditure on
Public expenditure
tertiary education (%
on tertiary education
of total public
(% of GDP)
expenditure)
1,33
1,33
1,36
5,32
5,38
5,35
Note: *estimate
Source: Statistical Office of the Republic of Slovenia: First release, Education; No. 218 – Dec. 2004
RS Ministry of finance: Annual report 2001, 2002, 2003
Share of total public expenditure for tertiary education in GDP amounted to 1,33 % in 2001
and 2002 and 1,36 % in 2003. In the Master Plan for Higher Education Slovene government
made it an objective to increase this value to 1,4 %.
2. Financing systems for higher education
In December 2003 Slovene government adopted the Decree on the public financing of higher
education and other university member institutions (in text as Decree) 2004-2008, which
replaced Standards for financing Higher Education adopted by the government in 1992.
Decree regulates the public financing of study and extracurricular activities, investment and
investment maintenance and development tasks at universities and free-standing higher
education institutions established by the Republic of Slovenia, and the financing of certain
tasks of national importance. The provisions on the financing of study and extracurricular
activities and development tasks also applies to private higher education institutions with
concession, while the provisions on the financing of development tasks also applies to private
higher education institutions providing certified study programmes if they receive public
funds.
88
2.1 Funding of study activities
Public financing of study activities for a university or free-standing higher education
institution is defined as total funds (lump sum). Study activities of higher education
institutions comprise:

educational and related research, artistic and professional activities of higher education
teachers and staff and scientific staff,

library, information and other professional activities, and

organisational, administrative and infrastructural activities.
Financing of higher education differentiates between undergraduate and postgraduate studies.
Undergraduate studies
Undergraduate study activities are publicly financed for all full time students, while the part
time students pay tuition fees. The state allocates funds to higher education institutions based
on the methodology set by the Decree. There is no division between academic and
professional study programmes.
The methodology for the allocation of the funds is divided into two parts:
i. Planning of the budget and
ii.
Allocation of the funds to higher education institutions.
i. Planning of the budget on the state level
The budget is planned so that the Annual budget funds for study activities from the previous
fiscal year are increased each year in real terms by at least the growth in gross domestic
product but not less than 2.5% with regard to the realisation for the previous year for study
activities.
ii.
Allocation of the funds to higher education institutions.
Annual funds for study activities of a higher education institution (LSZ) comprise basic
annual funds (OLSZ) and standard annual funds (NLSZ).
LSZ = OLSZ + NLSZ
Basic annual funds for a higher education institution (OLSZ) are defined in the Decree. For
the year 2004 they were fixed at the amount of 80% of the annual funds for study activities of
the higher education institutions in 2003.
The standard annual funds for a higher education institution (NLSZ) are determined taking
account of the annual initial value (LIV), the total number of students (Š), and the number of
graduates (D) multiplied by the weighting (Ud) and the factor for the study group f(s) to which
the higher education institution belongs.
NLSZ = LIV *  (( Š + D * Ud) * f(s))
The annual initial value (LIV) shall mean the standard annual funds per student in the first
study group and shall be calculated as the quotient of the difference of annual budget funds
(LPS) and the basic annual funds of all higher education institutions ( OLSZ) and the total
number of students (Š) and the number of graduates (D) multiplied by the weighting (Ud) and
the factor f(s) of the study group to which the higher education institution belongs.
89
LIV = (LPS -  OLSZ) /  ((Š + D * Ud) * f(s))
Students (Š) are full-time students in undergraduate study programmes excluding absolventi
(graduands) at the higher education institution in the current academic year.
Graduates (D) are graduates of full-time undergraduate study programmes at the higher
education institution in the previous calendar year.
The graduate weighting (Ud) is the ratio between standard funds for graduates of the study
programme and students of the same programme.
Study groups (s) combine higher education institutions by dominant study fields or subfields.
Study field means one of the 22 fields defined in the Isced classification of study fields
(UNESCO, November 1997).
The factor of the study group f(s) expresses the ratio between the funds allocated for the
provision of study in the study group compared to the first study group. There are six study
groups, which value varies from 1,00 to 4,50.
Postgraduate studies
Postgraduate students pay tuition fees. However the state provides public funding for cofinancing of these tuition fees through:
a.
Public tender for co-financing of postgraduate studies that finances 60-80 % of
tuition fee for students whose faculties fulfilled the conditions of the tender (among others
tuition fee must not exceed the one set by the state). The tender was issued first time in 1998,
when 27% of students received co-financing. In academic year 2004/05 this percentage is
53%.
b.
Additional 9% of the postgraduate students receive co-financing through a
‘Young researches’ financing scheme, which covers full tuition fee, part of the material costs
for the research in which the student is involved and salary for the young researcher.
2.2 Funding of research
Higher education institutions obtain funds for research in accordance with the provisions of
the Research and Development Activities Act. In December 2003 the government established
the Slovenian Research Agency. The Agency is an indirect user of the state budget in
accordance with the legal provisions in the fields of public finances and public agencies. The
Agency carries out the tasks entrusted by law and which are in the public interest, with the
objective to provide for a permanent, professional and independent decision-making on the
selection of programmes and projects that are financed from the state budget and other
financial sources. The Agency also performs professional, development and executive tasks
regarding the implementation of the National Research and Development Programme and of
its specific components as well as other tasks for the enhancement of research and
development activities.
Financing of research programmes and projects is divided through a public tender. Funds for
research and infrastructure projects and research programmes are calculated according to
standards set by the government.
90
2.3 Funding for investment
Funds for investment (building, renovation or purchase of real estate and equipment) and
investment maintenance are determined pursuant to:

Act on Basic Development Programmes in the Area of Education and Science, 20032008 or the multi-annual investment programme of the higher education institution to which
the minister has consented,

annual investment programme of the higher education institution and

adopted budget.
3. Challenges for the future
The main challenges recognised as one of the priorities by the government for the future are
to ensure the quality of tertiary education and stimulate lifelong learning, which will ensure
higher efficiency in the transfer and innovative use of knowledge in the economy in order to
boost economical development.
The funding of higher education is one of the most important tools with which the
government can stimulate higher education. That is why the introduction of result-oriented
lump sum financing is seen as an important step toward giving higher education institutions
their financial autonomy and making them accountable for their actions. Through this the
government is stimulating result-oriented management and higher responsiveness of the
universities to the trends and needs of the society.
References
File J. and Goedegebuure L. (2003) Real-time systems: Reflections on Higher Education in the Czech Republic,
Hungary and Slovenia.
RS Ministry of education and sport: Strokovna izhodišča za nacionalni program visokega šolstva v Republiki
Sloveniji; 1997.
RS Ministry of education, science and sport: Education system in Slovenia 2003/04; 2003.
Statistical Office of the Republic of Slovenia: First release, Education; No. 218 – Dec. 2004.
RS Ministry of finance: Annual report 2001, 2002, 2003.
Statistical Office of the Republic of Slovenia: Statistical Yearbook 1991 to 2004.
Statistical Office of the Republic of Slovenia, Rezultati raziskovanj (for academic years 1985/86, 1991/92 to
2003/04).
Statistical Office of the Republic of Slovenia: Census of population, households and housing, 2002.
Statistical Office of the Republic of Slovenia: Rezultati raziskovanj – Študentje v Republiki Sloveniji (for
academic years 1991/92 to 2003/04)
91
ANNEX III: Health Sector
Hungary
1. Introduction
Hungary’s health system and the health status of its people have both undergone significant
changes since World War II. All health care and insurance facilities were taken over by the
state in 1948, and the then-government declared the eradication of infectious diseases its main
health priority and provided free health care to all the country’s citizens. In 1949 the
Hungarian Constitution was amended and health was declared as a right of the citizens for
which the state would bear the responsibility. Statistics of infectious diseases and public
health improved, mainly as a result of increased vaccination of children and a broader
network of medical facilities. Until the end of the 1960’s the status of public health was
comparable to that in the developed countries, in large part because of almost complete
coverage by vaccination, and improved social and economic situation. In the period of
socialist health care the health care budget was determined centrally and it only depended on
the budget income and on political decisions. The state was exclusively responsible for
financing and providing health services through hospitals, clinics and district practitioners.
Private practices were not completely prohibited but were only allowed – and that too since
1972 only – as part-time occupations.
The health situation started changing in the 1960s, with the centrally managed economy
failing to respond to the changing environment. Inefficiencies in allocation and utilization of
resources and strong political influences resulted in huge within-country differences in
services provided, poor quality standards, and large inter-regional disparities. By the 1970s,
health status gaps between Hungary and the rest of Europe started widening, and today the
health status of the Hungarian population is considered one of the worst in the region. Health
financing reforms were introduced in 1990s, following which the purchase and provision of
health care were separated, the budgets were decentralized and new payment mechanisms
were introduced. The system of health financing was transformed from a centrally-controlled
budget-supported model to a Bismarckian model of universal health insurance, and all
individuals were members of the health insurance fund. Despite all the parametric changes
(and a minor paradigmatic change in the form of introduction of a health tax) huge financing
gaps started to appear as the health system found itself unable to cope with a structure of
expenditures dominated by drugs and hospitals, and the health insurance fund started
generating deficits year after year. Hungary spends around 6.7 percent of its GDP in 2004, but
continuous deficits of the Health Fund of around 1.3-1.6 percent of GDP in the last two years
have begun to undermine the fiscal stability of the health system. In addition to the worries
due to the relatively poor health status of the people, therefore, the health system finds its
fiscal health in jeopardy as well.
The continuous flux in the political situation has not helped either, and already the third
Minister of Health is in charge in Hungary since the last election in March 2002 won by the
socialist party MSZP. The first Health Minister was Dr. Csehák Judit, who was appointed by
the Medgyessy Government on May 27, 2002. In September 2003, Dr. Kokény Mihály, her
former State Secretary, took her place. The current Minister of Health, Dr. Rácz Jenõ, is a
member of the Government reconstruction team after new Prime Minister Gyurcsány was
appointed by the ruling MSZP and approved by the Parliament on September 29th 2004. The
old-new Hungarian cabinet10 announced its priorities in the run-up to the elections, which
included support for a fair social policy and reconstruction of the state budget to boost
competitiveness of the economy. The program of Prime Minister Ferenc Gyurcsány's
government from September 2004 (“New Dynamism for Hungary: The Program of the
Government of the Republic for a Free and Equitable Hungary 2004-2006”) proposes bold
changes in the healthcare system. Under the title "More Efficient, Better Healthcare" the
program states that the problems of healthcare in Hungary can only be solved on long term by
a healthcare system based on the principles of solidarity and the respect of market
conditions.11 The main health priority identified by MOH is cancer, where the need to
improve diagnostics and therapy are recognized. Cardiovascular diseases are also seen as a
priority area, and MOH intends to enlarge the existing network of heart catheter labs. More
generally, MOH proposes to promote healthy life style and sport activities in order to improve
the health status and the quality of life of the population.
The first issue the new Minister of Health had to deal with was the Referendum called by the
opposition party FIDESZ on the legal status and privatization of hospitals. The referendum
was a FIDESZ response on weakening government position after the MSZP crisis and its
decreasing support by the population.12 The Referendum took place on December 5th, 2004
with a question: “Do you agree that the public health care providers, hospitals should stay in
state, self-government ownership, and therefore, the Parliament is to cancel the Act that is
contradictory with that.” The referendum was valid, but without a result FIDESZ wanted,
because less than 25 percent of the voters supported the referendum question. Therefore, in
theory at least, hospitals can be privatized starting 2005 (though this will not automatically
mean that there will be demand among investors for Hungarian hospitals).
It is against this backdrop that this report examines the key expenditure areas in the health
sector with a view to identifying suitable action steps to address the situation of continuing
fiscal imbalance. The main objectives of this report are to take stock of recent trends in health
expenditure aggregates in the public sector and identify specific areas of health expenditure
reform consistent with the objectives of stabilizing the fiscal situation without adversely
affecting the production, delivery and utilization of health services. The rest of this report is
organized as follows. Section 2 presents the macroeconomic background in order to set the
context in which the fiscal situation in the health sector can be best understood. Hungary, like
other countries in the region, is undergoing a demographic transition as a result of which the
population is ageing rapidly, and these issues are discussed in Section 3. Section 4 presents
the health status of the people of Hungary, and compares it with other countries in the region.
The structural characteristics of the health care system are highlighted in Section 5. Health
financing issues are discussed in Section 6, followed by a discussion in Section 7 on the
structure of expenditures in the health sector. Conclusions are presented in Section 8.
Gyurcsány changed only 5 Ministers, among them the Minister of Health
The document says: “It is necessary to help those who are in need, and higher responsibility must be borne by
those who can afford it.”
12
According to opinion polls in October 2004, FIDESZ would have 29 percent and MSZP 24 percent of all
voters.
10
11
93
2. The Economy13
Real GDP grew by 3.9 percent in 2004, but the growth rate is expected to fall to 3.7 percent in
2005 before picking up again in 2006 (Table III.1).14 Intra-year fluctuations saw the GDP
growth rate fall from 4 percent in the first half to 3.7 percent in the second half, decelerating
dynamics quarter by quarter during the year. Investment grew by almost 13 percent and
continues to be the key growth driver, contributing 3.25 pp to growth in Q3 (of which 3 pp
gross fixed capital formation alone). Investment activity has been aided in particular by
ongoing motorway projects, and in the third quarter year-on-year investment growth
accelerated to 12.7 percent. The sector breakdown of investment reveals strong expansion in
transport, storage and communications as well as manufacturing investment (mainly electrical
and optical equipment). Also, investments in construction retained its strong growth fuelled
by the extensive motorway building program of the government. At the same time
consumption growth slowed to less than 3 percent year-on-year due to slowing real wage
growth, reductions of government preference schemes on home loans and a drop in
government expenditure. Net export performance disappointed again, with export growth
decelerating significantly to 10 percent year-on-year in Q3 of 2004 from 18-19 percent in the
first half.
Table III.1: Overview of Basic Macroeconomic Parameters of the Hungarian Economy
Parameter
Growth of real GDP (percent)
Growth of real private spending (percent)
Growth of the price level (percent)
Growth of real wages (percent)
Growth of the volume of paid nominal wages (percent)
Growth of employment (percent)
Participation rate (percent)
Unemployment rate (percent)
Public sector revenues as percent of GDP
Public expenditures as percent of GDP
Public finance balance as percent of GDP
Revenues from social contributions as percent of GDP
Gross government debt as percent of GDP
2003
2.9
7.6
4.7
9.2
15.8
1.3
60.7
5.9
44.5
50.4
-5.9
12.6
59.1
2004
3.3
1.8
6.5
1.0
7.9
0.3
61.0
5.9
44.2
48.8
-4.6
12.6
59.4
2005
3.6
3.0
4.5
2.0
7.4
0.8
61.3
5.9
43.4
47.5
-4.1
12.2
57.9
2006
4.0
3.3
4
2.2
7.4
1.0
62.0
5.8
42.9
46.5
-3.6
11.9
56.8
2007
4.3
3.5
3.5
3.0
7.7
1.0
62.5
5.7
43.2
46.3
-3.1
11.7
55.6
Source: Convergence Program of Hungary, EBRD Transition Report 2004.
The current account continues to be the weakest part of the economy. The CA deficit for the
first nine-months of 2004 amounted to over 9 percent of GDP. While the trade gap shrank in
Q3, the income and tourism balance deteriorated. At the same time, however, non-debt
generating financing increased to 80 percent of the current account gap in the third quarter
triggered by higher FDI inflows which reached 3.4 percent GDP in the first nine months of
the year. External debt is on the rise, but the state’s share in it is increasing more slowly. A
rough estimate of the debt stabilizing current account deficit is around 6 percent of GDP.
13
This section draws heavily from World Bank EU-8 Quarterly Economic Report, January 2005, Country Pages,
and many parts are taken as is.
14
GDP growth is expected to accelerate to between 3.6 percent and 4.0 percent in the period of 2005-2007,
driven mostly by a gradual rise of employment and by a stabilized annual real growth of productivity of
approximately 3 percent. As regards GDP use, growth will most likely be driven by increasing formation of
fixed capital and growth of export, while growth in consumption (both private consumption and government
spending) will be relatively lower.
94
After high inflation rates of 7.6 percent in May 2004, a strong forint played a significant role
in bringing down CPI inflation to 5.5 percent by the end of the year. Meanwhile, the “constant
tax inflation rate” dropped to 3.5 percent and core inflation to 5.0 percent. In February 2005,
inflation has fallen further to 3.2 percent. The decline in inflation reflects currency
appreciation, slowing household consumption and wage growth, and tighter government
spending. The forint, however, is expected to weaken this year, which may make further
reduction in inflation rates difficult to achieve.
The Hungarian economy has not been able to break the cycle of rising unemployment rates.
For 2004 as a whole, the unemployment rate was 6.1 percent, compared with 5.9 percent in
2003. Despite significant job creation through new investments in construction and the
services industries, the pace of jobs lost in vulnerable economic sector such as manufacturing,
textiles, leather and footwear, facing increasing competition, has been much faster. These
sectors have seen increasing competition and numerous plant closures as investors have
moved production to countries with lower labor costs. Hungary also remains plagued by
exceedingly low rates of labor force participation of 60.5 percent in 2004 among the
internationally used 15-64 cohort, a full 9.5 percentage points shy of the average in the EU15.
An increase in retirement age along with tighter rules for early pensions, led to an increase of
1.5 percentage points in the participation rate of those aged 50-64. Another positive sign for
employment is increasing investment activity in northern Hungary, the former industrial
heartland under the state socialist system. The region is home to Hungary’s most significant
labor reserves, and with the ongoing motorway developments continuously improving
accessibility, it has been attracting much new capital. The active policy of employment
promoted last year is expected to have a positive impact on the labor market, and employment
is expected to increase by approximately 1 percent per year until 2007.
In the period of 2001-2003 the increase of real wages and consumption was substantially
higher than the growth of labor productivity, a situation not sustainable in the long term. In
three years between 2001 and 2003 (both inclusive) real wages increased by 32 percent (much
more than the real growth of GDP), which reduced the competitiveness of the economy and
contributed to both external and internal imbalance. In the mid-term, gross average wages are
expected to increase by 6 percent to 7 percent per year, with real wages rising by 3 percent to
3.5 percent. Compensations of employees (gross wage and deductions) will be close to 53
percent of the created added value in this period (i.e., 53 percent of the GDP in base prices or
47 percent of the GDP in market prices, the highest value of the V4 group).15 Real private
consumption is expected to increase by 3 percent to 3.5 percent, while real consumption of
public administration is expected to decrease with continued consolidation of public finance.
Fiscal policy remains a key credibility issue. During 2004 the government revised upwards
the fiscal target twice to 5.3 percent of GDP from an initial level of 3.8 percent of GDP (or
3.1 percent of GDP adjusting for the effect of pension reform). Even this higher fiscal target is
estimated to have been met only through additional measures of around 1.8 percent of GDP in
2004 and arbitrary postponement of expenditures into 2005. This notwithstanding,
expenditures (as a share of GDP) are estimated to overrun the budgeted level by nearly 2
percent of GDP, while revenues—despite greater than expected VAT losses after accession
and greater uses of tax credits in PIT—will be higher than projected in the budget by 0.4
percent of GDP. On the positive side, the fiscal position improved by roughly 1.2 percent of
GDP in comparison to 2003, reflecting equally stronger revenues and lower expenditures
15
Slovakia is an opposite extreme with a proportion of 44 percent in the GDP in base prices and 40 percent in
the GDP in market prices.
95
(each by 0.5 percent of GDP). The budget for 2005 targets a further reduction in the deficit to
4.7 percent of GDP (3.8 percent of GDP adjusting for pension reform). Expenditure would be
curtailed by 1.9 percent of GDP through more effective staff management within the public
sector, a 5.5 percent nominal reduction in expenditure appropriations of central budgetary
institutions, introduction of zero-base budgeting for chapter managed appropriations (0
percent growth in nominal terms), and implementation of infrastructure projects under PPP
schemes (both capital and current spending will decline by 1 percent of GDP).
Figure III.1: General government expenditure (percent of GDP)
51
50
50
49
49
48
48
47
47
46
46
45
16
14
12
10
8
6
4
2
0
2003
2004E
2005F
Public consumption
Interest payments
Gross fixed capital formation
2006F
Social transfers other than in kind
Subsidies
Total expenditure (LHS)
source: CP , December 2004
Additional safeguards have been built into the 2005 budget, but risks remain. A special
reserve amounting to 0.5 percent of GDP has been created and new procedural safeguards –
such as imposing a ceiling on appropriation of normative subsidies for social and public
education purposes, introduction of possibilities for blocking, reducing or canceling
appropriations by government, introduction of obligation for maintaining balance for extrabudgetary funds, and stricter control on appropriations for pharmaceutical subsidies – will be
introduced. By modifying the regulatory system the government intends to limit the risk of
reallocation of appropriations to operational costs within the public administration. Despite
these safeguards, however, there are risks that the deficit target will again be exceeded.
3. Demography
Hungary, like many other countries in the region, faces the consequences of population ageing
caused by reduced fertility and mortality rates on the one hand and increasing life
expectancies on the other. Total Fertility Rates (TFR) in Hungary fell from 1.81 in 1980-85 to
1.2 in 2000-2005 and is expected to increase to 1.51 by 2020-2025 (Figure III.2).16
16
TFR is the average number of children a woman is expected to have by the end of her reproductive period.
Since it is measured using information from births to women aged 15-49 in a certain period, it is the average
number of children a woman is expected to have between ages 15-49.
96
Figure III.2: Total Fertility Rate, Hungary, 1980-2025
2
TFR
1.5
1
0.5
0
1980-1985
1990-1995
2000-2005
2010-2015
2020-2025
Life expectancy at birth has been steadily rising and is expected to continue rising. Life
expectancy at birth for females increased from 73 years in 1980-85 to 76 years in 2000-2005,
and is projected to rise to 79.6 in 2020-2025. Likewise, life expectancy at birth for males
increased from 65.3 years in 1980-85 to 67.7 years in 2000-2005, and is projected to rise to
72.1 in 2020-2025. Overall, life expectancy is projected to rise to 76.5 years in 2025,
compared to 69.1 years in 1980-85 (Figure III.3).
Figure III.3: Life Expectancy at birth, Hungary 1980-2025
Male
90
Female Total
80
70
Years
60
50
40
30
20
10
0
1980-1985
1985-1990
1990-1995
1995-2000
2000-2005
2005-2010
2010-2015
2015-2020
2020-2025
The net result of decreasing TFR and increasing life expectancies is that the share of people
aged 60 years and older, which was 18.1 percent in 1985, is projected to increase to 36.2
percent in 2025 (Figure III.4).
97
Figure III.4: Hungary: Broad Age Groups (percent)
Population <15
Population 15-64
Population 60+
75
65
55
45
35
25
15
5
-5
1995
2000
2005
2010
2015
2020
2025
This will result in a dramatic “upside-down” change of the age pyramid (Figures III.5a and b).
F ig u r e III.5 a : H u n g a r y 2 0 0 5
75+
H unga ry 2 0 2 0
4. 06
70-74
65-69
6. 49
50-54
45-49
7. 43
40-44
6. 28
35-39
7. 19
30-34
40-44
5. 80
8. 32
25-29
6. 92
15-19
6. 15
6. 62
10-14
0-4
5. 14
10
8
6
2
0
2
4
5. 00
5. 47
8
10
P e rc e nt a ge
4. 37
4. 69
0-4
6
4. 69
5. 10
5-9
4. 42
4
6. 01
5. 77
10-14
4. 71
6. 18
6. 79
15-19
5. 66
5. 44
6. 49
6. 91
20-24
5. 84
6. 47
5-9
8. 27
7. 18
25-29
7. 86
20-24
7. 78
9. 12
30-34
7. 43
8. 84
6. 72
8. 48
35-39
6. 50
5. 89
7. 13
45-49
7. 06
7. 01
5. 97
50-54
7. 98
7. 57
6. 61
55-59
6. 69
8. 09
5. 89
6. 47
60-64
6. 03
9. 83
4. 42
65-69
5. 29
5. 36
55-59
4. 90
70-74
4. 79
4. 03
60-64
75+
7. 78
3. 31
4. 02
5. 04
10
8
6
4. 31
4
2
0
2
4
6
P e rc e nt a ge
The old age dependency ratio and total dependency ratio are also expected to rise sharply.
Another challenging demographic issue is the population decline, and by 2050, there will be
8.26 million inhabitants in Hungary, almost 1.84 million less than today.17
4. Health Status
The health status of the people of Hungary compares favorably with the health status of the
people of the new member states of the European Union (except Malta and Cyprus), though
not as favorably with the health status of the people of countries belonging to the European
Union before May 1st 2004 (or EU-15). As Table III.2 shows, life expectancy in Hungary
(72.59 years) is within the range of life expectancy in the new member states (70.46 to 76.52
years), but lower than the life expectancy in EU-15 (average 79.06 years). Likewise,
17
Source for all data used in this section: Population Division of the Department of Economic and Social Affairs
of the United Nations Secretariat, World Population Prospects: The 2004 Revision and World Urbanization
Prospects: The 2003 Revision, http://esa.un.org/unpp, 11 May 2005; 10:33:11am.
98
8
10
disability-adjusted life expectancy in Hungary is almost 7 years less than the EU-15 average.
Infant deaths in Hungary – 7.29 per 1,000 live births – is also well within the range of the new
member states (varying from 3.9 in the Czech Republic to 9.44 in Latvia), but is higher than
the EU-15 average of 4.61. The incidence of Tuberculosis in Hungary – 24.31 per 100,000 –
is much higher than the EU-15 average of 8.65 per 100,000, while the rate of clinically
diagnosed AIDS – 0.2567 per 100,000 – is much lower than the EU-15 average of 1.61.
Table III.2: Health Status Indicators, Hungary and other new EU Member States (2003)
Life
Expectancy
Slovenia
Hungary
Czech Republic
Estonia
Slovakia
Poland
Latvia
Lithuania
EU-15 average
76.52
72.59
75.40
71.24 a
73.91 a
74.65 a
70.46
71.96
79.06
DisabilityInfant deaths
TB Incidence Clinically
adjusted life
per 1000 live
per 100,000
diagnosed AIDS
expectancy a
births
per 100,000
69.50
4.04
13.77
0.3005
64.90
7.29
24.31
0.2567
68.40
3.90
10.79
0.0784
64.10
5.69 a
41.15
0.7388
66.20 a
7.63 a
16.57
0.0370
a
65.80
7.52
25.05
0.4328
62.80
9.44
72.51
2.4900
63.30
6.73
74.26
0.2606
a
71.69
4.61
8.65
1.6100
a
Data for 2002
Source: WHO, European Health for All Database (January 2005 update), as accessed online at
http://data.euro.who.int/hfadb, on May 24th, 2005, 5pm.
Tables III.3 and III.4 present the standardized death rates (SDRs) for a wide variety of causes.
A comparison of the death rates from main causes between countries gives broad indications
of how far the observed mortality might be reduced. SDRs in Hungary compare favorably to
the other new member states, but are somewhat higher when compared with the EU-15
average. SDR from all causes in Hungary is well within the range of SDR from all causes in
the new member states, but is higher than the EU-15 average of 640. Likewise, SDR from
circulatory system disorders, cerebrovascular disorders, ischemic heart diseases, selected
alcohol-related and smoking-related causes is higher in Hungary compared to the EU-15
average, but well within the range of new member states.
Table III.3: Standardized Death Rates (per 100,000), different causes (2003)
All Causes
Slovenia
Hungary
Czech Republic
Estonia a
Slovakia a
Poland a
Latvia
Lithuania
EU-15 average a
795.49
1047.97
899.60
1090.58
971.49
891.55
1113.62
1008.26
639.88
Circulatory
System
295.29
508.30
61.88
560.35
527.71
413.89
593.02
519.78
236.32
Cerebrovascular
78.76
134.59
132.37
154.06
88.18
98.57
206.23
117.37
59.05
Ischemic TB
Alcohol
Smoking
heart
Related
Related
diseases
Causes
Causes
94.37
1.05
111.42
251.08
232.66
2.41
149.55
491.02
176.09
0.68
89.74
380.91
323.00
6.10
174.29
541.74
283.48
1.19
92.80
443.02
125.78
2.33
88.95
306.79
291.58
8.70
160.22
566.77
327.75
9.45
176.98
518.51
92.89
8.65
61.28
220.78
a
Data for 2002
Source: WHO, European Health for All Database (January 2005 update), as accessed online at
http://data.euro.who.int/hfadb, on May 24 th, 2005, 5pm.
Table III.4: Standardized Death Rates (per 100,000), different causes (2003)
Malig-
Trachea
Cancer
99
Infectious
Respiratory
Digestive
Liver
Slovenia
Hungary
Czech Republic
Estonia a
Slovakia a
Poland a
Latvia
Lithuania
EU-15 average a
nant
Bronchus of the
& Parasitic System
System
Diseases
NeoLung
Cervix Disease
Diseases
Diseases &
plasms
Cancer
Cirrhosis
203.66
41.23
4.11
4.31
62.05
53.33
31.31
263.81
66.49
7.16
3.98
41.42
79.94
53.53
234.22
45.27
6.05
2.55
42.35
38.50
16.66
200.60
40.43
6.67
8.43
36.26
42.82
21.72
213.32
38.11
6.58
3.81
55.20
52.86
26.55
216.67
53.22
8.41
6.18
37.62
36.68
12.98
193.40
36.85
6.76
13.32
29.32
38.07
14.00
193.57
36.20
10.64
13.23
39.10
41.99
20.98
180.50
37.05
2.35
8.38
48.31
30.81
12.62
a
Data for 2002
Source: WHO, European Health for All Database (January 2005 update), as accessed online at
http://data.euro.who.int/hfadb, on May 24th, 2005, 5pm.
SDRs in Hungary due to chronic lung cancer (66.49), diseases of the digestive system (79.94)
and liver diseases and cirrhosis (53.53) are the highest among new member states, and much
higher than the EU-15 average. Likewise, SDRs from malignant neoplasms, and cervical
cancer are higher in Hungary compared to EU-15 averages, though SDRs from infectious
diseases (3.98) and diseases of the respiratory system (41.42) are lower than the EU-15
average. Overall, observed mortality can be reduced significantly in Hungary if the health
system and other determinants of health are more effective in addressing health problems that
account for high levels of mortality, like diseases of the circulatory system, malignant
neoplasms and ischemic heart diseases.
5. Structural Characteristics of the Health System
The Constitution of the Hungarian Republic guarantees all citizens the right to the highest
possible level of health and social security in cases when they are unable to secure them with
their own means. The current health care system of Hungary is based on the solidarity
principle where contributions are derived from income and not risk. The system ensures
pluralism among providers of medical services which are provided partly under contracts.
Financing is based on universal health insurance; capital expenditures of the hospitals are
covered by taxes. The services are operated by local governments which are the proprietors
and facilitate the operation of providers who communicate with the department of
administration of the Health Insurance Fund.
Design and Execution of the Health Policy
The National Parliament is the key decision-making player at the national level for all sectors
involving health care. The parliament decides about the planned budget as well as about the
final expenditures. It also decides about the annual contributions to the Fund. Most of the
parliament’s decisions require a simple majority, but before a bill becomes effective, it needs
to be signed by the President. The legislation in the government is coordinated by the office of
the prime minister which has reference centers responsible for the coordination of sectoral
administration led by chief officers. It is responsible for the administration of the national
health fund.
The national government executes statutory supervision of the Fund and controls the Fund. It
provides capital grants for the public health sector and some tertiary services. The national
government formulates the health policy and is one of the most important regulators. A
National Health Committee was established in 1999, and is responsible for ensuring
100
coherence of health priorities and for facilitating the implementation of health laws. The
members have a 4-year mandate and are experts in various areas, representatives of
associations and local governments.
Since the Fund was separated from the budget, the government is no longer the main financier
of health services. The government is the financial backer of the high technology sector in
health care, of emergency services and medical education. It pays for the capital expenditures
of local governments which have grants for the renovation of medical facilities. It transfers
the hypothetical health taxes to the insurance fund to compensate for the health insurance on
behalf of non-contributing groups. It also covers the costs of certain medical services and
provides tax relief for the salaries of volunteers. The government directly operates some
public health services through the system of national public health and medicine officer,
emergency services, transfusion stations, medical education and research.
The local administrations and districts are responsible for most of the health services since
1990. On the basis of contracts the local governments become owners of primary health care
facilities, specialists’ ambulances and hospitals, and are the main link in providing health
care. Municipalities own primary facilities and, if larger, some smaller clinics. District
governments own large hospitals with prevailing secondary and tertiary care.
The role of the Ministry of Health, Social Affairs and Family is to execute the health, social
and family policy of the state and to provide direction to the Fund. Its entrusted areas include
hygiene, prevention and public health. Its responsibilities include licensing and inspection of
provided services. It operates the national emergency service, the national blood program,
professional training/education and 6 state hospitals. It is responsible for primary medical
education. The Medicine Research Committee provides advisory services for the ministry of
health, and coordinates research activities of the government.
The National Public Health and Medical Services Office is an administrative agency. It is
responsible for executing state tasks, and it implements a unified system of medical
administration in public health and epidemiology, regulatory licensing, supervision of the
professional sector, monitoring, control and supervision of prevention, and training in health
care. There are three professional chambers, including the medical chamber, pharmaceutical
chamber and chamber of nurses and paramedical staff. These chambers defend professional
interests, and monitor the growth of the standard of medical and pharmaceutical care. Medical
education is provided through 37 medical colleges, 3 pharmaceutical colleges and 2 nurse
schools. Financed by the ministry of health, these colleges are also research centers and
scientific institutions.
Primary Care
Since 1992 primary health care is provided by family doctors. Citizens may choose their
doctor freely, irrespective of their place of residence. The family physicians are remunerated
according to the number of patients they serve and are hence motivated to keep their patients.
This element of competition contributes to increasing the quality of the services provided. The
family doctor should provide the patient as much care as possible before referring him/her to a
specialist.
The organization of the network follows the principle of responsibility of the local selfgovernment for health care. The network consists of providers owned by the local
administration, although in most cases there is functional privatization, i.e. the local selfgovernment outsource an activity to non-state and private physicians while retaining the
101
outpatient premises and their equipment in its ownership and bearing responsibility for capital
expenditures. The local self-government is also primarily responsible for the selection of
provider - if it decides to include a provider in the network, the Fund automatically concludes
a contract with the provider.
Table III.5: Composition of Primary Care Provision
Family doctor's services total
Adult and mixed services
Pediatrician services
Central emergency services
Outpatient services total
Clinical professions
Diagnostics
Laboratory diagnostic
Imaging diagnostics
Pathology and morbid histology
Other diagnostics and therapies
Inpatient services total
Active inpatient services
Chronic inpatient services
1999
66 297
52 996
10 978
2 323
56 598
38 492
16 970
10 182
5 696
1 092
1 136
2 556
2 374
182
2000
65 966
53 292
10 504
2 170
58 775
39 779
17 754
10 858
5 804
1 092
1 242
2 610
2 423
187
2001
66 379
53 794
10 501
2 084
61 469
40 165
19 385
12 218
6 008
1 159
1 919
2 655
2 463
192
2002
66 791
54 762
10 046
1 983
64 166
41 258
20 824
12 982
6 599
1 243
2 084
2 708
2 520
188
2003
68 787
56 114
10 540
2 133
64 868
41 657
21 143
13 176
6 681
1 285
2 068
2 749
2 559
190
Source: Bureau of Statistics of the Hungarian Republic, various years
In primary care (‘home doctors’) the local self-government draws ‘precincts’ for first-contact
physicians. The precincts are rigid and have not changed since the law was enacted. In order
to ensure free access to market changes were made which support free choice of doctor for the
patient and enable every first-contact physician to open a practice. Once the requirement of
having at least 200 patients is met the Fund must conclude a contract with the physician (note
– a practice becomes profitable with 1200 to 1500 patients). At a relatively low sensitivity of
the patients to the change of doctor, however, the precincts remain an important part of the
system. Firstly, they form a security network, because a doctor is never allowed to refuse a
patient from his own precinct. Secondly, the law allowed the “sale of practice”.
The “sale of practice” only applies to those who were chosen by the local self-government to
provide health care (i.e. those with a precinct) and does not apply to those who entered the
system later after the market was liberalized and have no precinct. Another provider may only
enter a precinct by reaching an agreement with the local self-government and buys local
health care provision monopoly from one of the current precinct physicians. The intention
behind this arrangement was to increase the reputation of home doctors and reduce their
average age because the older generations of doctors were self-employed and hence not
required to retire at a certain age. Therefore the access to the market of precinct physicians
was completely closed. It was a privilege reserved to those who had already been in the
system.
Hungary also applies the model of Managed Health Care under which the Fund enters into
contracts with providers of health services. The system is currently used by 298 family
doctors for 2 million inhabitants. On the basis of contracts the local self-governments become
owners of primary care facilities and hospitals and are one of the crucial elements in
providing health care.
102
Outpatient Care
Outpatient care is divided into general and specialized outpatient care. General outpatient care
is provided close to the place of residence, on referral of a family doctor, and is rather
sporadic. Specialized outpatient care is aimed at treating diseases which require extraordinary
diagnostic support. It focuses on out-patient care and relieves hospitals by providing one-day
surgery. It also includes specialized home care provided by qualified nurses at home.
Specialists are also organized by the local self-government. In 1996 the law specified a limit
of performance as the number of hours of a specialist in the territory of the local selfgovernment. The centrally defined formula specified how many services of what type the
local self-government was to order with specialists. The law was repealed in 2001 but the
mechanism of ordering by hour remained the ‘status quo’.
Table III.6: Outpatient Services
Outpatient services total
Clinical professions
Diagnostics
Laboratory diagnostic
Imaging diagnostics
Pathology and morbid histology
Other diagnostics and therapies
Outpatient services total
Clinical professions
Diagnostics
Laboratory diagnostics
Imaging diagnostics
Pathology and morbid histology
Other diagnostics and therapies
1999
104
106
101
102
97
90
101
110
106
122
136
98
102
96
2000
98
98
110
114
90
79
56
94
95
105
106
88
79
52
2001
103
101
112
114
102
88
52
98
101
102
101
99
83
34
2002
114
113
115
116
110
109
126
109
110
107
109
100
102
116
2003
83
71
99
99
99
90
88
82
70
98
98
98
87
89
Source: Bureau of Statistics of the Hungarian Republic, various years
Inpatient Care
Hospital care is provided on three levels: (i) district hospitals with basic departments and a
range of 25 – 30 km; (ii) local self-government hospitals – operated as large regional centers
with specialized care; and (iii) national health institutes and university centers, which mainly
provide tertiary care. Owners of the hospitals are local governments, the national government
(university hospitals), churches and charities. One hospital has on average 458 beds. In terms
of organization, the law specifies the number of beds and their structure that the local selfgovernment has to operate. The hours of specialists and hospital beds are defined by an upper
limit. The local administration has the power to reduce the number of beds and the network of
hospitals but every such decision is subject to approval of ANTSZ. Establishment of a new
facility and beds must be approved by both, the Ministries of Health and of Finance.
103
6. Health Financing
Health care expenditures accounted for 6.7 percent of the GDP in 2004, down from 7 percent
in 2003. Public expenditures on healthcare accounted for 69 percent of total health
expenditures (equivalent to 4.6 percent of GDP), while private expenditures accounted for the
remaining 31 percent (equivalent to 2.1 percent of GDP), a ratio that is somewhat lower than
the EU15 average of 78 percent public and 22 percent private (Figure III.6).
percent of GDP
Figure III.6: Public and Private Expenditures on Health
8
6
4
2
0
6.2
6.2
6.3
6.1
6.2
6.5
1997
1998
1999
2000
2001
2002
Public expenditures as % of GDP
Health Expenditures as % of GDP
7.0
6.7
2003
2004e
Private expenditures as % of GDP
Source: Bureau of Statistics of the Hungarian Republic, various years
Public funding is channeled through the Health Insurance Fund (hereinafter referred to as
“The Fund”), which is responsible not only for benefits in kind in health care, but also for
cash benefits for sick-pay and some types of pensions (like disability). In 2004 the Health
Fund spent HUF 946 billion on healthcare benefits in kind and paid HUF 422 million on
benefits in cash. Revenues of the Health Fund have consistently been below expenditures, but
the gap has grown considerably in the last two years. In 2003, expenditures exceeded
revenues by over HUF 300 billion, equivalent to 1.6 percent of GDP. There was marginal
improvement in 2004, with expenditures exceeding revenues by around HUF 277 billion, or
1.3 percent of GDP (Figure III.7).
8
0
-0.4
-0.5
-0.2
6
4
-0.5
-0.5
-0.7
-0.7
-1
-1.3
2
-1.5
-1.6
0
-2
1997
1998
1999
HIF Revenues (left axis)
2000
2001
2002
HIF Expenditures (left axis)
Source: Bureau of Statistics of the Hungarian Republic, various years
104
2003
2004e
Deficit (right axis)
percent of GDP
percent of GDP
Figure III.7: Fiscal Position of the Health System
Debt settlement
The government attempts to consolidate the health care and pays the accrued debts directly
through hospitals. In his stabilization package, the then-Finance Minister Lajos Bokros tried
to introduce hard budgetary restrictions, but subsequent governments eliminated the effects of
this effort by a package of debt discharges. In effect, therefore, those who tried to save and
not create more debt were actually punished. Eventually the government decided that
hospitals will receive financial aid from the Fund in the form of a loan, to be paid by the
hospitals later by offsetting against the payments from the Fund. This system is currently in
operation. The fund operates as the hospitals’ creditor.
The debt of hospitals is approximately HUF 50 billion. The debt of OEP is HUF 300 billion
(the 2002 deficit reached HUF 100 billion). This debt does not arise by failure to pay for
health care itself, but by outstanding payments for drugs and sickness allowances.
6.1 Public Financing of the Health System
Provisions in kind
In the past 15 years the system of health financing in Hungary has transformed from a
centrally-controlled budget-supported model to a Bismarckian model of universal health
insurance .18 All citizens are insured and contribute to the Health Insurance Fund (hereinafter
‘the Fund’) established as part of the social health insurance scheme. Citizens contributing to
the Fund include: (i) employees; (ii) non-contributors, i.e., pensioners, women on maternity
leave, low-income households, etc.; (iii) voluntarily insured foreigners; and (iv) others.
Universal coverage of the population is ensured by these categories, with only 1 percent of the
population remaining uncovered.
Table III.7: Parameters of the Health Insurance System
1999
2000
Employer's contribution as a
percentage of total wages
11
11
Upper limit of employer's contribution
none
none
Employee's contribution as a
percentage of total wages
3
3
Upper limit of employee's contribution,
HUF per day
5,080
5,520
Upper limit of employee's contribution,
HUF per year
1,854,200 2,014,800
Percentage of hypothecated health care
tax
11
11
Fixed amount of hypothecated health
care tax in HUF /month/ person
3,600
3,900
2001
2002
2003
2004e
11
none
11
none
11
none
11
none
3
3
3
4
none
none
none
none
none
none
none
none
11
11
11
11
4,200
4,500
3,450
3,450
Source: Bureau of Statistics of the Hungarian Republic, various years; e…estimate;
The amount of the contribution to the Fund is determined on a proportional basis by the
parliament, and is defined as a percentage of the gross salary for the first group of contributors
18
In 1987 the Ministry of social affairs and health announced the beginning of the reform and the insurance fund
was separated from the state budget. The foundations of the current system were laid at the end of the 1980’s
following changes in the political and economic system of the communist era. The 1989 Constitution declares
Hungary a social-market economy, where private and public sectors had the same value. (Right to healthy
environment, certain level of mental and physical health…)
105
– employees and employers. Employees contribute 3 percent and employers 11 percent of the
gross salary (Table III.7). Until 2000 there was an upper limit to the employee’s contribution,
of HUF 5,080/5520 per month, but this limit was abolished in 2001. The government pays on
behalf of the second group – the non-contributors – by transfers from tax revenues to the Fund
(hypothecated health care tax). The third group of the self-employed and volunteers contribute
a percentage of the minimum salary.
In 1994, the hypothecated health care tax (“health tax”) was introduced. Health tax is paid by
every employer on behalf of their employee as a fixed amount. This tax was later extended to
all types of income which had earlier been exempt from health care taxation. Health tax was
introduced by a specific law, not through the system of health insurance, since the Hungarian
Constitutional Court ruled some measures of the ‘Bokros package’ unconstitutional. The
Constitutional Court argued that health insurance was an insurance contract and towards
citizens the state was not free to change its terms arbitrarily – including the extent of free
health care. On the other hand, the Constitutional Court did not apply the same reasoning to
tax cuts, and so the government did not use the health insurance act to raise funding but opted
for a special “tax” law instead.19
Table III.8: Revenues of the Fund
TOTAL REVENUES
Revenues and
Contribution
Employers health
insurance contribution
Employees health
insurance contribution
Health Tax
Contribution
Employers sick pay
contribution
Others
Central budgetary
contributions
Other revenues
Revenues from
property sales
Revenues used for
operations
Revenues from
arrears collection
1997
499,487
1998
561,461
1999
653,597
2000
734,584
2001
884,697
2002
1,024,575
2003
1,025,437
2004e
1,115,898
471,812
534,078
591,237
653,715
762,402
883,681
927,665
1,052,428
323,483
370,621
344,570
373,047
441,869
517,978
580,650
635,284
62,474
62,662
76,355
81,314
105,592
128,575
142,717
207,217
71,974
92,592
156,786
181,379
194,664
209,875
173,315
176,935
7,658
6,223
n/a
8,203
12,348
1,178
13,387
4,588
14,625
5,652
18,066
9,187
21,383
9,600
23,177
9,815
2,500
15,315
2,500
4,590
30,290
3,176
70,872
2,635
103,928
15,680
135,885
3,473
85,988
9,982
57,619
4,761
8,200
1,925
24,385
3,885
866
75
55
35
1,660
2,874
4,509
3,477
1,821
1,461
1,747
1,055
0
15,494
0
0
0
0
0
0
Source: Bureau of Statistics of the Hungarian Republic, various years; e…estimate;
Health insurance premiums are the chief source of revenue for Health Fund, followed by
central budgetary contributions, though they show a sharp decline in 2003 (Table III.8).
Despite all the parametric changes and a minor paradigmatic change (introduction of health
tax) the system suffers from huge arrears, with the health insurance fund generating deficits
year after year. The Fund is responsible also for the sickness pay and other parts of social
insurance system (disability pensions) and these cash benefits are paid from health insurance.
19
This Constitutional Court ruling set a precedent which has substantially limited attempts to reduce freely
provided health care, although the current government indicated such intentions in the Government Manifesto.
106
The deficit is generated mainly in the sickness insurance area. The largest debtor of the Fund
is the state (on behalf of the second group of citizens).
Investments
Health financing channeled through the dual system as described above has also meant that
that the medical services and current expenditures get financed by the Fund and the capital
expenditures (investments) get financed from the budgets of the individual governments.
Investment costs are always paid by the founder/owner, which for the budget-financed
organizations is the state budget, for self-governmental facilities the local self-government
and for private companies the private owners or investors.
Since health care is organized on local self-government basis, as much as 90 percent of the
total capital investments are paid by local self-governments. The local self-government is the
owner of the majority of outpatient and other medical facilities and is therefore responsible
for all investments into instruments and equipment. Meantime, the real operator of health care
can be fully private (‘functional privatization’). Local governments draw the funds for capital
expenditures from: (i) tax revenue transfers (mainly income tax); (ii) local taxes; (iii) target
subsidy revenues (e.g. Grants for equipment and instruments); and (iv) capital grants from the
Ministry of Health (conditional and matching grants).
This formulation makes taxes the most important source of long-term investments
(reconstruction of buildings, equipment and instruments, other investments) into the health
care system in Hungary. The greatest weakness of this system is the inefficient allocation of
resources and the issues related to centralized management. MOH defends this system arguing
that the providers are unevenly located geographically and that in some areas the discrepancy
between the needs and the supply of medical services can only be be corrected by direct
ministerial intervention.
On the other hand, this construction of capital expenditure system does not permit the entry of
private capital because payments from the Fund do not include amortization. The private
sector has very limited access to capital expenditures. The political control over the
distribution of capital expenditures is a natural attractor of lobbyist groups, and these factors
combined lead to an excessive price of the procured investments and failures of allocation in
both geographical and functional terms.
6.2 Private Financing of the Health System
Private sources in Hungary account for approximately 31 percent of health care expenditures,
while the major share (69 percent) of total direct payments has the form of a co-payment
towards pharmaceutical products and therapeutic appliances (Table III.9). Direct payments of
the population are divided into three categories: (i) fees for services not covered by the Fund;
(ii) direct co-payment for services partly reimbursed by the Fund; and (iii) informal payments,
or the ‘envelope fees’.
107
Table III.9: Annual Per Capita Expenditures on Health, 2000 (HUF)
Items
Medical products, appliances and
equipment
Pharmaceutical products
Other medical products
Therapeutic appliances and equipment
Outpatient services
Medical services
Dental services
Paramedical services
Hospital services
TOTAL
Health consumption as percent of total
consumption
First
Quintile
6,245
Second
Quintile
9,602
Third
Quintile
13,544
Fourth
Quintile
17,325
Fifth
Quintile
21,873
Total
13,719
4,501
4,005
51
444
1,602
533
1,037
32
143
206,738
7,270
6,511
44
715
2,181
567
1,503
112
151
266,783
10,170
8,970
112
1,088
3,234
816
2,283
135
150
323,979
12,528
10,722
89
1,716
4,509
1,490
2,822
198
288
395,240
14,167
11,458
131
2,577
7,490
1,850
5,312
328
217
610,697
9,727
8,333
86
1,308
3,803
1,051
2,591
161
190
360,668
3.0
3.6
4.2
4.4
3.6
3.8
Source: Bureau of Statistics of the Hungarian Republic, various years
Out of pocket expenditures not covered by the Fund, or services excluded from health
insurance, include payments for pharmaceuticals, therapeutic appliances, medical aids,
prostheses, prosthodontics, some dental services, spa care, and “hotel” services of medical
facilities, aesthetic surgery and other non-indicated medical treatments.
The second group – or direct co-payment – depends on the health care provider. These may
operate on the basis of contracts with the Fund or as private entities that do not have a
contract. The services are reimbursed from the Fund when provided on a contractor basis and
are paid by the patient when provided by a physician without a contract. Officially, copayment does not exist in the primary, secondary and tertiary domains. Providers, however,
may bill the patients for “above-the-standard services” which is awkward, because “the
standard” is not defined in the law. This leaves the provider with a lot of discretion of
determining what constitutes extra service and what does not. The second legal direct
payment is what is paid to the provider for visits without a referral. In such case the whole
cost of the provided medical care is borne by the patient. The price of drugs and medical aids
is agreed every year between the Fund and the producers, and is either specified as a
percentage of the market price, or as a fixed amount. Here it is also significant whether a
pharmacy has a contract. The services partially paid by the patient also include long-term
chronic illness treatment (HUF 400 per day).
The third group of out-of-pocket payments is the informal payments. These are sometimes
called ‘envelope fees’, or bribes. The amount of informal payments of the population is a
controversial item. National health care accounts (OECD methodology) deny the existence of
informal payments. There are various sources of data which differ in the determination of the
amount and proportion of informal payments. Estimates of informal payments vary, and are
usually considered to be between HUF 25 to 50 billion, equivalent to 2.5 to 4.5 percent of
total health care expenditures. As much as 90 percent of the gratitude money goes to
physicians and only 10 percent to nurses and other paramedical staff. The distribution of the
gratitude money is not symmetric even among various professions of physicians. Only 30,000
of the total 43,000 physicians can receive it (technical and laboratory professions are
excluded) and among those who can receive such payments, two-thirds goes to specialists and
one-thirds to family doctors. In some cases, these informal payments amount to as much as 60
to 200 percent of the net income of a specialist or 70 to 250 percent of the net income of a
108
family doctor. There are also regional differences (with these gratitude payments higher in
Budapest) and in the hierarchy of physicians in hospitals (head physician versus attending
physicians).
The last component of private financing sources is the nascent private supplementary
insurance. Since 1993, when the necessary legislative framework was created, voluntary
insurance funds have been gradually on the rise. In 2000 this form of financing accounted for
1 percent of private health care spending.
7. Structure of Health Expenditures
As discussed earlier, the Health Fund is responsible not only for benefits in kind in health
care, but also for cash benefits for sick-pay and some types of pensions (like disability).
Overtime, the proportion of the Health Fund’s expenditures on provision in cash has increased
at the expense of provisions in kind, such that while in 1997 the benefits in kind amounted
more than 70 percent of all expenditures, in 2004 benefits in kind are lower than 68 percent.
In the same time period, the weight of provisions in cash rose from 25.5 to 30.3 percent. Table
III.10 presents the complete picture of public expenditures on health in Hungary.
Table III.10: Expenditures of the Fund
TOTAL
EXPENDITURES
Provisions in kind
Curative-preventive health
provisions
GPs’ and GPs’ emergency
service
MCH service, mother,
child and youth care
Dental care
Service of dispensaries
Transport of patients and
corpses on medical order
Outpatient special care
CT, MRI
Kidney dialysis
Home special nursing
Inpatient care
Others
Balneological services,
breast milk supply
Subsidization of
Medicaments
Subsidization of
therapeutic equipments
Refunding of travel
expenses
Expenses resulting from
international agreements
Provisions in cash and
retirement provision
Retirement provision
(disability and accident
disability pensions)
Sick pay
Child care fee
Pregnancy and
1997
1998
1999
2000
2001
2002
2003
2004e
555 586
389 964
632 052
458 449
701 290
504 069
798 199
556 016
914 976 1 111 232 1 325 550 1 393 650
623 358
750 326
910 236
946 521
265 779
299 092
338 877
376 069
410 304
502 852
622 766
657 068
35 355
36 608
41 138
45 453
58 106
59 572
7 816
9 679
7 269
8 334
10 410
8 157
9 235
12 076
9 501
9 978
16 199
8 616
13 790
20 496
10 107
14 148
21 144
10 465
3 451
46 608
6 484
8 736
1 120
211 456
712
3 687
51 620
7 058
10 143
1 274
222 795
15 782
4 174
61 260
7 842
11 606
1 463
249 944
1 797
4 812
72 923
8 492
13 061
1 587
294 576
26 923
6 014
96 529
10 735
15 896
2 236
373 832
15 027
23 594
102 425
10 519
16 119
3 134
379 100
16 848
1 574
2 010
2 445
3 235
4 071
4 347
4740
6024
100 876
135 474
139 461
150 753
179 465
209 033
241 972
238 905
16 782
19 618
20 589
22 668
25 002
28 915
34 957
37 997
2 561
2 255
2 697
3 291
3 836
4 274
4 750
4 906
n/a
0
0
0
680
905
1 051
1 622
141 809
149 657
174 739
221 061
270 772
335 753
386 383
422 710
97 982
36 138
0
6 013
99 927
41 255
0
6 924
115 949
49 205
0
7 768
132 243
56 140
20 381
10 047
157 964
64 206
29 646
12 470
194 284
80 864
37 807
15 777
213 888
98 936
45 589
20 207
238 617
101 480
53 019
21 348
109
confinement benefit
Accident benefit
Others
Other expenditures
Asset management
Operational costs
n/a
1 676
4 803
n/a
19 010
n/a
1 551
2 614
141
21 332
n/a
1 817
3 219
n/a
19 263
n/a
2 251
3 290
n/a
17 832
4 249
6 486
2 156
564
18 126
4 986
7 021
2 631
531
21 991
5 605
2 158
4 791
413
23 726
5 911
2 335
3 573
16
20 830
Source: Bureau of Statistics of the Hungarian Republic, various years
Health expenditures – i.e., those classified as expenditures on “provision in kind” – are
dominated by expenditures on inpatient care and on subsidizing pharmaceuticals and medical
equipment. Expenditures on inpatient care have fallen marginally from 41.9 percent of total
public expenditures on health in 1999 to 41 percent in 2003 and are expected to be around 40
percent in 2004. Likewise, expenditures on pharmaceuticals have fallen marginally from 31.8
percent of total public expenditures on health to 30.4 percent in 2003 and are expected to be
29.3 percent in 2004 (Figure III.8).
Figure III.8: Structure of Public Expenditures on Health
100%
Others
80%
Outpatient Primary Care (including
dental)
60%
Outpatient Specialist care
40%
Subsidization of Drugs and Medical
equipment
20%
Inpatient Care
0%
1999
2000
2001
2002
2003
2004e
The Health insurance fund is divided into more than twenty sub-budgets (kaszas) according to
the type of provided services. These sub-budgets are unified on the national level, and are not
mirrored on the regional level. Every year the National Assembly specifies a (prospective)
ceiling for each sub-budget and the system of methods of payment to the providers guarantees
that the ceiling will not be exceeded. The sub-budgets are sequestered and no transfers
between them are possible. The only exceptions are the pharmaceutical budget, into which
(since 1999) the Minister of Health may reallocate resources from the sub-budgets to cover
excessive expenditures of the pharmaceutical budget, and the benefits in cash “kasza”, whose
expenditures and deficits can be covered from health insurance and the state budget.
Providers of medical services need to conclude contracts with the Fund in order to get
reimbursed for the services provided to the insurees. The contracts define the capacities of the
providers in acute or chronic hospital beds, consulting hours of outpatient specialists, etc. On
the basis of these contracts individual health care providers receive reimbursement from the
sub-budgets using several methods. The reform process in the 90’s brought many changes to
hospital and outpatient care. The payment system was initially built on the performance
principle and payment mechanisms focused on the type of service instead of type of
institution. In 1992 a capitation system was introduced for family physicians and in 1993 a
110
point-based catalog for outpatient specialists was followed by DRG payments for acute
hospital care and payments for hospitalization days in chronic care.
Primare Care
Primary care is provided by family doctors. These may conclude a contract with the Fund or
the local government or they can operate a private practice. Private practitioners without a
contract with a Fund are financed by direct payments of the patients for the provided services,
while the fees are not regulated by state. Table III.11 presents the expenditures of the Health
Fund on primary care.
Table III.11: Expenditures of the Health Fund on Primary Care (HUF million)
Curative-preventive provisions in
kind
GPs’ and GPs’ emergency service
Financing of practice
Fixed amount
Area allowance
Performance remuneration ("card
money")
Remuneration of episodic care
Duty service
1999
2000
2001
2002
2003
2004e
338 683
35 355
31 288
7 352
432
375 869
36 608
32 416
7 558
434
410 036
41 138
36 276
8 178
585
502 622
45 453
40 275
8 445
2 247
622 766
58 106
51 572
10 941
2 250
657 068
59 572
54 164
23 504
249
3 818
24 425
256
3 936
27 513
330
4 532
29 583
368
4 810
38 381
468
6 065
54 164
477
6 431
Source: Bureau of Statistics of the Hungarian Republic, various years
Contract physicians are paid on the basis of capitation which was introduced as a payment
mechanism in 1992. Citizens can choose their family physician freely and the number of
registered citizens is the basis for basic financing. The income of general practitioners
consists of the capitation payment for the patient and a fixed amount depending on the size of
the practice, and a payment for visits of non-registered patients.
The capitation payment is based on the number of registered patients. The patient list must be
regularly updated and adjusted to the age structure of the registered, and the profession and
practical experience of the family physicians. The population is divided into 5 groups and
different levels of points are allocated to each age group:
 infants aged 0 – 4 years: 4.5 points
 children aged 5 – 14 years: 2.5 points
 persons aged 15 – 34 years: 1 point
 35 – 60 years: 1.5 points
 more than 60 years: 2.5 points
Above a specified level (2400 points for adults or children, 2600 for mixed practice) the
family doctor does not receive a full value of the capitation. The total number of points is
multiplied by a coefficient depending on the expertise and experience of the physician (1.2 if
the physician has a relevant qualification, 1.1 if the physician does not have relevant
qualification but has 25 years of experience in primary medicine, and so on). If the physicians
have contracts directly with the Fund, they receive payments from the Fund; if the physicians
are employed by local governments, however, the Fund transfers payments to these
governments which then pay the physicians.
111
Specialized Outpatient Care
The majority of specialized outpatient services are reimbursed by a point-based system. Every
procedure is assigned a number of points depending on its experience requirements and
resource intensity. Specialists report the number of points monthly to the appropriate Fund
authority. Before 2000 the performance points were added up on the national level and the
monthly value of the point was calculated as the quotient of a pre-determined budget divided
by the total number of points. The payment was then determined as the product of the
adjusted point value and the number of ‘collected’ points. From the second half of 2000, the
point value is defined as a fixed preliminary amount. A part of the sub-budget is laid aside at
the beginning of the year to compensate for performance growth and seasonal differences.
The value of the point is only recalculated when these reserves are spent.
Hospital Care
In-patient services are refunded according to the individual types of cases: a prospective
payment system based on DRG is employed for the reimbursement of most acute care and
rehabilitation, except for some tertiary care services that are paid by the national government.
High-cost cases – like bone marrow transplants – are financed on a per-case basis. Chronic,
long-term care is paid by the number of days of hospitalization. Table III.12 presents the
expenditures of the Health Fund on inpatient care.
Table III.12: Expenditures of the Fund on Inpatient Care (HUF million)
Inpatient care
Acute inpatient care
Task financed under special rules
Chronic inpatient care
Other
Extra financing
1999
211 456
182 477
7 063
21 132
718
65
2000
222 795
191 141
7 802
22 949
753
150
2001
249 944
214 863
8 303
25 754
805
218
2002
294 576
254 713
10 369
28 359
860
275
2003
373 832
327 211
10 591
34 854
953
222
2004e
379 100
327 526
13 538
39 623
1 113
300
Source: Bureau of Statistics of the Hungarian Republic, various years
The basic principle of the DRG system is that it classifies the individual cases in a
manageable number of categories derived from complexity and costs. The current Hungarian
version of DRG (homogenous disease groups – HDG) contains 736 categories. Each has its
weight or number of points which is higher for more demanding and costly cases. Every
month the hospitals report executed cases which are classified using the DRG system at the
Information Center for Health Care, the administrator of the system.
The second important element of DRG in addition to the relative weights is the standard day,
which is used to determine the length of hospitalization. Every DRG group has a lower and
upper limit for the length of stay in hospital, expressed as the minimum and maximum
number of days spent in the hospital. The lower level is important to prevent under-treatment.
The upper level enables an increase of the DRG payment. The payment for a patient who
spends less than the minimum limit in the hospital is not refunded fully, but at 80 percent
only. For many of these reasons, the Hungarian system has a tendency to overproduce while
minimizing costs and providers have all incentives to reduce the length of stay of patients to
as close as possible to the lower limit for hospitalization.
The hospitals are paid monthly by the Fund according to the total number of DRG points
multiplied by the monetary value of the point (nation-wide fee). This value is determined by
the Fund preliminarily at the beginning of the year and applies to all hospitals equally. Part of
the sub-budget is held aside to compensate for performance growth and seasonal differences.
112
The value of the point is only adjusted when these reserves are spent – just like in the system
for specialists.20
At the beginning of 2004 a new mechanism was introduced in hospital and specialized
outpatient care. In this system, providers receive only a full-value refund for 98 percent of
their performance in the previous year, 60 percent for performance exceeding this level by 5
percent, 30 percent for performance exceeding the level by 5-10 percent, and only 10 percent
of the monetary value of the point for any services exceeding the benchmark by more than 10
percent.
Expenditures on Pharmaceuticals
The pharmaceutical industry is mostly privatized and several large pharmaceutical companies
have gained prominence. Approximately 2,000 pharmacies, owned by professional
pharmacists, operate on the Hungarian market. According to WHO Hungary annually spends
$280 per citizen on drugs, more than UK ($240) and the Czech Republic ($242). The prices of
drugs continue to grow: in 2002 the price of drugs increased by 6.2 percent and in 2003 by 3.6
percent. Spending on drugs decreased on the previous year after a one-time hard-hitting
administrative measure was adopted by the ministry, reducing payments for drugs by 15
percent across the board.
Coverage of drugs by health insurance has two forms. The Fund pays a percentage of the
drug’s price, ranging between 10 and 100 percent of the price. There is also a system of fixed
coverage based on a nominal HUF value. A special commission at the Ministry of Health
decides how much of the price will be covered by insurance, a decision which is subsequently
issued as a government decree. In cases where the commission specifies a percentage of the
price, it also specifies the retail price. The percentage-based system of refunds from health
insurance leads to a higher consumption of more expensive drugs – and higher margins in the
logistic chain.
About 500,000 persons get drugs for free under the ‘Kozgyogyellátás’ system, which
establishes public provision of drugs and aids for selected groups of citizens. This system
gives some groups of people access to drugs and medical aids for free, even if they would
normally have to be paid for in full. The local self-government decides who will be included
in the group and issues a special identification document. This system naturally leads to a
huge abuse of resources because the identification documents are used to obtain prescription
drugs for friends and family members.
The drugs policy is one of the weakest links of the Hungarian health care. It is the only Fund
sub-budget without a macro limit. The other sub-budgets for primary care, secondary care and
hospitals have limits and are obliged to create reserves throughout the accounting period.
When the reserves are not sufficient, and this happens every year, the ministry responds by
decreasing the value of the point system as well as of the DRG base rate price, so that the
planned budget of the sub-budget is met. Drugs, however, have no capped budget and
regularly cause Fund deficits, which the government then pays from the state budget.21 The
20
A major disadvantage of this system is that DRGs do not include amortization and so the relative weights do
not reflect wear and tear on instruments or dissolving production to fixed costs. To this extent, the DRG system
does not reflect the break-even point in producing individual diagnoses.
21
The greatest strength of the drugs policy is that it provides the Fund total control of the drugs chain from
prescription of the drug, using a unique and special prescription form, to its issue and refund. The Fund knows
113
second reason for a permanent deficit of the drugs ‘treasury’ is the introduction of new
products and drugs to the market. Every drug released on the internal market must be
registered with the National Institute of Pharmacy, but this registration does not provide for
any controls. New drugs increase the prices, and where refunds are percentage-based, the
financial burden for health insurance increases too.
8. Conclusion
The main channel of health financing in the Hungarian system is the Health Insurance Fund
which, for a number of reasons, has been in deficit for several years now. The Fund has no
real responsibility, it only distributes resources. Health insurance is administrated solely by
the Fund. Collection of premiums, however, is performed on behalf of the Fund by the tax
authorities. All non-eligible insurance payers pay their contributions to the tax authorities
from where the resources are transferred to the Fund. The collection rate of insurance
premiums is rather low, with poor application of receivables management and controlling,
leading to high amounts of claims and unpaid premiums. On the side of premium collection,
the Fund remains passive and depends on the success rate of the tax authorities. The Fund is
not responsible for unpaid premiums or the arising deficit, and all deficits are covered by the
state budget. The Fund is effectively a re-distributor of public resources without the necessary
motivation for rational and efficient purchasing of health care. The health care system as a
whole faces even more fatal consequences. The Fund becomes the administrator of the
system. Health care is not purchased efficiently, it is only paid regularly.
Clearly, the health system will continue to generate debts upwards of 1% of GDP if no
stabilization measures are introduced. Furthermore, these measures need to either have a
systemic focus or be accompanied by systemic changes if they are to be potentially
sustainable beyond the immediate short run. First and foremost, the health insurance and the
sickness insurance activities need to be separated on both revenue as well as expenditure
sides, as there are no logical cross-subsidization mechanisms between the two. It is also a
question whether the Fund has enough administrative capacity to handle both, the payments in
benefits in cash and also the ability to effectively purchase health care services.
Second, the current dual system of financing – in which the Health Fund provides the running
expenditures and the state budget supports capital expenditures – should be abolished. This
dual system is one of the main reasons why no private investors enter the health market,
because the DRGs in the hospital sector do not cover amortization, which will thus leave the
private hospitals without recourse to any funding to cover depreciation. In many ways,
therefore, the dual system de-motivates the private providers and investors. In fact, capital
expenditures could perhaps be transferred from the state budget to the Health Fund, though
this may have implications for the role and responsibility of the municipalities in the health
care system.
Third, legal copayments need to be introduced in primary, secondary and tertiary care and for
prescriptions in order to instill a greater sense of responsibility among people for their own
health. Patients are already making informal copayments, and it is important that these
copayments are legalized and the structure changed so that the effect of this is felt through the
public system of health care provision. Instead of being accompanied by exceptions, which
who drew the prescription, to whom it was drawn, when and where it was used by the patient, and when the
Fund paid for it.
114
are difficult to manage, the introduction of copayments should be accompanied by special
allowances for the poor and the vulnerable from the Social Security System.
Fourth, a limit needs to be set for the pharmaceuticals sub-budget, the only one currently
without a macro limit. Like the other sub-budgets, the pharmaceutical sub-budget should also
be obliged to create reserves throughout the accounting period. Further, the current system of
subsidizing drugs based on percentages sets in place incentives for the more expensive drugs
to be prescribed and consumed. The percentage system of reimbursement should be replaced
by an absolute limit, which will correct the incentive framework. And finally, the current
system of providing free drugs for selected groups of citizens under the ‘Kozgyogyellátás’
system should be done away with, given the widespread misuse of this privilege. Instead, as is
suggested in the case of copayments, special allowances could be given to the poor and
vulnerable, which will serve the same purpose but eliminate at least one possibility of misuse.
Fifth, there is an urgent need to realign incentives in the management of hospitals so as to
enhance accountability and improve efficiency. Presently, expenses on inpatient care in
Hungary are high and hospitals have few incentives to focus on efficiency. The rules
governing the administration of hospitals leave the managers with little desire to change
anything and little room for experimentation. This arrangement is unsatisfactory for a variety
of reasons, including the non-responsiveness to the changing demands of the user-population,
and the lack of any accountability of the management of the hospital. Granting the facilities
greater administrative, personnel, financial and operational autonomy is a necessary first step
in improving efficiency and creating a basis for accountability. The autonomy would permit
the hospitals to have greater freedom to manage health production and delivery, innovate and
determine local priorities, determine the balance and pattern of services to be provided for
local communities from within available resources, and determine the most cost effective
configuration of services. At the same time, greater autonomy would facilitate the
involvement of hospitals in contributing more meaningfully to the shaping of national policies
and priorities, developing new models of service delivery in partnership with the primary
care, community care and social care sectors, and be in a fair “competitive” environment with
other hospital providers, including private sector providers.
Summary
Hungary’s health care system is in a crisis, both on account of expenditure overruns year after
year, creating huge debts in public financing, and on account of the continuing poor status of
the people of Hungary relative to other countries in the EU8. In order to address the deeprooted structural problems, a set of immediate stabilizing measures and more systemic
structural measures need to be put in place to guide the health system toward a better fiscal
and health status outcome. Some of these directions of reform are outlined above. The latest
Government manifesto also speaks about effective, better healthcare, based on solidarity
principles with respect to market mechanisms. Strengthening patient rights is given a priority
in the government’s approach, which also recognizes the importance of enhancing managerial
and decision-making decentralization, eradicating informal payments and perhaps even
redefining the minimal health benefit package
As regards health status, the Hungarian government has prepared a multidisciplinary and
intersectoral strategic program (“Johan Béla National Program for the Decade of Health”) in
the area of public health to fill the gap between Hungary and EU15 countries in life
expectancy, which was passed by the Hungarian parliament in 2003. This program aims at
115
primary prevention and control of the burden of most frequent chronic diseases, such as
cardiovascular diseases, tumors, mental and locomotor diseases. The main health priority
identified in the government program is cancer, and emphasis is laid on improving both the
diagnostics and the therapy. Cardiovascular diseases are also recognized as a problem area,
and the enlargement of the network of heart catheter labs is proposed.
116
Latvia
1. Introduction
Latvia is a small urbanized country with a population of 2.3 million (2004), located in the
middle of the three Baltic states. Following periods of high inflation and sharp decline in
incomes during the initial years of independence in 1991, the economy has stabilized and
during the last several years, Latvia has seen significant economic growth. The political
situation in Latvia, however, has remained in flux ever since independence. The minority
government, headed by Indulis Emsis of the Union of Green and Farmers, collapsed after its
coalition partner rejected the draft 2005 national budget. The President of Latvia appointed
the twelfth government since 1991, which is headed by Aigars Kalvitis, who leads a fourparty right wing coalition. Solving the health care crisis and developing a well functioning
health care system is the first priority in the new government’s broad reform plans.
The immediate health care crisis that the new government faces – demand from medical
personnel for higher wages and reduced working hours – has actually occupied the
government’s attention for several years now. Administrative increases in salaries of medical
have been taking place almost regularly since 2002, but still remain below the expectations of
the medical personnel. In a recent proposal, currently under discussion by senior policymakers, the Ministry of Health suggests raising physicians’ salaries by 2010 to levels two
times higher than the average salary levels, but it is not clear from where the needed financial
resources would come from. In any case, this proposal has considerable implications for the
fiscal health of the system, especially in an environment in which real wages are projected to
increase by over 5 percent in 2005, which will put further pressure on the health system.
More important than the potential financial burden of increasing salaries are the relatively low
health outcomes in Latvia. Life expectancy at birth in Latvia is lower than the other Baltic
States, and is one of the lowest in the European Union. Infant mortality (17 per 1,000 live
births) is more than double that of Lithuania and about 4 times higher than the levels
prevailing in Estonia, and is the highest among all countries in the European Union. The
incidence of tuberculosis has increased 50 percent over the past 10 years and the current
epidemiological situation is worrisome by international comparisons. In terms of risky health
behavior, over half of the male population and about one-fifth of the female population smoke
daily; there is high prevalence of high blood pressure (6.54 percent of males and 12.9 percent
of females report hypertension and almost 20 percent of the population reports elevated
cholesterol); and obesity is a serious problem with almost one third of the population
overweight based on the Body Mass Index.
Another problem facing the Latvian health cares system is excess capacity in hospitals, which
is estimated to vary between 40 to 50 percent of all hospital beds. Most facilities are poorly
maintained and have old, outdated equipment. Average length of stay in hospitals continues to
be in double digits, which further increases the cost of delivery of hospital-based services.
The pharmaceutical market is small but growing rapidly at an annual rate of almost 10 percent
and has reached a level of US$220m in 2004. In fact, almost all the increase in health funding
in the last 5 years is explained by increase in consumption of pharmaceuticals.
The pressure to raise remuneration levels of health sector employees, maintenance of
expensive hospital infrastructure, rising consumption and costs of pharmaceuticals, managing
new expensive technology in the health sector – all present a huge challenge for fiscal health
as well as for production and delivery of health services in Latvia. Even though the present
position does not look serious, largely because of high growth rates of the economy, the
cumulative effect of cost pressures are very likely to upset the balance in the health sector at
the first sign of weakness of the economy. Indeed, improving the policy mix by continuing to
ensure fiscal sustainability is a priority for the government, especially as Latvia seeks to meet
the Maastricht criterion of 3 percent of GDP in the next few years, a prerequisite for joining
the European Monetary Union. Meeting this challenge will require bold structural reforms
aimed at reducing the current and potential fiscal pressures in the health system, and ensuring
that debts are not accumulated while improving the effectiveness of service delivery.
In this context, the main objectives of this report are to take stock of recent trends in health
expenditure aggregates in the public sector and identify specific areas of health expenditure
reform consistent with the objectives of stabilizing the fiscal situation without adversely
affecting the production, delivery and utilization of health services. The rest of this report is
organized as follows. Section 2 presents the macroeconomic background in order to set the
context in which the fiscal situation in the health sector can be best understood. Latvia, like
other countries in the region, is undergoing a demographic transition as a result of which the
population is ageing rapidly, and these issues are discussed in Section 3. Section 4 presents
the health status of the people of Latvia, and compares it with other countries in the region.
The structural characteristics of the health care system are highlighted in Section 5. Health
financing issues are discussed in Section 6, followed by a discussion in Section 7 on the
structure of expenditures in the health sector. Major expenditure items are highlighted in
Section 8, and conclusions are presented in Section 9.
2. The Economy
Latvia continues to be at the forefront in the European Union in terms of GDP growth. Real
GDP growth in the third quarter of 2004 accelerated to 8.5 percent year on year, underpinned
by booming domestic demand. On the supply side, the shift towards the service sector
continued, while on the expenditure side the fastest growth has been recorded in fixed capital
formation. Private consumption has remained strong, increasing by 8.7 percent year-on-year
in the third quarter while the growth of government consumption has been much more
subdued. Growth in 2004 was broad-based, with services output rising by 13 percent, and
manufacturing output rising by 7.9 percent.
The main origins of GDP in 2002 were services (70.9 percent), manufacturing (14.9 percent),
construction (6.1 percent), agriculture, hunting and forestry (4.5 percent), and utilities (3.4
percent). The main component of the GDP was private consumption (63 percent), followed by
investment (24.4 percent) and public consumption (20.8 percent).
Table III.13: Macroeconomic Indicators, 2000-2004
GDP at market prices (LVL bn)
GDP (US$ bn)
Real GDP growth ( percent)
Consumer price inflation (av; percent)
Population (m)
Exports of goods fob (US$ m)
Imports of goods fob (US$ m)
Current-account balance (US$ m)
2000
4.7
7.7
6.9
2.7
2.4
2,080
-3,123
-354
118
2001
5.2
8.2
8.0
2.5
2.4
2,243
-3,578
-625
2002
5.7
9.2
6.4
1.8
2.3
2,545
-4,024
-621
2003
6.3
11.1
7.5
2.9
2.3
3,171
-5,174
-917
2004
6.9
12.7
8.5
6.2
2.3
4,185
-6,935
-1,673
CPI inflation in December hit 7.3 percent year-on-year, affected also by higher fuel and
energy prices. The largest price increases were registered in some regulated prices such as
health care (where annual inflation was 10.8 percent) and transport (12.9 percent). Inflation is
expected to decelerate, as prices of food, oil and raw materials trend downwards and private
consumption growth continues to decelerate.
Despite the remarkable growth rates, unemployment has remained fairly stable during 2004
indicating that the benefits of growth may not be shared equally among all groups of the
population. The unemployment rate in January 2005 was 8.6 percent, the same as the year
before. There are large regional differences in Latvia, implying high rigidity in the labor
market. In December 2004, the registered unemployment rate in the capital, Riga, was 4.5
percent, whereas some eastern districts had unemployment rates in excess of 25 percent. After
a period of deceleration, nominal wage growth increased in the final quarter of 2004. Average
monthly gross wages increased by 11.9 percent year-on-year, to US$434. Wage increases
were roughly equal in the public and private sectors. Relatively high inflation reduced real
wage increases to close to zero in mid-2004.
The general government recorded a surplus for the first eleven months of 2004, and the deficit
for the year stood at only 1.1 percent of GDP (or 79 million LVL). This result has been better
than expected due to strong revenues throughout 2004, and represents an improvement from
the 1.8 percent deficit in 2003. Central government expenditure increased by 18.6 percent and
revenue expanded by 19.9 percent. Rapid economic growth boosted tax intake, and curtailed
the growth of expenditure. The level of government debt remains low. At the end of 2004,
central government debt stood at US$1.89bn, or 13.2 percent of GDP, which is one of the
lowest debt levels in the European Union. The budget for 2005 was approved in late
December 2004 and the central government deficit is set to be US$260m, or 1.7 percent of
GDP.
Latvia’s chances of joining the Euro Zone in 2008 are adversely affected by the inflation and
interest rate convergence criteria, though it could meet the public deficit and debt criteria.
Inflation poses the main risk to Latvia's efforts to adopt the euro by 2008, as it will require
that inflation remain below 2.5 percent, if not lower.
119
3. Demography
Latvia, like many other countries in the region, faces the consequences of population ageing
caused by reduced fertility and mortality rates on the one hand and increasing life
expectancies on the other. Total Fertility Rates (TFR) in Latvia fell from 2 in 1980-85 to 1.1
in 2000-2005 and is expected to increase only marginally to 1.39 by 2020-2025 (Figure
III.9).22
Figure III.9: Total Fertility Rate, Latvia, 1980-2025
2.5
TFR
2
1.5
1
0.5
0
1980-1985
1990-1995
2000-2005
2010-2015
2020-2025
Life expectancy at birth has been steadily rising and is expected to continue rising. Life
expectancy at birth for females increased from 74.2 years in 1980-85 to 76.2 years in 20002005, and is projected to rise to 79.8 in 2020-2025. Likewise, life expectancy at birth for
males increased from 64.5 years in 1980-85 to 65.6 years in 2000-2005, and is projected to
rise to 71 in 2020-2025. Overall, life expectancy is projected to rise to 75.8 years in 2025,
compared to 69.3 years in 1980-85 (Figure III.10).
Figure III.10: Life Expectancy at birth, Latvia, 1980-2025
Male
90
Female
Total
80
Years
70
60
50
40
30
20
10
0
1980-1985
1985-1990
1990-1995
1995-2000
2000-2005
22
2005-2010
2010-2015
2015-2020
2020-2025
TFR is the average number of children a woman is expected to have by the end of her reproductive period.
Since it is measured using information from births to women aged 15-49 in a certain period, it is the average
number of children a woman is expected to have between age 15-49.
120
The net result of decreasing TFR and increasing life expectancies is that the share of people
aged 60 years and older, which was 16.6 percent in 1985, is projected to increase to 38.3
percent in 2025 (Figure III.11).
Figure III.11: Broad Age Groups in Latvia (percent)
Population <15
Population 15-64
Population 60+
75
65
55
45
35
25
15
5
-5
1995
2000
2005
2010
2015
2020
2025
Figure III.12. Latvia 2005
Latvia 2020
3. 34
75+
65-69
70-74
5. 18
4. 96
60-64
60-64
5. 99
5. 82
35-39
25-29
7. 99
6. 29
4. 64
4. 39
0-4
8
10-14
6
0-4
3. 72
4
2
0
2
4
6
8
10
Percentage
4. 04
5. 06
10
8
4. 13
4. 74
3. 86
4. 85
3. 95
3. 56
4. 58
3. 86
4. 85
5. 18
5-9
5. 57
20-24
7. 44
10-14
10
7. 72
6. 64
7. 20
8. 87
15-19
6. 55
8. 75
6. 07
8. 39
20-24
6. 82
7. 27
30-349. 38
6. 31
7. 05
7. 81
6. 82
7. 48
40-44
6. 39
7. 34
7. 81
7. 48
7. 61
7. 36
7. 53
30-34
50-54
6. 96
8. 10
40-44
6. 82
7. 80
8. 01
45-49
5. 66
7. 06
6. 23
6. 86
50-54
3. 90
5. 48
6. 39
5. 15
55-59
4. 74
8. 50
3. 43
70-74
6
4
2
0
2
4
6
Percentage
This will result in a dramatic “upside-down” change of the age pyramid (Figures III.12). The
old-age dependency ratio and total dependency ratio are also expected to rise sharply. Another
challenging demographic issue is the population decline; by 2050, there will be 1.68 million
inhabitants in Latvia, almost 0.63 million less than today.23
23
Source for all data used in this section: Population Division of the Department of Economic and Social Affairs
of the United Nations Secretariat, World Population Prospects: The 2004 Revision and World Urbanization
Prospects: The 2003 Revision, http://esa.un.org/unpp, 11 May 2005; 10:33:11 AM.
121
8
10
4. Health Status
The health status of the people of Latvia does not compare favorably either with the health
status of the people of the new member states of the European Union (excluding Malta and
Cyprus), or with the health status of the people of countries belonging to the European Union
before May 1st 2004 (or EU-15). As Table III.14 shows, life expectancy in Latvia (70.46
years) is the lowest amongst the new member states, and lower than the life expectancy in
EU-15 (average 79.06 years). Likewise, disability-adjusted life expectancy in Latvia is almost
9 years less than the EU-15 average. However, infant deaths in Latvia – 9.44 per 1,000 live
births – and the rate of clinically diagnosed AIDS – 2.49 per 100,000 - are the highest
amongst the new member states, and much higher than the EU-15 average of 4.61 and 1.61
respectively. The incidence of Tuberculosis in Latvia – 72.51 per 100,000 – is also much
higher than the EU-15 average of 8.65 per 100,000.
Table III.14: Health Status Indicators, Latvia and other new EU Member States (2003)
Life
Expectancy
Slovenia
Hungary
Czech Republic
Estonia
Slovakia
Poland
Latvia
Lithuania
EU-15 average
a Data
76.52
72.59
75.40
71.24 a
73.91 a
74.65 a
70.46
71.96
79.06
Disabilityadjusted life
expectancy a
69.50
64.90
68.40
64.10
66.20 a
65.80
62.80
63.30
71.69
Infant deaths
per 1000
live births
4.04
7.29
3.90
5.69 a
7.63 a
7.52 a
9.44
6.73
4.61 a
TB
Incidence
per
100,000
13.77
24.31
10.79
41.15
16.57
25.05
72.51
74.26
8.65
Clinically
diagnosed
AIDS per
100,000
0.3005
0.2567
0.0784
0.7388
0.0370
0.4328
2.4900
0.2606
1.6100
for 2002
Source: WHO, European Health for All Database (January 2005 update), as accessed online at
http://data.euro.who.int/hfadb, on May 24th, 2005, 5pm.
Tables III.15 and III.16 present the Standardized Death Rates (SDRs) for a wide variety of
causes. A comparison of the death rates from the main causes between countries gives broad
indications of how far the observed mortality might be reduced. SDRs in Latvia do not
compare favorably to the other new member states, and are much higher when compared with
the EU-15 average. SDR from all causes in Latvia is the highest amongst the new member
states, and higher than the EU-15 average of 640. Likewise, SDR from circulatory system
disorders, cerebrovascular disorders, ischemic heart diseases, TB, selected alcohol-related and
smoking-related causes is higher in Latvia compared to the EU-15 average, and on the higher
end of the range of the SDRs of the new member states.
122
Table III.15: Standardized Death Rates (per 100,000), different causes (2003)
Slovenia
Hungary
Czech Republic
Estonia a
Slovakia a
Poland a
Latvia
Lithuania
EU-15 average
All Causes
Circulatory
System
Cerebrovascular
795.49
1047.97
899.60
1090.58
971.49
891.55
1113.62
1008.26
639.88
295.29
508.30
61.88
560.35
527.71
413.89
593.02
519.78
236.32
78.76
134.59
132.37
154.06
88.18
98.57
206.23
117.37
59.05
Ischemic TB
Alcohol
Smoking
heart
Related
Related
diseases
Causes
Causes
94.37 1.05
111.42
251.08
232.66 2.41
149.55
491.02
176.09 0.68
89.74
380.91
323.00 6.10
174.29
541.74
283.48 1.19
92.80
443.02
125.78 2.33
88.95
306.79
291.58 8.70
160.22
566.77
327.75 9.45
176.98
518.51
92.89 8.65
61.28
220.78
a
a Data
for 2002
Source: WHO, European Health for All Database (January 2005 update), as accessed online at
http://data.euro.who.int/hfadb, on May 24th, 2005, 5pm.
Table III.16: Standardized Death Rates (per 100,000), different causes (2003)
Slovenia
Hungary
Czech Republic
Estonia a
Slovakia a
Poland a
Latvia
Lithuania
EU-15 average
Malignant
Neoplasms
203.66
263.81
234.22
200.60
213.32
216.67
193.40
193.57
180.50
Trachea
Cancer Infectious
Respiratory Digestive
Bronchus of the
& Parasitic System
System
Lung
Cervix Disease
Diseases
Diseases
Cancer
41.23
4.11
4.31
62.05
53.33
66.49
7.16
3.98
41.42
79.94
45.27
6.05
2.55
42.35
38.50
40.43
6.67
8.43
36.26
42.82
38.11
6.58
3.81
55.20
52.86
53.22
8.41
6.18
37.62
36.68
36.85
6.76
13.32
29.32
38.07
36.20
10.64
13.23
39.10
41.99
37.05
2.35
8.38
48.31
30.81
Liver
Diseases
&
Cirrhosis
31.31
53.53
16.66
21.72
26.55
12.98
14.00
20.98
12.62
a
a Data
for 2002
Source: WHO, European Health for All Database (January 2005 update), as accessed online at
http://data.euro.who.int/hfadb, on May 24th, 2005, 5pm.
SDRs in Latvia due to chronic liver disease and cirrhosis (12.98) and diseases of the digestive
system (36.68) are the lowest among new member states, but higher than the EU-15 average.
SDRs from malignant neoplasms, lung cancer, cervical cancer, and diseases of the digestive
system are higher in Latvia compared to EU-15 averages, though SDR from diseases of the
respiratory system is lower than the EU-15 average. Overall, observed mortality can be
reduced significantly in Latvia if the health system and other determinants of health are more
effective in addressing health problems, such as diseases of the circulatory system, ischemic
heart diseases, cerebrovascular disorders, and malignant neoplasms, which account for high
levels of mortality.
123
5. Structural Characteristics of the Health System
In accordance with the Article 111 of the Constitution of the Republic of Latvia, the state
guarantees a minimum of medical assistance to all Latvian citizens. The main principle of
state financing for the health care system, as determined by Health Care Financing
Regulations, derives from the assumption that the state pays for all services, except those that
are explicitly excluded from the scope.24 This means that there is no positive list of benefits
provided by the statutory health care system. The statutory health care system does not pay
for cosmetic and plastic surgery, and for treatments considered to be either “exclusive”
(higher service in hospitals, higher medical technologies etc.) or “alternative” (homeopathy,
spa treatment). In addition, other services such as routine dental care (except children),
abortions, and sexology-oriented health services are excluded from the scope of statutory
financing.25 The scope of the negative list of the statutory health financing also covers
services or expenses not covered in the scope of purchasers’ contracts with providers, which
provide a possibility in an indirect way to broaden the scope of exclusion.
The actual amount of statutory health care financing de facto is determined by the
Compulsory Health Insurance State Agency, which in turn depends on the annual budget. The
Compulsory Health Insurance State Agency concludes agreements with service providers,
either directly or through sickness funds, who build budgetary limitations for heath care
service providers and also allows them to deny access to patients even for statutory health
care services (except for emergency services) and to establish waiting lists.
Patients receiving statutory benefits need to participate with co-payments. For out-patient
visits, copayments are set at 0.50 LVL per office visit and 2 LVL for home visits. For
inpatient visits, patient co-payments are set at 5 LVL fee for admission, and 1.50 LVL per day
from second day onward subject to a maximum of 25 LVL per hospital admission (except for
psychiatric, oncological, and hematological patients, who pay 0.45 LVL per day), as well as
copayments set according to a list for various medical treatments. 26 Children, pregnant
women while receiving medical treatment services related to pregnancy, postnatal observance
and delivery, as well as those who require emergency treatment are exempted from
copayments.27 Further, total annual co-payments for hospital treatment in one calendar year
cannot exceed 80 LVL (excluding the purchasing of drugs, spectacles and dental services).
Finally, statutory reimbursement of pharmaceuticals is based on a positive list of drugs
determined by the Ministry of Health pursuant to the conditions and diagnoses determined by
the Cabinet of Ministers.28,29
Main stakeholders
The main function of the government is to set the regulatory framework of the health system.
Moreover, the Ministry of Health must also prepare the annual budget and submit the request
to the Ministry of Finance. The budget proposal is based on data provided by the State
The Cabinet of Ministers of the Republic of Latvia Regulations Nr. 13, “Health Care Financing Regulations”,
January 12, 1999.
25
Health Care Financing Regulations, Article 30.
26
Health Care Financing Regulations, Articles 24-27.
27
Health Care Financing Regulations, Article 27.
28
The Ministry of Welfare was restructured in 2002, establishing a separate Ministry of Health. Hereinafter, the
term Ministry of Health is used also for the period when there was no separate Ministry of Health.
29
Regulations Nr. 428 of 4 November 1998 of the Cabinet of Ministers “On reimbursement of medicines and
medicinal products for primary care.”
24
124
Compulsory Health Insurance Agency (hereinafter referred to as the Agency), which prepares
information on necessary health care financing for the whole system. The budget is then
discussed in the Cabinet of Ministers and after clearance, is submitted to the Parliament for
approval. Following approval, the amount is disbursed to the Agency, which distributes it to
the regional sickness funds and its branches according to their respective populations and age
structures, as well as directly to the service providers.
The Compulsory Health Insurance State Agency is the public agency that operates under the
supervision of the Ministry of Health, and receives the centrally collected statutory health
financing. The Agency transfers a portion of these nationally pooled revenues to regional
branches and sickness funds, and a portion directly to the service providers.30 The Agency is
ultimately responsible for the realization of the state policy to ensure availability of health
care services to the population. The Agency purchases health services on behalf of the
insured, and enters into contracts with health services providers for this purpose. The Agency
operates through territorial branches and sickness funds, whose main responsibilities include
registration of sickness fund participants, collecting population data on health needs, entering
into contracts with health providers, and cooperating with local self-governments.
The ten private insurance companies in Latvia provide voluntary health insurance schemes.
Some insurance companies cover dentistry, spa treatment, rehabilitation and drug
expenditures; others also cover patient co-payments for outpatient and inpatient care. Most
buyers of private insurance policies are companies, which purchase group policies for their
employees as incentives. Some private insurance companies contract private health care
institutions with advanced technical equipment and standards, which do not have contracts
with sickness funds and which are believed to provide a better quality of care.
Pursuant to the Law on Medical Treatment, health care services are provided by registered
medical institutions or inpatient and outpatient clinics. Most of the outpatient practices are
privately owned, while most inpatient facilities are publicly owned. The main criterion for
provision of statutory health care services is an agreement with the Agency, and thus statutory
health care services may be provided by both public as well as private health care service
providers.
All persons need to be registered with gate-keeping general practitioners (GP) in order to have
access to the statutory health care services, except emergency care. People may freely choose
their primary care physicians (family doctor, general practitioner), and change their
physicians up to two times a year (excluding change of address). Patients need to have
referrals from a GP to receive specialist or secondary level care, without which the treatment
costs are not covered by health insurance. Exceptions to the requirement of a referral include:
dentistry for children, visits to psychiatrists, tuberculosis specialists, venereal disease
specialists, gynecologists, endocrinologists for diabetics, and specialists for emergencies.
Hospital visits also require referrals, and patients may freely choose from any of the
contracted hospitals, irrespective of regional constraints.
30
As of 2005, there are 5 territorial departments of the Agency, which ensure payments for health care services
in the defined territories. The departments work as structural units of Agency and execute the directions given by
the Agency. Two separate juridical structures – the Territorial Departments and the Sickness Funds (developed
by several self-governments and set up as non-profit organizations) – ensure settlement of accounts for health
care services rendered in regions. Sickness funds conclude contracts with the Agency for provision of minimum
of health care services for own sickness fund participants.
125
6. Health Sector Financing
The main sources of health funding in the Latvian health care system are allocations from
income tax collected at the central level and subsidies from general revenues, followed by
out-of-pocket payments. Data on out-of-pocket spending is not very authoritative, but
estimates suggest that public funding constitutes between 55 and 65 percent of total health
sector funding, with out-of-pocket expenditure accounting for the balance.
Statutory Health Care Services
The term “statutory health care resources” refers to the mandatory funding of the health
system in Latvia, and consists of 28.4 percent of the income tax collected at the central level,
subsidies from general revenues (which are also financed by tax revenues at the central level),
and of mandatory copayments by patients. Statutory health care resources envelope is
financed from the state budget resources in accordance with the annual Law on the State
Budget and programs and financial volumes fixed by this Law.
Table III.17: Statutory Health Budget, 1992-2004
Statutory health budget, million LVL
Year
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
GDP
million
LVL
State
basic
budget
subsidy
State
special
health
care
budget
1004.6
1467.0
2042.6
2349.2
2829.1
3275.5
3589.5
3897.0
4685.7
5168.3
5691.1
6322.5
7198.4
12.4
28.0
32.0
33.2
46.9
55.7
59.7
12.0
11.8
11.3
11.8
12.5
234.4
1.1
2.2
13.9
5.8
67.6
79.9
134.3
132.2
144.3
163.5
189.5
Local
govt.
budget
Financial
assistance
from
abroad
15.9
31.4
46.0
44.4
63.2
0.2
0.9
0.8
0.0
2.1
Population
Health care
expenditures
as percent of
GDP
Health care
expenditures
per capita,
LVL
(statutory
resources)
2,631,567
2,586,015
2,547,699
2,515,602
2,490,765
2,469,137
2,408,376
2,388,746
2,373,033
2,366,131
2,366,131
2,331,480
2,331,480
2.82
4.12
3.93
3.89
4.10
3.76
3.89
3.75
3.08
3.03
3.09
3.20
3.28
10.8
23.4
31.5
36.4
46.5
49.9
58.0
61.3
60.8
66.2
74.4
86.7
101.4
Total
28.3
60.5
80.2
91.5
115.9
123.3
139.6
146.3
144.2
156.5
176.1
202.0
236.5
Source: Ministry of Finance, Department of Financial prognosis and Development, October 2004
Notes:
In 1993 the Ministries of Health, Labor and Social Welfare were united to form the Ministry of Welfare.
In 2003 the Ministry of Welfare was restructured, establishing separate Ministry of Health.
In 2004 the State Special Health Care budget was abolished.
GDP data actualized in accordance with data provided by Ministry of Finance, Department of Financing Prognosis and
Development, October, 2004, which are different from the data published earlier by MOF: Concept of Fiscal policy and
Macroeconomic Development 2004-2008, March 2004; and by MOF: Concept of Fiscal policy and Macroeconomic
Development, September, 2003.
Statutory health care resources increased at a rate of 11 percent year on year in 2001, 14
percent in 2002 and 11 percent in 2003. As percent of GDP, statutory health care resources
126
have increased from 3.08 percent in 2000 to 3.2 percent in 2003 and to 3.28 in 2004 (Figure
III.13).31 In per capita terms, statutory health care resources amounted to LVL 101.4 in 2004.
8000
7000
6000
5000
4000
3000
2000
1000
0
5
4
3
2
1
percent of GDP
million LVL
Figure III.13: Health Expenditures as Percentage of GDP
0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
GDP million LVL
Health care expenditures as percent of GDP
Source: Ministry of Finance, Department of Financial Prognosis and Development, October 2004
Statutory health care services are mainly financed through the program called “Payment for
Services,” but other sources are also involved.32 These include: resources from the Russian
Federation transferred for health care of military persons, subsidies from the budgets of local
self-governments, and resources from the subprogram called “Reserve Fund.” The Agency
channels resources for payment of health care services on the basis of population number,
age, peculiarities of social groups and other criteria. In 2001, the cabinet of ministers
determined, for the first time, price elements and calculation formula for health care service
price. 33 The Ministry of Health determines the values for the elements forming the health care
service price. 34 The expenses on health care services are covered from the state budgetary
resources as well as payments. Such amendments were introduced in order to avoid the
common practice of health care service providers to not calculate patient payments as
statutory health care resources.35
Statutory health care resources also include allocations by local self governments, which are
typically made as support for low-income families. For example, the city of Daugavpils
purchased private health insurance policies for 777 low-income individuals in 2003, and
reimbursed 100 percent or 50 percent or 25 percent of the insurance premium, depending on
the economic status of these individuals. The city covered half of all costs of medication and
co-payments on behalf of the insured.
Out-of-pocket spending
There are wide disparities among different sources of information concerning the size of outof-pocket spending on health. According to the WHO Regional Office for Europe, Health for
31
Different data sources treat the GDP figure differently, which affects the ratio of health expenditures to GDP
(varying between 3.57 percent and 3.20 percent).
32
These resources are anticipated for provision of the minimum of health care services for emergency, outpatient and in-patient medical assistance guaranteed by the state.
33
Regulations Number 169 “On Amendments in the Health care financing regulations”, issued by the Cabinet of
Ministers on April 10, 2001.
34
Regulations Number 158 “On forming of health care service prices from July 1, 2001”, issued by the Ministry
of Welfare on July 6, 2001.
35
Sickness funds are required to use the price of accordant service for payment of health care services, from
which the patients’ payment is subtracted. See Sickness Fund News, 2001.
127
All Database, out-of-pocket payments account for 21 percent of total health spending.
However, another WHO source – World Health Report 2000 – estimates out-of-pocket
payments to be 39 percent of total. The latest data provided by the Ministry of Health for
1997-2001 estimates out-of-pocket payments to have been as high as 47.5 percent of total
health expenditures in 2001 (Figure III.14).
Figure III.14: Public and Private Expenditures on Health
70
percent
60
56.8
60.7
59.7
55.8
52.5
50
47.5
40
30
43.2
39.3
40.3
1997
1998
1999
44.2
20
Public Expenditures on Health
2000
2001
Private Expenditures on Health
Source: Ministry of Health, Latvia
A study based on surveys carried out in 1999 (Corruption Perceptions Index, Transparency
International Annual Report 2000) provides some indications of the current magnitude and
extensiveness of informal payments. Of the total number of respondents in the study, 69.5
percent stated that they never had to make an unofficial payment or gift to state or local health
care institutions. By contrast, 24.8 percent of respondents said they sometimes made a
payment or gift, while 5.7 percent claimed that an unofficial payment or gift was made on
almost every visit. Overall, the average unofficial payments made per visit amount to LVL 29,
and are more common in the area of surgery than in primary care. 36 The average informal
payment physicians received per patient was LVL 22.39 for surgeons, LVL 7.36 for
gynecologists, LVL 5.90 for pediatricians, LVL 4.98 for internists, LVL 3.83 for GPs, LVL
2.55 for dermatovenerologists, and LVL 7.14 for other physicians.37 Patients seeking inpatient
care in hospitals are more likely to report informal payments (12 percent) than those treated in
other health care facilities (5 percent).38 A regional breakdown of respondents indicates that
Riga has the highest proportion of persons who make unofficial payments, amounting to 46.1
percent of total Riga respondents.39
Since 2002, several court cases have been initiated in Latvia by patients claiming that health
care providers demanded illegal out-of-pocket payments from them for providing services that
fall within the scope of statutory health care. Surveys conducted by NGOs confirm that
patients are often denied statutory health care services, allegedly because of the fulfillment of
the quota (contracted services). In effect, patients do not know the actual position but end up
having to make payments for services which are supposed to be provided free of charge. The
36
Transforming the Latvian Health System: Accessibility of health services from a pro-poor perspective,
German Development Institute, 2004 at p. 35.
37
Babarykin Survey, 2002.
38
CIET International Survey, 2002.
39
European Observatory on Health Care Systems, 2001.
128
Ministry of Health has confirmed such practices, pleading inability to ensure the fulfillment of
the demand for statutory health care services pursuant to the law.
Private Health Insurance
Private health insurance accounts for between 7.5 and 8 percent of non-public sources of
funding, equivalent to between 3 and 3.6 percent of total spending on health. Private health
insurance is typically provided by non-life insurance companies (Table III.18).
Table III.18: Private Health Insurance Premiums and Claims
1999
LVL
percent
2000
LVL
percent
2001
LVL
percent
2002
LVL
percent
2003
LVL
percent
Gross
premiums 83,731,664 100.0 91,098,268 100.0 92,802,755 100.0 97,798,287 100.0 117,499,267
written
Health
7,551,470
9.0 8,729,805
9.6 10,428,929
11.2 11,830,449
12.1 14,025,010
insurance
Gross
29,611,149 100.0 31,461,951 100.0 35,181,548 100.0 39,064,417 100.0 39,740,929
claims
paid
Health
4,421,190
14.9 6,422,722
20.4 7,967,857
22.6 9,099,520
23.3 9,387,466
insurance
Data source: Financial and Capital Market Commission, Latvian Insurance Markets, 1999-2003
100.0
11.9
100.0
23.6
External Sources of Funding
Latvia started a health care reform program in 1998 with direct support from the World Bank.
The main aim of this project was the improvement of quality, efficiency and accessibility.
Supported by a US$2 million grant from the Swedish International Development Agency
(SIDA) and US$3.6 million from the government of Latvia, the project was designed to be
implemented in two stages. The first stage was implemented between 1999 and 2001, and the
loan for the first stage was US$12.0 million. The second stage, earmarked for the hospital
restructuring program, was scheduled to start in 2001 but was cancelled by the government in
2002.
The Government of Latvia has obtained LVL 6.7 million from the European Regional
Development Fund for the implementation of the National Health Care Fund 2004-2006. Of
this, LVL 6.5 million has been allocated to the financing of emergency care service
development and the remaining LVL 0.2 million allocated for the development of primary
health care services. The National Health Care Program does not cover the issue of hospital
restructuring, and there remains a funding gap should hospital restructuring be taken up as a
health reform measure.
Total Spending on Health
Total spending on health has increased in both nominal and real terms in the last five years
(Figure III.15). Total spending on health increased by only 1.6 percent in real terms in 2000,
relative to 1999, but since then has increased at rates of 12.9 percent, 8.8 percent and 10.9
percent annually between 2000 and 2003. In terms of percentage of GDP, total spending
actually fell from 6.3 percent of GDP in 1999 to 5.5 percent in 2000, but then recovered to 5.8
percent in 2001, 5.9 percent in 2002 and 6.1 percent in 2003.
129
250
200
150
100
50
0
15%
10%
5%
0%
1999
2000
2001
2002
percent, rate of
growth
million LVL
Figure III.15: Total Spending on Health
2003
Public Spending
Out-of-Pocket Spending
Private Insurance
Total Health Spending (% of GDP)
Real Growth of Total Spending on Health
7. Health Care Expenditure
Overall, about 80 percent of the health care budget is spent on health services, about 5 percent
for centralized activities, about 6 percent for separately marketed activities (including state
programs) and 1.5 percent for administration. Detailed information is available only for
statutory health care resources, which indicates that inpatient services account for 59.4
percent of total statutory health care resources, followed by outpatient care (39.6 percent),
emergency medical care (6.69 percent) and tertiary care (1.58 percent). These ratios have
remained more or less constant over the years (Figure III.16).
Figure III.16: Health Expenditure by functions
100%
80%
60%
40%
20%
0%
1999
2000
In-patient
Out-Patient
2001
2002
Emergency Medical care
2003
Others
In real terms, expenditures on inpatient services have had the largest increase in the last few
years, increasing from LVL 88.67 million in 1999 (at 2003 prices) to LVL 129.25 million in
2003. Expenditures on outpatient care fell slightly from LVL 49 million in 1999 to LVL 39
million in 2000, but then picked up to LVL 47 million in 2001 and to LVL 67 million in 2003
(all at 2003 prices, Figure III.17).
130
million LVL
Figure III.17: Health Expenditures (by function, 2003 prices)
140
120
100
80
60
40
20
1999
2000
Emergency Medical care
2001
2002
Out-Patient
In-patient
2003
Others
There is no authoritative data on functional breakdown of private out-of-pocket expenditures,
except that pharmaceuticals account for over 50 percent of total out-of-pocket expenditures.
Pharmaceuticals accounted for 59 percent of total out-of-pocket expenditures in 1999, but fell
to 49 percent in 2001 and 51 percent in 2003.
8. Major Expenditure Items
Salaries of Medical Personnel
In 2002, the financing of sickness funds for health care services increased by 18.4 percent in
nominal terms, an increase dictated largely by an increase in minimum salary. Most of the
additional funding came from the subprogram “Reserve Fund” (the rest came from the
subprogram “Payment for Services”). As prescribed by the law “On the State Budget for
2002,” these resources were allotted to different subprograms, as a result of which the Agency
could not include these resources in the pricing of services. This money was paid out as
additional money (i.e., in addition to the regular salaries) on the basis of workload of medical
personnel in medical institutions. The additional salary component was settled between the
salary levels included in the price of contracted services and salary demanded by medical
personal during strikes, and translated to LVL 53.00 for physicians, LVL 9.00 for paramedical
staff, and LVL 7.00 for junior paramedical staff.
In 2003, the financing by sickness funds for health care services increased by 16.5 percent
compared to 2002, which, like in the previous year, was also connected with an increase in
minimum wages, and covered both the salary element as well as the social insurance element.
Unlike the previous year, the increase in salary in 2003 was included in the contract price of
services.
The health care system in Latvia employs 22,600 medical personnel, equivalent to 3.03
percent of the total number of employed persons. In January 2005, there were 7,055 doctors
according to the Register of Medical Personnel, up from 7,097 in 2004 and 6,596 in 2003. On
average, Latvia has 30.6 doctors per 10,000 people, compared to 30.8 in Estonia and 39.9 in
Lithuania. However, since almost 25 percent of the doctors registered in the Register of
Medical Personnel do not work in health care, the available number of doctors for medical
purposes is significantly lower. At the same time, the number of family physicians and
primary care physicians is increasing over time, and a little over half of all doctors in Latvia
are family physicians or primary care physicians (as in 2003). As regards inter-regional
distribution, Riga has around 60 doctors per 10,000 people, which is almost double of the
131
national average. Over 15 percent of all doctors are 63 years of age or older and a further 16
percent of all doctors are between 55 and 62 years of age. In effect, almost 32 percent of the
presently employed doctors are of pre-retirement or retirement age and who will retire within
the coming 10 years. These doctors will be gradually replaced by doctors from the age-group
below 35 years, which is smaller in number. In order to maintain the existing number of
doctors, 1,446 new doctors have to be trained, assuming that the economic and social
conditions remain unchanged and that all trained doctors will start and continue working in
the health care system. According to the data of Latvian Doctors’ Association, 120 doctors
have expressed interest in the opportunities of going to work abroad and have been arranging
the documents necessary for such work.
As regards other medical personnel, Latvia has 13,162 nurses – equivalent to 56.8 nurses per
10,000 people - which is much lower than 63.9 nurses in Estonia, and 77.6 nurses per 10,000
people in Lithuania. More than 32 percent of all nurses are of pre-retirement or retirement age
and will retire within the coming 10 years. They will gradually be replaced by nurses
belonging to the age group younger than 29, which is numerically the smallest. The
distribution of nurses is also uneven, being denser in Riga and its vicinities. The ratio of
nurses to doctors was 1.7 nurses per one doctor in 2003, which is much lower than the
European Union average of 5.
Emergency health care is provided by 173 doctor teams in daytime and 140 doctor teams at
nighttime. However, the distribution of the emergency health care teams is not balanced and a
large number of areas (especially rural areas) are not well served. In order to ensure
“complete” teams with two certified medical specialists, 400-500 additional medical
personnel would be needed. If the existing trends in the training of specialists persist, then by
2010 as many as 880 additional medical personnel would be needed. According to the 2003
Data of the Disaster Medicine Center, only 4.2 percent of emergency health care personnel
are of retirement age while 55 percent are in the middle aged group.
The dynamics of the number of doctors and nurses in the health care system in Latvia is not
obviously negative; however, considering the age structure and the forecasts about specialists
leaving the labor markets due to retirement, it appears that Latvia will face a serious human
resources constraint in the next ten years or so if there is no upward change in the number of
new physicians and nurses entering the health care market.
Salaries
Even though the average remuneration of medical personnel employed in the health care
system has gradually increased since 2002, the low levels of remuneration appear to be one of
the main obstacles in the development of human resources in the health care system in Latvia.
In 2001, the average remuneration for medical personnel was LVL 86.6, with doctors earning
LVL 129, medium level medical personnel LVL 75 and junior medical personnel LVL 62.
The average remuneration was increased by LVL 43.64 to LVL 130.24 per month from June
1, 2002. The average salary of doctors went up to LVL 198, of medium level medical
personnel to LVL 116 and of junior medical personnel to LVL 83.
In order to secure a gradual increase in remuneration for medical personnel, the Trade Union
of Health and Social Care Workers put forward a demand in 2002 to link the salaries of
medical personnel to salaries in the public sector. This resulted in a further increase of
average salaries to LVL 141 from October 1, 2002, raising the doctors’ salaries to LVL 214,
medium level medical personnel to LVL 125 and junior level medical personnel to LVL 90.
132
Since then, the salaries have increased almost every year and the average remuneration at the
end of 2003 was LVL 190, with doctors earning LVL 291 and medium and junior level
medical specialists earning LVL 169 and LVL 122 respectively.
In order to increase the number of medical personnel in the age group 25-40 years by at least
5 percent and to decrease the number of patients per doctor, the Ministry of Health, in a
cabinet memorandum submitted in May 2005, suggests increasing the remuneration to
medical personnel to levels twice the average salary in the economy. Five variants are
suggested, which essentially vary only with the speed at which the ratio of 2:1 is achieved.
The average salaries in the economy are expected to rise to LVL 265 by 2010, implying that
doctors’ remuneration will be set at LVL 430. Whichever variant is finally adopted, it will
increase total spending on health by between 5 percent and 7 percent, equivalent roughly to
0.18 and 0.25 percent of GDP.
Pharmaceuticals
Pharmaceuticals account for about 29 percent of total expenditures on health during 19992003, most of which is out-of-pocket expenditure. Expenditure on pharmaceuticals increased
from 80.8 million in 1999 to 111.2 million in 2003 (all at 2003 prices), representing a growth
of 37.6 percent in 5 years, during which total spending on health (at 2003 prices) increased by
38.5 percent (Figure III.18).
400
15%
300
10%
200
5%
100
0%
0
-5%
2000
2001
2002
rate of growth
million LVL
Figure III.18: Total Expenditure on Pharmaceuticals (2003 prices)
2003
Total Spending on Health
Total Expenditures on Pharmaceuticals
Rate of Growth of Total Health Expenditures
of Growth
of Expenditures
The share of reimbursable Rate
medicines
in total
expenditureonon pharmaceuticals is small, but has
Pharmaceuticals
increased from 11.3 percent in 1999 to 16.7 percent in 2003. In 1999 the system of
reimbursable medicines was based on 2 different models: (i) social groups-based
reimbursement of medicines; and (ii) diagnoses based reimbursement of medicines.40
Transition to the single diagnoses-based model was implemented gradually by 2002.
Resources from the subprogram “Payment for Medicine Remedies” are channeled to the
sickness funds following agreements between the Agency and sickness funds.
Regardless of the increase of resources over the years, the consumption of reimbursable
medicines has been higher than allocated resources and has had a tendency to increase. This is
40
Cabinet of Ministers, Regulations Nr. 102 (On advantages for acquisition of medical resources for ambulatory
treatment of patients, March 18, 1997) and Regulations Nr. 428 (On reimbursement of medicines and medicinal
products for primary care, November 4, 1998).
133
confirmed not only by calculations of the Ministry of Health, regular patients’ and physicians’
claims received by Ministry of Health, the Agency and regional sickness funds, but also by
amount of debts of the sickness funds. On January 1, 2000 the debts for utilized but unpaid
pharmaceuticals stood at LVL 105,387, rising to LVL 805, 21 on January 1, 2002 and to LVL
1,563,119 as on January 1, 2002.41 The unpaid accounts for utilized reimbursable drugs in
Riga District Sickness Fund formed most of the debt.42
Health Facilities and Infrastructure
Inpatient health services account for over 60 percent of statutory health care expenditures, a
proportion that has increased from 57.2 percent in 1999 to 64.9 percent in 2003. The share of
outpatient care expenditures has fallen from 34.7 percent in 1999 to 29.2 percent in 2003,
while the share of emergency care expenditures has fallen from 8.1 percent to 5.9 percent
during this period. These figures would not be a cause for concern, except that inpatient care
costs may be steadily rising on account of the excessive number of hospital beds in Latvia,
despite the significant reductions achieved in recent years. Current estimates about remaining
excess capacity in hospitals vary from 6,000 to 8,000 beds (40-50 percent), and more half of
the 132 community hospitals are probably not needed as acute health care facilities. The
occupancy rate is a little less than 80 percent nation-wide, but is likely to fall considerably if
the average length of stay in hospitals is further reduced. Even so, bed utilization in some
specialties, like obstetrics, infectious diseases and neurology, is particularly low.
Figure III.19: Statutory Health Expenditures (by function)
100%
80%
60%
40%
20%
0%
1999
2000
Inpatient Services
2001
Outpatient Services
2002
2003
Emergency Services
Many hospitals in Latvia, especially those built during the last years of the Soviet regime, are
excessively large, so that in the winter a large portion of their running costs consists of
heating bills. Most facilities are in a fairly poor state of repair, often with equipment that predates independence. The more modern equipment and facilities that are available are often in
specialized areas (e.g., ICU, operation theaters, pediatrics), and are the result of humanitarian
aid, municipal contributions and very limited government capital financing.
41
It should be highlighted that Sickness Fund News, 2002 provides quite different data for the same period,
namely – on January 1st, 2001 the debt for utilized, but unpaid medicaments was LVL 805,121, but on January
1st 2002, the debt has reduced to LVL 309,090.
42
Sickness Fund News, 2001.
134
The Government strategy to improve health facilities and infrastructure focuses on the
rationalization of secondary and tertiary health care services through Regional Master Plans.
The strategy proposes that state hospitals will be consolidated through developing multispecialty hospitals; closing or transforming small hospitals into nursing care hospitals,
primary health care centers or social care institutions; and transforming single specialty
hospitals into long-term hospitals by moving current services to multi-specialty hospitals or
outpatient settings. Master Plans for Outpatient and Inpatient Service Providers Structure for 8
regions and the whole country have been developed and a pilot project implemented in the
Latgale region. The Master Plans developed envision a reduction from 132 to 60 community
hospitals in Latvia, plus 10 multi-profile emergency hospitals. The number of acute care
hospital beds is scheduled to be reduced from 8.5 to 4.8 per 1,000 people. A number of
complementary adjustments are also proposed to be made to the health system, since simply
closing hospitals is likely result in reduced access to services and continued inappropriate
utilization patterns, especially in rural and remote areas. The complementary adjustments
involve strengthening of the network of primary care through additional training and the
establishment of additional 350 primary health care practices throughout the country. The
emergency medical services system is proposed to be reorganized and strengthened to ensure
that emergency care and access to hospital care are maintained despite the removal of the
hospital emergency department. This will be accomplished by replacing the current 62 local
dispatch locations with 5 regional dispatch centers and organizing the ambulance resources on
a regional basis. In addition, 20 more ambulance teams will be added to communities that
currently have limited access to EMS services. Finally, a number of existing hospitals will be
converted to either community health centers or social care beds to meet needs for these
services that are currently being met through high-cost hospital services.
9. Conclusions
There is no doubt that many positive achievements have been recorded in the health sector in
recent years. Cognizant of the low salary levels in the health sector, the government has taken
several steps to bring salary levels at par with international standards. In an effort to improve
health facilities and infrastructure, the government has focused on rationalization of
secondary and tertiary services through regional master plans. The approach comprises
consolidation of state hospitals, closing or transforming small hospitals into nursing care
hospitals, primary care centers or social care institutions; and transforming single specialty
hospitals into long term hospitals. The Ministry of Health has recently proposed an action
plan for the implementation of the master plan for the whole country, which proposes to
reduce the number of community hospitals in Latvia from 132 to 60 and reduce the number of
acute care beds from 8.5 per 1000 people to 4.8 per 1000 people. At the same time the
Ministry of Health proposal envisages strengthening of the network of primary care through
the establishment of additional 350 primary care practices throughout the country. These
measures are expected to have a positive effect on efficiency as well as equity and will also
provide relief to the fiscal balance in the health care system.
The Government is also implementing strategies to improve the country’s health status
indicators. A “Public Health Strategy” has been developed, which sets as the basic goal rapid
improvement of the overall health status of the population of Latvia and encourages
individuals to take more active part in safeguarding, improving and promoting their own
health and that of their family. This is complemented by a separate “Strategy for Health Care
of a Mother and a Child in Latvia” which defines guidelines for establishing an efficient and
135
stable system to ensure good quality, effective and appropriately funded mother and child
health. Similarly, the “Strategy for Psychiatric Aid” defines key principles of psychiatric aid
and sets specific targets that would ensure provision of optimum psychiatric aid to the patients
irrespective of the degree of severity of his/her illness, as well as improve the treatment
process and quality. Finally, the “Strategy to Control HIV/AIDS” in Latvia has an overall
long-term goal to limit the spread of the HIV infection and AIDS epidemic and to reduce the
effects of this disease on individuals, families, groups of society and the society at large.
However, the medical personnel wage bill, health infrastructure and pharmaceuticals continue
(and will continue) to put pressure on the fiscal balance of the health care system. Salaries of
medical personnel, which have been increasing since 2002, are projected to continue
increasing, and whichever variant suggested by the Ministry of Health is finally adopted, the
adjustments in salaries alone will lead to an increase of between 5 and 7 percent in total health
spending, equivalent roughly to between 0.18 and 0.25 percent of GDP. These estimates are
conservative, since the wage bill is likely to put further pressure on the fiscal balance in the
health system as salaries in the health system in Latvia start converging more rapidly with
salaries in the health systems in the neighboring EU15 countries.
Consolidation of the health infrastructure will yield tangible savings, but not all the savings
will appear in the short term of 0-5 years. As the Ministry of Health proposal in this regard
also acknowledges, the consolidation of hospitals would need to be accompanied by
improvements in the primary health services production and delivery system as well as in the
emergency health services system, all of which will require new financial investments, further
delaying the time period when the net savings from hospital consolidation can be realized.
Likewise, significant savings in the statutory health budget cannot be expected from
rationalizing pharmaceutical consumption and pricing, simply because the statutory health
budget only reimburses 16 percent of total consumption of drugs.
An aspect not considered so far but one that is rapidly growing in importance in terms of its
potential effect on fiscal balance is Latvia’s aging population. Latvia is experiencing a period
of falling fertility rates and rising life expectancies, the net result of which is that the share of
people aged 60 years and older, which was 16.6 percent in 1985, is projected to increase to
38.3 percent in 2025. This will also result in higher old-age dependency ratios, such that a
smaller cohort of working population will have to support a larger cohort of the elderly.
Health care costs are likely to rise as the ratio of the elderly in the population rises, and as the
system may need to make some adjustments to cater to the specific needs of the elderly.
There is no doubt that finding the extra resources – or freeing some of the existing resources –
to meet these new pressures on the health care system is going to be a challenge. The most
obvious place in order to find these savings is the hospital sector but, as discussed earlier, not
all of these savings will be realized in the short term. Restructuring of hospitals would need to
be accompanied by such other measures as increasing ambulatory day care surgeries,
completely separating acute care and long-term care beds, and rationalizing the use of hospital
beds so that only severe cases are treated in tertiary hospitals – all of which will also
potentially lower costs, some sooner than others, but the effects would be more tangible in the
medium term (5-10 years) only.
Private out-of-pocket expenses are already substantial and further increases are probably
going to have an adverse impact on equity. Even at existing levels, there is some evidence that
many people are deterred by the high out-of-pocket costs and do not seek care when needed.
136
In fact, in a survey conducted a few years ago, a little over 25 percent of those surveyed
indicated that they had not accessed some medical services in the last year because of inability
to pay. This percentage went up to almost one-third for those earning LVL 50 per month or
less and 31 percent for those earning LVL 51-70. Over 62 percent of those interviewed
indicated that they were not prepared or were not able to pay more for either outpatient visits
or hospital stays.
It is tempting to suggest that public funding of the health care system in Latvia should be
increased to at least 4 percent of GDP, but eventually the additional public resources would
have to come from somewhere as well. Likewise, increasing the scope and spread of private
insurance may also offer opportunities for new resources. However, a strong case for
additional funding can only be made after all possible savings options are exhausted, and this
would require concentrating on the key expenditure areas as discussed above. Some areas of
increasing expenditure are probably inevitable, such as the new demands likely to be placed
by aging populations. To some extent, upward adjustments in salaries of medical personnel
are also unavoidable, but these increases should be accompanied by changes in the incentive
structure to one that rewards higher and better performance. Restructuring hospitals and
consolidating hospital beds offer medium-term opportunities for savings, and the process can
perhaps be expedited. Revitalizing and strengthening primary health care services will also
take some pressure off the fiscal balance. In all cases, it is clear that constant and
opportunistic adjustments will be needed year after year as the health system struggles to meet
the demands and to stay afloat. It is also clear that a substantial infusion of new resources will
be needed – perhaps as a one-time public investment to jump-start the process – just to bring
about the structural changes in the system that will eventually result in savings over a longer
time period.
137
Poland
1. Introduction
Poland introduced wide-ranging health sector reforms in 1999, bringing about significant
changes in financing, delivery, management and organization of the health sector. The
package of systemic reforms included the introduction of social health insurance, which
brought about a separation between payers and providers of health care and created the need
for evolving new and innovative ways of paying the providers of health services. In all, 16
regional sickness funds (plus one health insurance fund for military services) were created
with the specific responsibility of purchasing and paying for health care on behalf of the
subscribers. These funds were merged into one national level fund in April 2003, which
carries out its functions and responsibilities through a number of regional branches. Financed
by a percentage of payroll tax (8.25 percent in 2004), the National Health Fund (or NFZ)
contracts with a wide variety of individual and institutional providers of preventive,
ambulatory, specialist and in-patient care to supply health services for the insured. This
centralized National Health Fund operates via regional branches, which are based on the
“voivodship” structure of old sickness funds. As regards organization of health services, the
reforms aimed at restructuring and downsizing health facilities, and granting wide-ranging
managerial autonomy to public hospitals. On the delivery of health services, the reforms have
focused on the introduction and spread of family medicine as the basis of primary health care.
Many positive achievements have been recorded in the years following the introduction of
social health insurance. On the financing side, the health insurance system has done fairly
well in raising resources and collecting premiums, exceeding the targeted premium collection
almost every year since 2000. By changing the incentives governing provider behavior and
strict enforcement of physician contracts, the reforms succeeded in bringing about desirable
changes in utilization patterns, by encouraging primary care visits, constraining the number of
referrals and reducing the use of specialist services. On delivery of services, family medicine
coverage has increased impressively in the last few years. Efforts to restructure and downsize
health facilities have been generally successful, and the number of hospital beds has been
significantly reduced and a large number of hospital staff has been laid off. Similarly, hospital
autonomy has proceeded rapidly, with almost all hospitals enjoying a large degree of
autonomy with respect to personnel and financing decisions.
Although the recent reforms brought changes to the way that health care is produced,
delivered and financed, a number of issues have remained unresolved. First, there exists little
or no competition among health service providers, and while, in theory, health facilities
compete with each other to get business from Sickness Funds, in practice the NFZ contracts
with almost all health facilities. Second, the linkage between hospital payments and patient
services continues to be weak, as a result of which the most cost-effective means of
production and delivery are not adopted. Third, despite a great deal of progress with hospital
autonomy, both financial accountability and discipline among hospital managers has remained
weak. Symptomatic of these systemic inefficiencies, debts have continued to accumulate in
the sector, highlighting not only the shortcomings in the allocation of resources and in the
flow of financing within the system, but also the characteristics of reform which were aimed
at stabilizing resources rather than shifting incentives for improvements in the efficiency and
affordability of the health system, and in improved quality of care. In addition, the reforms
have not done well on the equity front, and the level and scope of informal payments that
patients make for health services has remained high. This constitutes a serious financial
burden for many households and dilutes the effectiveness of reform measures. Finally, the
reforms thus far have not focused in any meaningful way on improving the clinical quality of
care, which remains quite variable.
The heavy amount of indebtedness in the health system, the adverse impact of informal
payments in the health sector on equity, and variable clinical and perceived quality of care –
all present a huge challenge for fiscal health as well as for production and delivery of health
services in Poland. Indeed, improving the policy mix by continuing to bring the fiscal deficit
to more sustainable levels is a priority for the government, especially as Poland seeks to meet
the Maastricht criterion of 3 percent of GDP in the next few years, a prerequisite for joining
the European Monetary Union. Meeting this challenge may require sustained reductions in the
share of public expenditures in GDP, which in turn may require deep structural reforms in key
areas of public sector involvement, including the health sector, so as to prevent further
accumulation of debts while improving the effectiveness of service delivery. The main
objectives of this report, therefore, are to take stock of recent trends in health expenditure
aggregates in the public sector and identify specific areas of health expenditure reform
consistent with the objectives of stabilizing the fiscal situation without adversely affecting the
production, delivery and utilization of health services. The rest of this report is organized as
follows. Section 2 presents the macroeconomic background in order to set the context in
which the fiscal situation in the health sector can be best understood. Poland, like other
countries in the region, is undergoing a demographic transition as a result of which the
population is ageing rapidly, and these issues are discussed in Section 3. Section 4 presents
the health status of the people of Poland, and compares it with other countries in the region.
The structural characteristics of the health care system are highlighted in Section 5. The
structure of revenues in the health sector is presented and discussed in Section 6, followed by
a discussion in Section 7 on the structure of expenditures in the health sector. Section 8
examines debts in the health system. Major expenditure items are listed in Section 9 and
conclusions are presented in Section 10.
2. The Economy
Poland’s GDP grew at a brisk 5.4 percent in 2004, which has been the strongest performance
of the economy since the late 1990s. The first half of 2004, supported in part by the
stockpiling ahead of EU accession in May 2004, grew at over 6 percent year-on-year,
followed by a slowdown in the second half, to between 4 percent and 5 percent year-on-year.
Net exports grew faster than domestic demand, especially in the first two quarters of 2004.
Investment picked up in the second half of 2004, suggesting that a recovery was gaining
momentum, while consumer spending slowed toward the end of 2004. Early trends for 2005
indicate a recovery in retail sales, along with industry output and construction, and GDP
growth is expected to continue at a healthy rate through 2005 as well, though at rates closer to
the second half of 2004 than to those in the first half. The main origins of GDP in 2002 were
financial, transport and markets services (28.9 percent), industry (23.9 percent), trade (21.3
percent), public administration and other services (16.2 percent), construction (6.7 percent)
and agriculture (3.2 percent).
Table III.19: Macroeconomic Indicators, 2000-2004
GDP at market prices (Zl bn)
GDP (US$ bn)
Real GDP growth ( percent)
Consumer price inflation (av;
2000
723.9
166.6
4
10.1
2001
760.6
185.6
1
5.5
139
2002
781.1
191.4
1.4
1.9
2003
814.9
209.5
3.8
0.7
2004
884.2
241.9
5.4
3.5
percent)
Population (m)
Exports of goods fob (US$ m)
Imports of goods fob (US$ m)
Current-account balance (US$ m)
38.3
35,902
-48,209
-9,980
38.3
41,663
-49,324
-5,372
38.2
46,742
-53,991
-5,007
38.2
61,007
-66,732
-4,603
38.2
80,917
-87,083
-3,640
Productivity grew at over 4 percent in 2004, and average earnings grew at a broadly
comparable rate, suggesting a limited scope for increase in consumer expenditure. Over 2004
as a whole, consumer prices increased by an average 3.5 percent, up significantly from the
rate of just 0.7 percent recorded in 2003. The year-on-year inflation rate rose sharply in mid2004 as a result of one-off price effects linked to Poland's entry to the EU and the rise in
world oil prices. However, year-on-year inflation rate fell to 4 percent in January 2005, helped
in part by a good harvest, and by the strong zloty which reduced external inflationary
pressures. The price shocks linked to EU entry in 2004 are not likely to be repeated in 2005,
and inflation is expected to slow down to 3.2 percent in 2005 and 2.7 percent in 2006.
Already, the year-on-year growth of consumer prices in March 2005 was just 3.4 percent,
significantly lower than the rate of 4.4 percent recorded at the end of 2004. Cost pressures
from the labor market continue to be weak, in part because of the high unemployment that
prevents a sharp acceleration in wage inflation, and nominal wages in enterprises rose by just
2 percent year on year in the first two months of 2005.
Figure III.20: Poland registered
unemployment
Poland, registered unem ploym ent
20.5
20.0
19.5
At the same time, the headcount unemployment
rate is on a downward trend, though the absolute
level of joblessness continues to be very high
(Poland has the highest unemployment rate of any
EU member). There are considerable regional
variations in the labor market, which exhibits
tightness in the Warsaw region (average endDecember unemployment rate of 15 percent), and
in Krakow and Poznan, while regions such as
Warminsko-Mazurski (average end-December
unemployment
rate
of
29
percent),
Zachodniepomorskie and Lubuskie face the
greatest difficulties.
19.0
2002
Fiscal performance in 2004 was better than
budgeted on the back of strong revenues, and in
18.0
2004 the state budget deficit was PLN 41.5bn
I
II III IV V VI VII VIII IX X XI XII
(US$11.3bn; 4.7 percent of GDP), almost PLN 4
bn lower than the original target. Revenues evolved more or less in line with stronger than
expected output growth, while expenditures were held at budgeted levels. Nevertheless, the
expansionary 2004 budget raised the deficit by 1.5 percent of GDP compared to the year
before. However, the figures exclude off-budget borrowing, and under the European System
of Accounts (ESA 95) methodology used by the EU the 2004 deficit is estimated to have been
around 5.3 percent of GDP. The 2005 state budget targets a deficit of PLN 35bn (around 3.7
percent of GDP), and, although off-budget borrowing will continue in 2005, the overall
budget deficit is projected to be significantly lower than in 2004. Approval of further elements
of the Hausner plan stalled in the last quarter of 2004. Most importantly, the reform of the
farmers’ pension system (KRUS) remains on the agenda. Also, plans to unify the VAT have
apparently been put on hold. KRUS reform means higher social security contribution for
18.5
2003
2004
so urce: CSO
140
farmers, and VAT rate unification means higher food prices, both highly sensitive political
issues.
However, this situation may rapidly change, with elections scheduled in September 2005 and
with the departure of Jerzy Hausner, the deputy prime minister responsible for putting
together the plan for public finance reform, from the ruling Democratic Left Alliance (SLD)
to join the new Democratic Party. Political support to restrict government spending is likely to
wane, which may limit progress on implementation of the Hausner plan before the election. In
fact, even if political pressures to increase spending on sensitive social programs are
contained, statutory indexation of many social benefits for inflation will make it much more
difficult to limit the growth of public spending. The present government’s medium-term
budget plans envisage a further fall of around 0.5 percent of GDP in the budget deficit in
2006, which is unlikely to happen since it depends on the full and complete implementation of
the Hausner plan.
Table III.20: Performance of Hauser Program (expenditures and revenues, percent of
GDP)
2004
2005
2006
2007
Savings in total expenditures
0.06
0.79
0.62
0.93
1. not requiring legislative changes 0.01
0.05
0.07
0.07
2. requiring legislative changes
0.05
0.74
0.55
0.87
Total additional revenues
0.07
0.71
0.76
0.75
1. not requiring legislative changes 0.00
0.40
0.39
0.38
2. requiring legislative changes
0.07
0.31
0.37
0.36
Source: Convergence Program, November 2004
The current government has set a target of 2009 for Poland's entry to the euro zone, which
will require the government to bring down the overall government deficit to less than 3
percent of GDP (on the EU's European System of Accounts, or ESA 95, definition) by 2007.
The Ministry of Finance estimated in November 2004 that the 2004 deficit on the ESA 95
measure would be around 5.4 percent of GDP. This figure classes the private pension funds as
part of the government sector, and the task of bringing down the deficit to less than 3 percent
of GDP by 2007 would be made even more difficult if, as expected, the EU finally decides
that the pension funds should be excluded, which would increase the deficit by another 1.8
percent of GDP.
141
3. Demography
Poland, like many other countries in the region, faces the consequences of population ageing
caused by reduced fertility and mortality rates on the one hand and increasing life
expectancies on the other. Total Fertility Rates (TFR) in Poland fell from 2.33 in 1980-85 to
1.26 in 2000-2005 and is expected to increase only marginally to 1.41 by 2020-2025 (Figure
III.21).43
Figure III.21: Total Fertility Rate, Poland, 1980-2025
2.5
2
TFR1.5
1
0.5
0
1980-1985
1990-1995
2000-2005
2010-2015
2020-2025
Life expectancy at birth has been steadily rising and is expected to continue rising. Life
expectancy at birth for females increased from 74.3 years in 1980-85 to 78.7 years in 20002005, and is projected to rise to 81.4 in 2020-2025. Likewise, life expectancy at birth for
males increased from 67.2 years in 1980-85 to 72.2 years in 2000-2005, and is projected to
rise to 75.3 in 2020-2025. Overall, life expectancy is projected to rise to 78.4 years in 2025,
compared to 70.7 years in 1980-85 (Figure III.22).
Figure III.22: Life Expectancy at birth, Poland, 1980-2025
Male
90
Female
Total
80
70
60
Years
50
40
30
20
10
0
1980-1985
1985-1990
1990-1995
1995-2000
2000-2005
2005-2010
2010-2015
2015-2020
2020-2025
The net result of decreasing TFR and increasing life expectancies is that the share of people
aged 60 years and older, which was 13.8 percent in 1985, is projected to increase to 37.9
percent in 2025 (Figure III.23).
43
TFR is the average number of children a woman is expected to have by the end of her reproductive period.
Since it is measured using information from births to women aged 15-49 in a certain period, it is the average
number of children a woman is expected to have between age 15-49.
142
Figure III.23: Poland: Broad Age Groups ( percent)
Population <15
Population 15-64
Population 60+
70
60
50
40
30
20
10
0
1995
2000
2005
2010
2015
2020
2025
This will result in a dramatic “upside-down” change of the age pyramid (Figures III.24a and
III.24b).
Figure III.24a: Poland 2005
75+
Poland 2020
4. 06
70-74
65-69
55-59
60-64
6. 03
6. 49
50-54
6. 28
35-39
30-34
8. 27
7. 18
6. 50
30-34
7. 43
8. 84
6. 92
15-19
10-14
5. 77
10-14
6
2
0
2
4
4. 37
4. 69
0-4
4. 42
4
5. 00
4. 69
5. 10
4. 71
5. 14
8
6. 01
5. 47
5. 66
5. 44
0-4
20-24
5. 84
6. 47
5-9
6. 18
6. 79
6. 15
6. 62
6. 49
6. 91
7. 86
20-24
10
7. 78
40-44 9. 12
8. 32
25-29
6. 72
8. 48
5. 80
7. 19
5. 89
7. 13
7. 06
40-44
7. 01
5. 97
50-54
7. 98
7. 43
7. 57
6. 61
6. 69
8. 09
45-49
5. 89
6. 47
5. 29
5. 36
9. 83
4. 42
70-74
4. 79
4. 03
60-64
4. 90
7. 78
3. 31
6
8
10
P e rc e nt a ge
4. 02
5. 04
10
8
6
4. 31
4
2
0
2
4
6
P e r c e nt a ge
The old age dependency ratio and total dependency ratio are also expected to rise sharply.
Another challenging demographic issue is the population decline, and by 2050, there will be
31.92 million inhabitants in Poland, almost 6.6 million less than today.44
44
Source for all data used in this section: Population Division of the Department of Economic and Social Affairs
of the United Nations Secretariat, World Population Prospects: The 2004 Revision and World Urbanization
Prospects: The 2003 Revision, http://esa.un.org/unpp, 11 May 2005; 10:33:11 AM.
143
8
10
4. Health Status
The health status of the people of Poland compares favorably with the health status of the
people of the new member states of the European Union (except Malta and Cyprus), though
not as favorably with the health status of the people of countries belonging to the European
Union before May 1st 2004 (or EU15). As Table III.21 shows, life expectancy in Poland
(74.65 years in 20020) is within the range of life expectancy in the new member states (70.2
to 75.8 years), but lower than the life expectancy in EU-15 (average 79.06 years). Likewise,
disability-adjusted life expectancy in Poland is almost 6 years less than the EU15 average.
Infant deaths in Poland – 7.52 per 1,000 live births – is also well within the range of the new
member states (varying from 3.9 in the Czech Republic to 9.44 in Latvia), but is higher than
the EU-15 average of 4.61. The incidence of Tuberculosis in Poland – 25.05 per 100,000 – is
much higher than the EU-15 average of 8.65 per 100,000, while the rate of clinically
diagnosed AIDS – 0.43 per 100,000 – is much lower than the EU-15 average of 1.61.
Table III.21: Health Status Indicators, Poland and other new EU Member States (2003)
Life
Expectancy
Slovenia
Hungary
Czech Republic
Estonia
Slovakia
Poland
Latvia
Lithuania
EU-15 average
a Data
76.52
72.59
75.40
71.24 a
73.91 a
74.65 a
70.46
71.96
79.06
DisabilityInfant deaths
TB Incidence Clinically
adjusted life per 1000 live
per 100,000
diagnosed AIDS
a
expectancy
births
per 100,000
69.50
4.04
13.77
0.3005
64.90
7.29
24.31
0.2567
68.40
3.90
10.79
0.0784
a
64.10
5.69
41.15
0.7388
66.20 a
7.63 a
16.57
0.0370
65.80
7.52 a
25.05
0.4328
62.80
9.44
72.51
2.4900
63.30
6.73
74.26
0.2606
71.69
4.61 a
8.65
1.6100
for 2002
Source: WHO, European Health for All Database (January 2005 update), as accessed online at
http://data.euro.who.int/hfadb, on May 24th, 2005, 5pm.
Tables III.22 and III.23 present the standardized death rates (SDRs) for a wide variety of
causes. A comparison of the death rates from main causes between countries gives broad
indications of how far the observed mortality might be reduced. SDRs in Poland compare
favorably to the other new member states, but are somewhat higher when compared with the
EU-15 average. SDR from all causes in Poland is well within the range of SDR from all
causes in the new member states, but is higher than the EU15 average of 640. Likewise, SDR
from circulatory system disorders, cerebrovascular disorders, ischemic heart diseases, selected
alcohol-related and smoking-related causes is higher in Poland compared to the EU15
average, but well within the range of new member states.
Table III.22: Standardized Death Rates (per 100,000), different causes (2003)
All
Causes
Slovenia
Hungary
Czech Republic
Estonia a
Slovakia a
795.49
1047.97
899.60
1090.58
971.49
Circulatory
System
Cerebrovascular
295.29
508.30
61.88
560.35
527.71
78.76
134.59
132.37
154.06
88.18
144
Ischemic TB
Alcohol
Smoking
heart
Related
Related
diseases
Causes
Causes
94.37 1.05
111.42
251.08
232.66 2.41
149.55
491.02
176.09 0.68
89.74
380.91
323.00 6.10
174.29
541.74
283.48 1.19
92.80
443.02
Poland a
Latvia
Lithuania
EU-15 average a
a Data
891.55
1113.62
1008.26
639.88
413.89
593.02
519.78
236.32
98.57
206.23
117.37
59.05
125.78
291.58
327.75
92.89
2.33
8.70
9.45
8.65
88.95
160.22
176.98
61.28
306.79
566.77
518.51
220.78
for 2002
Source: WHO, European Health for All Database (January 2005 update), as accessed online at
http://data.euro.who.int/hfadb, on May 24th, 2005, 5pm.
Table III.23: Standardized Death Rates (per 100,000), different causes (2003)
Slovenia
Hungary
Czech Republic
Estonia a
Slovakia a
Poland a
Latvia
Lithuania
EU-15
average a
a Data
Malignant
Neoplasms
203.66
263.81
234.22
200.60
213.32
216.67
193.40
193.57
180.50
Trachea
Cancer
Bronchus of the
Lung
Cervix
Cancer
41.23
4.11
66.49
7.16
45.27
6.05
40.43
6.67
38.11
6.58
53.22
8.41
36.85
6.76
36.20
10.64
37.05
2.35
Infectious Respiratory Digestive
&
System
System
Parasitic
Diseases
Diseases
Disease
4.31
62.05
53.33
3.98
41.42
79.94
2.55
42.35
38.50
8.43
36.26
42.82
3.81
55.20
52.86
6.18
37.62
36.68
13.32
29.32
38.07
13.23
39.10
41.99
8.38
48.31
30.81
Liver
Diseases
&
Cirrhosis
31.31
53.53
16.66
21.72
26.55
12.98
14.00
20.98
12.62
for 2002
Source: WHO, European Health for All Database (January 2005 update), as accessed online at
http://data.euro.who.int/hfadb, on May 24th, 2005, 5pm.
SDRs in Poland due to chronic liver disease and cirrhosis (12.98) and diseases of the digestive
system (36.68) are the lowest among new member states, but higher than the EU15 average.
Likewise, SDRs from malignant neoplasms, lung cancer, cervical cancer, and diseases of the
respiratory system are higher in Poland compared to EU15 averages, though SDR from
infectious diseases is lower than the E15 average. Overall, observed mortality can be reduced
significantly in Poland if the health system and other determinants of health are more
effective in addressing health problems that account for high levels of mortality, like diseases
of the circulatory system, malignant neoplasms and ischemic heart diseases.
5. Structural Characteristics of the Health System
The Polish health care system has undergone many changes over the last few decades. Before
the regional sickness funds were introduced in 1999, health services were financed by the
Ministry of Health and Social Welfare, the Ministry of Finance, the voivods and the local
governments. All facilities were under state ownership and central financing through
budgetary transfers. Based on the Siemaszko model of organization and delivery, the health
care system in Poland emphasized access and offered free universal public health care to all.
The national budget, either directly through the Ministry of Health, or through other ministries
like Defense, Interior, Transportation and Industry, supported a huge network of statefinanced hospitals and clinics.
Primary health care in this system was produced and delivered by a network of over three
thousand service centers. Administered by provincial Voivodship or independent local
government gminas, primary health care was provided by multi-specialist teams of physicians
145
trained in internal medicine, pediatrics, and gynecology, and by dentists, nurses, midwives
and ancillary support staff. However, due to significant budgetary pressures and amidst
drastic economic restructuring, the health standards which at one time were comparable to
levels in Western Europe started declining. Thus in January 1999, the Polish government
introduced the social health insurance system, its most significant health sector reform to date.
In 1999, the national health care system came to be financed by common health insurance
institutions, called the sickness funds (which were initially 16 in number but were later
consolidated into one). All citizens automatically became members of one of the 16 Sickness
Funds organized on a regional basis (including one health insurance fund for employees of
military services). Regardless of the source of income, the obligatory premium – currently
8.25 percent of income – charged on the income of each citizen is used to finance the budget
of the health insurance funds. Farmers are exempt from taxation and do not have to pay for
health insurance, while the state budget supports for the unemployed and the homeless. Some
medical services, particularly expensive tertiary services, are also financed directly by the
state budget. Though attempts are being made to introduce private and additional state
insurance, none exist as of now.
With introduction of social health insurance and creation of the health insurance funds, the
role of the Ministry of Health and Social Welfare as the major source of funds in the health
system declined considerably, in favor of the health insurance funds. Similarly, the other
sources of funds that were prominent till 1998 lost their pre-eminent position after January
1999.
The health insurance funds contracted with primary care physicians on a capitation basis and
with specialists on a fee-for-service basis. While the financial outlays in the capitation
contracts were easy to monitor, in the sense that both the amount per enrollee per year and the
number of enrollees were known to payers as well as providers and there were no
uncertainties in the system, the fee-for-service payment mechanism was “open-ended.” It did
not take long for the health insurance funds to figure out that left unmonitored, the fee-forservice payment system would provide all incentives for the specialists’ physicians to increase
service contacts and thereby increase their revenues. The fact that the primary care physicians
were paid on a capitation basis did not help either, for it provided incentives to the primary
care physicians to, within limits of course, do less for the patient – since that would not affect
their revenues – and refer the more costly patients to the specialists.
Realizing that effective monitoring would be almost impossible, the health insurance funds
responded by setting limits to the number of patients a specialist could examine, and in this
way entered into “closed” contracts with specialists. In addition, the health insurance funds
laid down specific provisions in the contracts ensuring that the specialists uniformly spread
their contracted number of patient visits over the year. In effect this meant that the specialists
under contract to the Sickness Funds could examine only a fixed number of patients per day
and no more, even if the specialist had time left over after meeting the required quota. Such
limits, no doubt placed with the best of intentions, soon translated into long queues for
specialist services, something that even the most ardent proponents of the health reform had
not bargained for. Patients who could not get appointments in a reasonable time frame had
few options left: seek care in the private sector, jump the queue by making an informal
payment, or not seek care at all. Besides consciously reducing utilization of specialists’
services, the way that the contract system was organized thus made it challenging for the
146
patient to see a specialist even when the visit was justified, referrals were obtained and the
specialist was identified.
The 16 fairly autonomous health insurance funds that were set up as part of this social health
insurance reform also translated into many different ways of financing health services and
organizing delivery. Even though the differences were more pronounced in detail rather than
in principle, they were quite visible and noticeable, and their prominence was magnified by
the stories and experiences recounted in the media. Portability across the health insurance
funds was restricted in practice, and patients often faced problems in seeking treatment in
regions outside their own. For these and a variety of organizational-specific reasons, health
sector reforms initiated in 1999 had a mixed reception and the social perception of the
operation of the health care system following the changes remained somewhat compromised.
In part as a response to these problems, and in part driven by ideological considerations, the
new government that came to power in 2003 eliminated the autonomous and decentralized
Sickness Funds, and consolidated all the regional funds into one central fund. Founded in
April 2003, the National Health Insurance Fund (Narodowy Fundusz Zdrowia or NFZ)
operates in the entire country via 16 regional branches which were once the independent
regional funds. The NFZ contracts with all providers for health care services to all citizens in
the country.
6. Health Sector Financing
The main source of health funding in the Polish health care system is social health insurance
premium contributions, followed out-of-pocket payments and general taxes. Public funding,
including health insurance contributions and small portion of central government and local
governments funding, accounted for around 71 percent of total health expenditure (in 2003),
while out-of-pocket expenditure represented around 29 percent of total health expenditure. An
examination of the total expenditures over the six-year period 1999-2004 shows that
expenditures have increased steadily in nominal terms, from 38 billion PLN in 1999 to 49.5
billion PLN in 2004.
Table III.24: Expenditures on Health, 1999-2004 (million PLN)
Health Care
Expenditure (current
prices)
Health Insurance
State Budget
Local Governments
Other Public
Total Public Health Care
Expenditure
Out-of-Pocket
Total Health Care
Expenditure
Public: Private Ratio
Debts
Total Health Care
Expenditure including
debts
1999
2000
2001
2002
2003
2004
22,651.00 23,722.20 27,511.70 29,909.70 29,833.30 31,176.56
2,399.00 2,228.40 2,356.80 2,551.70 2,432.60 2,931.20
838.60
998.70 1,058.40
756.90
760.70
917.00
1,134.50 1,294.60 1,525.80 1,412.70 1,166.00
27,023.10 28,243.90 32,452.70 34,631.00 34,192.60 35,024.76
11,025.56 12,202.12 12,700.79 13,034.16 13,910.68 14,462.80
38,048.66 40,446.02 45,153.49 47,665.16 48,103.28 49,487.56
71:29
70:30
72:28
73:27
71:29
71:29
2,744.40
501.00 1,484.30
979.00
38,048.66 40,446.02 47,897.89 48,166.16 49,587.58 50,466.56
Source: Poland Ministry of Health (2004): Finansowanie ochrony zdrowia w Polsce - Zielona Księga
147
6.1 Public Expenditures on Health
Public expenditures on health increased in nominal terms from 27 billion PLN in 1999 to 35.0
billion PLN in 2004. In real terms, however, the increase in public health care expenditure has
been very small, from 27 billion PLN in 1999 to 28.7 billion PLN in 2004 (at 1999 prices),
with the exception of year 2000 when public expenditure expenditures on health actually
dropped. The main items of public expenditures on health are premium revenues, state budget
and sub-national government budgets.
Figure III.25: Pubic Expenditures on Health
40
bn PLN
30
4.09
29 4.06
35.2
30.5
36.9
4.1
32.5
4.05
26.2
3.99
25
4.15
3.96
4
3.98
3.95
20
3.9
3.87
15
3.85
10
3.8
5
3.75
0
percentage
35
4.11
30.9
3.7
1999
2000
2001
Public expenditures on health care (left scale)
2002
2003
2004
2005
Proportion of public expenditures of health care in GDP (right scale)
Source: Poland Ministry of Health (2004): Finansowanie ochrony zdrowia w Polsce - Zielona Księga
(i) Premium Revenue
Since 1999, health insurance premiums have constituted the main and dominating source of
funds to the health sector. The base health insurance rate has been systematically growing
since 1999, when the rate was 7.5 percent, and is planned to reach the level of 9 percent by
2007. The rate of increase in the premium rate is higher than the rate of growth of GDP –
during the period 2000-2006, the planned increase in premium rates is 1.45 percentage points
faster than GDP – thereby increasing the relative availability of resources. The premium
levels operate like a revenue-adjusting factor, and are effectively seen as the basis for
ensuring balance in the entire system. In 2006, premiums are expected to be greater by 55
percent compared to the 2000 level, while the GDP would have grown only by 43 percent.45
Table III.25: Average rate of increase in HP growth in comparison with rate of GDP
Average Rate of Growth
2000-2003
2003-2006
2000-2006
GDP (current prices)
4.02 percent
8.21 percent
6.09 percent
HI premium
6.66 percent
8.42 percent
7.54 percent
Source: Poland Ministry of Health (2004): Finansowanie ochrony zdrowia w Polsce - Zielona Księga
45
All rates of growth quoted relate to nominal values.
148
The share of private incomes in the financing of health insurance premiums amounted to 1
percent in 2000, which increased to 4.3 percent in 2003 and is expected to reach the level of
12.9 percent in 2006 and 15 percent in 2007.
Table III.26: Health Insurance Premium Dynamic (percentages)
Item
2001 2002 2003
2004
Last year = 100
GDP (current prices)
105.1 102.7 104.3
108.6
Total Health Insurance (HI)
112.1 99.5
108.8
108.2
Premium
HI premium covered by PIT
108.6 102.5 106.2
104.5
HI premium covered by other public
148.1 71.9
100.8
113.9
funds
HI premium covered by individuals
141.0 137.6 360.25 177.8
Year 2000=100
GDP (current prices)
105.1 107.9 112.5
122.2
Total HI Premium
112.1 111.5 121.3
131.2
HI premium covered by PIT
108.6 111.3 118.1
123.5
HI premium covered by other public
148.1 106.5 107.3
122.2
funds
HI premium covered by individuals
141.0 194.0 698.6
1242.1
Structure of Premium
HI premium covered by PIT
88.2
90.95 88.6
85.6
HI premium covered by other public
12.1
8.7
8.0
8.5
funds
HI premium covered by individuals
1.0
1.4
4.6
7.5
2005
2006
107.7
108.1
108.4
109.0
105.1
107.1
106.1
106.6
148.2
137.5
131.6
141.9
129.7
130.9
142.6
154.7
137.6
139.5
1840.9
2530.4
83.2
8.4
81.0
8.2
10.3
12.9
Source: Poland Ministry of Health (2004): Finansowanie ochrony zdrowia w Polsce - Zielona Księga
(ii) State Budget
Since 1999, state budget resources have financed specialist medical procedures, health care
programs, medical rescue services, public blood service and sanitary inspection. The budget
also finances a portion of health insurance premiums for those with no incomes. State budget
expenditures in health have fallen by 40 percent during 1999-2003, and the share of the state
budget in total public health expenditures declined from 86.9 percent in 1996 and 78.4 percent
in 1998 to 14.1 percent in 1999 to 7.3 percent in 2002. In nominal terms, state budgetary
allocations fell from 6312.6 million PLN in 1999 to 3714.5 million PLN in 2003.
149
Million PLN
Figure III.26: State Budget Allocations, 1999-2003
7000
6000
5000
4000
3000
2000
1000
0
1999
2000
2001
2002
2003
Source: Poland Ministry of Health (2004): Finansowanie ochrony zdrowia w Polsce - Zielona Księga
(iii) Sub-National Government Budgets
Revenues of Sub-national governments are calculated in accordance with algorithm
determining their respective shares in general taxes, and are generated by charges imposed by
such sub-national governments and are provided by subventions and subsidies of the state
budget. Since 2001, the local government’s share of total public expenditures on health care
has dropped from 10.8 percent on average during 1996-1998 to 7.6 percent in 1999 and 6.5
percent in 2002.
6.2 Private Out-of-Pocket Expenditures on Health
Private out-of-pocket expenditures, including formal and informal payments, increased from
11 billion PLN in 1999 to 14.5 billion PLN in 2004. In the early nineties the share of direct
household expenditures in health care financing amounted to only 10 percent of the total
financing of the health sector. However, direct expenditures by population, amounting to at
least 13.9 billion PLN accounted for about 30 percent of the total health care expenditures in
2003.46 Average monthly health care expenses per household member, estimated on the basis
of the results of the household budget surveys, amounted to 30.24 PLN in 2003, while
average monthly spending in health care per household member estimated on the basis of
module survey in health care, per household member, amounted to 38.80 PLN.47
46
According to household budget surveys
The former average, unlike the latter, does not contain the so-called informal payments, gratuities etc., or
expenses for treatment of persons from outside of the household.
47
150
7. Health Care Expenditures, by uses
The introduction of social health insurance and the subsequent departure from predominance
of the state budget as source of health care financing towards financial resources of sickness
funds based on the universal health insurance premiums has not contributed to a considerable
increase in public finances for health services. As a percentage of GDP, health expenditures
fell from 4.8 percent in 1994 to 4.3 percent in 1999 to 4.29 percent in 2002. The area that has
seen the largest increase in public expenditures on health in the last five years is
pharmaceuticals, which has grown by 81 percent during 1999-2004. Expenditures on
outpatient care have grown by 25 percent, while expenditures on hospitals have grown by 19
percent during this period.
Table III.27: Public health care expenditure by uses, 1999-2003, in million PLN
1999
2000
2001
2002
2003
Hospitals
11,716.00
11,928.70
13,419.30
14,138.80
13,897.10
Long-term care
505.60
584.60
313.80
417.80
453.90
Outpatient care
6,329.10
6,844.10
8,073.10
8,253.90
7,940.10
Public health
1,048.00
1,262.70
1,478.30
1,503.00
1,527.10
Administration
1,707.20
1,067.60
1,356.80
1,529.60
953.90
Drugs
3,707.60
4,750.40
5,484.20
5,806.00
6,715.80
Other
2,009.50
1,805.80
2,327.30
2,982.00
2,704.70
Total
27,023.00
28,243.90
32,452.80
34,631.10
34,192.60
Source: Poland Ministry of Health (2004): Finansowanie ochrony zdrowia w Polsce - Zielona Księga
Share of hospital expenditure in total public expenditures ion health has fallen over the years,
from 43.3 percent in 1999 to 40.6 percent in 2993. Share of outpatient care expenditures has
remained more or less constant at 23 percent, while the share of expenditure on drugs
increased from 13.7 percent to 19.6 percent.
Figure III.27: Functional Share of Public Expenditures on Health (percent)
100
80
60
40
20
0
1999
2000
2001
2002
2003
Long-term care
Public health
Administration
Other
Drugs
Outpatient care
Hospitals
Source: Poland Ministry of Health (2004): Finansowanie ochrony zdrowia w Polsce - Zielona Księga
Projections of public expenditures on health care indicate a steady growth of expenditures in
the short-run, by almost 25 percent in 2006 as compared to 2002. In fact, public expenditures
on health care are expected to double within the next twenty years, with a conspicuous period
in between during 2010-2020 due to the growing share of population over 65.
151
Figure III.28: Comparisons of revenues of health insurance from
premiums and current expenditures
120
100
mld zl
80
60
40
20
Expenditure
Revenue
0
2000
2005
2010
2015
2020
Source: Poland Ministry of Health (2004): Finansowanie ochrony zdrowia w Polsce - Zielona Księga
In 2001, the difference between expenditures and revenues was slightly lower than in 2000. In
2002, the difference between revenues and expenditures grew again to the level similar to that
of the year 2000, with a significant decrease until the year 2007. In 2010 the overrun of
expenditures relative to revenues is expected to amount to slightly more than 2.5 billion PLN,
while in 2020 it is expected to grow to 18.3 billion PLN, nearly 25 percent of the total
revenue.
Pharmaceuticals are the most conspicuous and increasing item in the structure of household
expenditures on health, accounting for 43 percent of total out-of-pocket expenditures on
health in 1999 and 53.5 percent in 2003. Expenditures on outpatient care, including dental
care, are the next biggest item of out-of-pocket expenditures on health. Expenditures related
to hospital treatment are the last big-ticket item, but have been decreasing in recent years,
from 32 percent of total out-of-pocket expenditures in 1999 to 22 percent in 2003.
8. Debts
Debts refer to payments outstanding and past due, not liabilities which are natural
consequences of financial management of health facilities. The health sector debt figures as
announced each year are cumulative figures, representing the total debts accumulated at the
end of the year under consideration. Accordingly, debts for each year are obtained as the
difference in the current end-of-year debt figure and the previous year’s end-of-year debt
figure. The health sector in Poland has been generating debts for over a decade now. In the
1990s, debts were written off by the state several times, with a major bail-out that took place
just before the implementation of reforms in 1999.
Outstanding debt accounts for over 66 percent of all health care facilities liabilities. As the
Table III.28 shows, matured debts rose by PLN 501 mn (from PLN 2,744.4 mn at the end of
2001 to PLN 3,245.4 million) over 2002 whereas in 2003 the growth of liabilities was over
2.9 times greater than the year before (PLN 1,484.3 million – or an increase of matured debts
152
to 4,729.7 million PLN). In the 1st half of 2004, matured debts rose by PLN 779.2 million, to
a level of PLN 5,508.9 million.
Table III.28: Matured debts of autonomous public health establishments (million PLN)
2001
2002
2003
2004
(1st
half)
Growth rate (percent)
June
2002/
2003/
2004/
2001
2002
Dec.
2003
Autonomous public health care
establishments created by local 2,279.2 2,714.3 4,021.2 4,600.8
119.1
148.1
114.4
government units
Autonomous public health care
establishments created by
465.2
531.1
708.5
908.1
114.9
133.4
128.1
central units
TOTAL
2,744.4 3,245.4 4,729.7 5,508.9 118.3
145.7
116.5
Source: Poland Ministry of Health (2004): Analysis of Debts
There are significant variations in debts across the regions of Poland. According to a poll
carried out by the Ministry of Health (June 2003), 80 percent of matured debts originated
from 15 percent of establishments, while half of the matured debts were shown by 5.5 percent
of the total number of establishments. The most indebted facilities are located in Wroclaw
region (Dolnoslaskie Voivodship), a region that generates almost 20 percent of all debts
(1,097.8 mln PLN). Other regions with debts above the average are Lodz region (721.6 mln
PLN), Warsaw region (528.8 mln PLN) and Gdansk region (438.2 mln PLN). On the other
side, Opole region is the least indebted, with accrued outstanding debts at the level of 84.1
mln PLN. It is worth noting that the Wroclaw region also has the largest health care
infrastructure in Poland, while Opole has the smallest one. Also, only 2 regions out of 16 were
able to stop the escalation of debts and in 2004 reduced their outstanding debt as compared to
2003. These were the Krakow region (reduced debts by almost 8.5 mln PLN between August
2004 and August 2004) and Rzeszow region (reduced debts by over 15 mln PLN between
August 2004 and August 2004).
The largest share of hospital-based debts is towards the public sector, mostly for local taxes,
real estate tax and social insurance on behalf of the employees. This constitutes 31.2 percent
of all outstanding debts in the sector. Health care facilities are subject to the highest rate of
real estate tax as it is applied for any business activity. This, however, is not accompanied
with treating the health care facility as a business entity in other fields for example issue of
VAT where the health care providers pay VAT while purchasing goods and services however,
since health care is exempt from VAT, hospitals cannot deduct it in their cost accounting
system. This leads to unbalance and the estimated amount for year 2004 is 955 mln PLN.
153
Figure III.29: Structure of Hospital Debts
25.40%
31.20%
3.90%
19.90%
18.50%
1.10%
Debt towards the public sector (taxes, social insurance etc.)
Debt towards employees
Debt due to investment and renovation
Debt towards the suppliers of drugs and medical utilities
Debts towards medical equipment suppliers
Other
Source: Poland Ministry of Health (2004): Analysis of Debts
The second item on the list of debts is debt towards the suppliers of drugs and medical
consumables, which is nearly 20 percent of all outstanding debts and the third largest item of
18.5 percent is debt towards the employees. According to the Act of 22 December 2000 on
Amendments to the Act of 16 December 1994 on the Negotiation System of Modeling Wage
Growth with Entrepreneurs and on Amendments to Certain Acts and the Act on Health Care
Establishments (also known as the “203 Act”), health care establishments were obliged to pay
employees wage raises in 2001 of not less than PLN 203 including derivatives, and in 2002 at
a level not lower than the average wage growth in the national economy. It is estimated that in
2001 only about 55 percent of health care establishments raised wages, of which 45 percent
only covered the full amount of PLN 203. Implementation of wage raises was worse in 2002.
The main reason cited by public health care establishments for not implementing the
statutorily imposed obligations is limited financial resource s. After implementing the wage
raise in the full amount, most health care establishments ran into debt.
154
Table III.29: Debts of SPZOZ by type (as on August 31, 2004)
Debts in ‘000 PLN
Specification
Total
of which
matured
100.00
Structure of
matured
debts
(percent)
100.00
18.12
18.54
27.87
31.17
19.06
19.88
4.38
3.93
0.74
0.53
1.48
0.62
28.36
25.33
Proportion of
Structure
matured debts in of all debts
total (percent)
(percent)
Total debts
8,405,252 5,557,975 66.13
Debts to employees (in
this payroll fund and
1,522,729 1,030,249 67.66
social benefits fund of
the workplace)
Public-law debts (in
2,342,505 1,732,657 73.97
this ZUS)
Debts from the
purchase of drugs and 1,602,017 1,104,700 68.96
medical materials.
Debts from the
368,292
218,650
59.37
purchase of medical
equipment
Debts from repairs and
62,082
29,230
47.08
upgrading
Debts fixed assets
124,015
34,407
27.74
under construction
Other debts from
2,383,612 1,408,082 59.07
conducting operations
Source: Data sent to the Ministry of Health by Voivods
The total principal amount owed to employees from the implementation of the "203 Act" in
the years 2001-2002 is estimated at about PLN 2.2 billion, on the basis of data of the Central
Statistical Office (GUS) concerning the average employment in autonomous public health
care establishments employing over 49 persons, with the number of employees being 394,100
in 2001 and 329,300 in 2002.48 According to the data of polls of the Ministry of Health
(which were answered by 919 SPZOZ employing over 50 workers), indebtedness resulting
from the "203 Act" as on 31 March 2004 totaled PLN 1.93 billion.
Other causes of the increase in hospital debts are the state of hospital infrastructure, status of
medical equipment and lack of resources for repairs and investments. The resources allocated
by local governments for investment purposes have decreased systematically and health care
facilities have had to cover these costs out of their own resources, often using external
financing such suppliers’ credits, on which the hospitals have defaulted.
The problem of debt growth has been particularly visible in regions with an excessive
concentration of public hospitals. One explanation for such high levels of debt is that
establishments are required (as an implicit agreement) to provide services irrespective of the
value of contracts concluded with the sickness funds, bearing costs that are not refunded
either from health insurance or from the state budget. Further, the prices proposed by the Fund
are often inadequate to cover the real costs of providing the individual services. And finally,
the allocation of funds between the voivodship branches of the NFZ do not fully take into
account the flow of patients to health care establishments located beyond the borders of the
voivodship of the place of residence of patients.
48
GUS communication dated 19 August 2004, ref. DUI-06-3089/04.
155
But there are several other reasons for these debts as well, which are in somewhat greater
control of the hospitals. For one, there is an excess supply of hospital beds, and it is expensive
to maintain the huge infrastructure, particularly if it is idle. Second, there is near-absence of
effective management and supervision in public hospitals, and nobody seems to be concerned
too much about that because the founding bodies of these hospitals face a very soft budget
constraint. And finally, the dynamic development of secondary trading in health care
liabilities, carried out by private entities specializing in buying out debts, particularly from
entities of the public finance sector in the long run, has generated additional financial costs in
the form of interest on the taken over debts, and the “help” offered by them has acquired a
negative meaning, leading public health care establishments to ever greater financial collapse.
Recently there has also been an intensification of debt collection from SPZOZ by way of
seizure by court order, directly from assets of the SPZOZ, as well as through NFZ.
million PLN
Figure III.30: Seizure of SPZOZ Liabilities by Court Orders
2000
1800
1600
1400
1200
1000
800
600
400
200
0
2000
2001
2002
2003
2004
Source: Data of former UNUZ (Health Insurance Supervisory Office) and NHF
9. Major Expenditure Items
Drugs
Drugs are the single largest cost group in the entire healthcare system, and over the past few
years have been the most dynamically growing element in overall costs of healthcare services.
The Polish market is dominated by imported drugs, which account for 63 percent of the
market share, and most of which are original drugs. The total value of imported drugs has
grown annually at a rate of over 15 percent per annum during 2001-2003, while the value of
domestically produced drugs grew at a rate of 10 percent per annum. Both, the retail price of
pharmaceuticals as well as quantity of drugs consumed (especially expensive drugs) have
grown during this period.
Table III.30: Public Expenditures on Refunded Drugs
Items
1999 2000
4.5
Expenditure of NFZ and health services 3.5
on drugs (billions PLN)
127.9
Increase dynamic, previous year = 100
16.4 19.6
Ratio of drug costs to costs of insured
services
2001
5.2
2002
5.6
2003
6.2
115.9 108.1 110.3 -1.2
19.7 19.7 22.2 21.0
Source: Poland Ministry of Health (2004): Finansowanie ochrony zdrowia w Polsce - Zielona Księga
156
2004
6.1
A characteristic feature of Polish healthcare system is both very high share of drugs in total
healthcare expenditures (over 30 percent), and high share of drugs in cost of services financed
by NFZ, which is now over 20 percent, significantly more than the share 16.4 percent, the
share of drugs in the first year after introduction of public health insurance. Cost of drugs
displays high dynamics, clearly exceeding the dynamics of total cost of healthcare. NFZ
currently allocates over 6.2 billion PLN for drug refunds.49 Drug refunds expenditures in
1999-2003 display a very high, though decreasing, growth dynamics, with the strongest
growth being noted in 2000 (almost 28 percent). This was followed by a relative slowdown,
but has again picked up in 2004.
Costs of drug refunds are still high, and over 20 percent of NFZ expenditures on healthcare
and about 19 percent of public funds allocated to healthcare are used for drug refunds. If
hospital use drugs are added to this list, the share of drug refunds in total public expenditures
for healthcare grows to over 25 percent. This high share should be seen in the context of very
few savings, since the possibility of achieving simple savings by broader use of generic drugs
has largely been exhausted already.
High share of private expenditures in financing drug costs (almost 60 percent with respect to
all drugs and 35 percent with respect to refunded drugs) makes it difficult to further encumber
family budgets with cost of drugs. It would possible to change the structure of patients’ copayments to drugs, and perhaps should be considered as well, but it would be unrealistic to
believe that increasing the level of co-payments would be either simple or that it would bring
spectacular cost reduction results.
Figure III.31: Expenditures on Drugs and Medical Supplies
Billion PLN
20.0
15.0
10.0
5.0
0.0
1999
2000
2001
2002
2003
Total Expenditures on drugs and medical supplies
NFZ expenditure on drug and medical supplies
Total cost of drugs sold on the outpatient basis accounts for over 18.3 billion PLN of which
6.7 billion were drugs paid/reimbursed by the Sickness Funds/National Health Fund. The
remaining 11.6 billion were covered by the population from out of pocket either as copayment for drugs or for OTC drugs.
Salaries of medical personnel
Salaries of medical personnel constitute about 60-80 percent of total payroll, and 50-90
percent of the costs of operation of healthcare units are expenditures for salaries. However,
49
In 2004 a decrease in cost of refunds is expected, which is confirmed by results of first half of 2004.
157
remuneration in the health sector is lower than in other areas, and was about 23 percent below
the average wages in the public sector in 2002.
Figure III.32: Monthly Salaries of Full-Time Employed (October, years)
PLN
2500
2000
All Sectors
Health Care
Public Sector
1500
1000
500
0
1998
2001
2002
Source: Poland Ministry of Health (2004): Finansowanie ochrony zdrowia w Polsce - Zielona Księga
As discussed earlier, “Act 203” which required health care establishments to raise employee
wages could not be fully enforced due to lack of financial resources. As a result of the
autonomy of the sickness funds and health care units, higher expenditures by sickness funds
have not translated into higher salaries for health sector employees.
Non-medical costs of patient stay in health facilities
Non-medical costs of patient-stay in health facilities – which includes cost of management,
maintenance and heating of the building, cleaning, insurance (of buildings, vehicles, third
party liability insurance of the service provider) – account for about 11 percent of total cost of
providing health care, and is steadily growing. Seeking savings and cost reduction, many
service providers introduced outsourcing for tasks like laundry, cleaning, meals and
renovation, as a result of which the cost of externally-provided services has grown by as much
as 38 percent. However, costs of non-medical supplies have not decreased as a result of this
outsourcing, and the net effect has been that of increasing total costs. The market came to be
captured by a small group of service contractors, who were able to dictate higher prices.
10. Conclusion
There is no doubt that many positive achievements have been recorded in the two years
following the introduction of social health insurance. The reform has generally done well in
bringing about a desirable change in utilization patterns, by encouraging primary care visits
and reducing use of specialist services. Changes in the utilization of hospital services also
show an improvement since 1999 compared to previous years. By strictly implementing the
policy on referrals and by contracting for limited number of specialist services, the Sickness
Fund has succeeded in keeping the utilization of specialist services low. By paying primary
care physicians on the basis of capitation, often making them fund-holders for specialist care
as well, the Sickness Fund has introduced incentives for the physician to reduce referrals and
increase her own effort. And finally, by paying hospitals on a reducing scale vis-à-vis the
number of patient days, the Sickness Fund has introduced incentives for hospitals to reduce
the length of stay.
158
At the same time, however, the health sector reforms have not always been received well by
the public or by many of the providers themselves. Taking everything into consideration,
perhaps the main reasons for the general discontentment with the health financing reform are
not financial; rather, the fundamental source of the problem is the way in which the reforms
have been implemented. Set against a rhetoric that raised people’s expectations to levels that
were untenable (and probably unrealistic), the reform process was short of preparation and
lacking in efforts at information-sharing, resulting in low acceptability among the people at
large.
Changes in the financing of the health sector brought about by introduction of social
insurance have been accompanied by significant changes in the organization, management
and delivery of health care. The Sickness Funds contract directly with public and non-public
integrated health care organizations, and individual private providers; in turn, these
organizations contract with independent physicians and private health care units to provide
health services. Managers of health units deal directly with the insurance funds, negotiating
rates, terms of financing, service focus and delivery hours. All in all, the system of health
insurance has spawned an entirely new way of not only financing health care, but also of
managing, organizing and delivering health services.
Changes in the organization and flow of funds in the health system following the introduction
of social health insurance brought about significant changes in the incentive systems affecting
provider behavior. Centralized ownership and financing prior to the introduction of social
health insurance established a system of incentives and a system of practice in response to
these incentives. First, given the nature of allocation of funds, the management of health
facilities in the provinces, municipalities and counties had few incentives to develop fiscal
and strategic planning functions. The predictability of budgetary allocations undermined the
need to improve managerial and organizational capacity, which effectively slowed down the
process of innovation and ability to respond to environmental changes. Second, the system of
compensation based on salaries undermined the importance of effort and productivity. As a
consequence, there was little effort to improve efficiency and quality of care, and patients
faced erratic service. In addition, physician salaries were low, and they looked to other
sources to augment their salary incomes. However, public physicians enjoyed professional
stability, personal job security through long-term assignments and a respected position in the
medical society and among the patients, especially for hospital-based physicians. Most
physicians also had the opportunity to share work between an ambulatory and a hospital ward,
and thus get better access to the superior equipment, advanced medical technology and
modern treatment procedures. And third, there was little reorganization and restructuring of
the public sector over time, resulting in the public health care system becoming characterized
by overstaffing, widespread misallocation of resources, under-utilization of capacity in most
areas and under-supply in some.
There was some reorganization and innovation in the mid-1990s following the creation of
independent large cities and autonomous municipalities, which implemented an impressive
variety of innovations in financing and management of health. Using the instrument of
contracts to achieve the separation of functions of provision and finance, these independent
units introduced new methods of paying physicians that included fee-per-visit, fee-perprocedure, and capitation. Since paying public physicians by any other method except salaries
was not possible under existing regulations governing state employees, this meant that any
physician accepting alternative methods of payment first had to resign from government
service. This led to the creation of a whole new class of private physician practices supported
159
by public funds. At the same time, the growth in private physician practices supported entirely
by out-of-pocket payments by patients accelerated both in terms of the number of physicians
practicing privately and the number of patient visits.
Health financing reform was not the only major change that took place in 1999. Poland's
decentralized system of local government was launched at the start of the year, with sixteen
large regions replacing the previous forty-nine. Pension reform was also launched in January
1999, opening the way for certain groups, depending on their age, to enhance state pensions
by opting for additional private contributions. Accompanying health reforms, all public health
facilities were transformed from budgetary units under the federal, provincial or local
government to autonomous health producing units, an arrangement that effectively enabled
the government to stand apart from day-to-day health sector management.
In effect, therefore, all these changes taking place concurrently meant that health care
providers, who were used to a position of security (and probably complacence) earlier, now
faced a market-like situation in which they had to compete with other providers, often like
themselves, for a share of the total health budget envelope. Many private providers also found
themselves in the market, openly competing with public and other private providers for
patients. In such a situation, only the most prepared could survive, and these providers quickly
took the lead in establishing the new rules which they would use to participate in the reform
game. For other providers, like the anesthetists, protests and strikes were the only viable
options, while for others (for instance gynecologists and psychiatrists) forming politically
powerful alliances was the best course.50
Efficiency
The systemic overhaul of the health sector in Poland included organizational and management
reforms aimed at improving overall efficiency. While some of these reforms have produced
results in directions desired, others have not. Efforts to restructure and downsize health
facilities were successful, in that the number of hospital beds has been significantly reduced
and a large number of hospital staff has been laid off. Similarly, hospital autonomy has
proceeded rapidly, with almost all hospitals enjoying a large degree of autonomy with respect
to personnel and financing decisions.
Reform measures that have been less successful include those associated with increasing the
role of competition and market forces. First, there is little or no competition among health
service providers. In theory, health facilities compete with each other to get business from
Sickness Funds; in practice, however, the Sickness Funds have been supporting nearly all
health-providing facilities. Tough decisions to let the inefficient units close down have not
been taken, and competition between health facilities is not especially marked. Similarly,
while there have been some efforts to contain the growth of institutions producing tertiary
health care, these have been largely piecemeal. And finally, while a number of new
institutions have been created to support social health insurance, by and large they have not
been very effective either in providing leadership and guidance, or in supervising and
monitoring the Sickness Funds.
Second, incentives to encourage cost-containment have not been adequate. Cost containment
has not been the focal point of reforms. For outpatient care, physicians are paid on the basis of
50
Many of the arguments presented in this section and subsequent discussions n efficiency and equity are also
made in the Health Chapter of the World Bank (2002): Public Expenditure Review.
160
a fixed capitation fee per enrollee for all outpatient services, regardless of the extent and
nature of treatment sought. Since physicians participating in this scheme bear most of the risk
of treating a patient, they are likely to be conservative in the amount of health care they
provide, and more likely to over-refer patients to costlier specialist care. This often becomes a
beneficial arrangement for both the physician and for patients, who prefer specialist care even
if the primary care physician can equally well provide the required treatment. This, however,
increases the costs to the health system since specialist care is relatively more expensive.
For hospital care, hospital managers have not faced proper incentives for reducing costs and
improving financial management. The system of paying per bed-day encourages longer
hospital stays, thus providing perverse incentives for cost increases among the providers. For
acute hospital care, too, Poland has not satisfactorily been able to reorient service provision
from this relatively expensive care to lower levels of care. For medicines, the normal practice
of using brand name drugs even when much cheaper generic drugs are available not only
keeps health costs high, but because brand name drug inflation is generally higher than that
for generic drugs, it also leads to higher growth of pharmaceutical costs.
A series of recommendations follow from the above. These include:
- Introduce meaningful competition among health service providers
Health facilities need to compete with each other to get business from Sickness Funds, who
should not feel obliged to support any facility. Inefficient units unable to compete with others
in the market should be allowed to close down and other facilities should be permitted to take
over their clientele.
- Establish a direct linkage between hospital payments and patient services
Linking services provided to compensation and ensuring that the “money follows the patient”
will promote the most cost-effective means of production and delivery. Theory and
international experience suggest the use of prospective payments for inpatient care.
Prospectively determined payments for a set of services necessary by established clinical
protocols to treat a particular diagnosis rely on the fact that services associated with a
particular treatment are reasonably predictable and can be bundled into a group to which a
monetary value can be attached. Such payment mechanisms discourage excessive use, since
the hospital generates surplus by carefully employing its resources and controlling lengths of
stay.
- Extend the system of family medicine to cover 100% of the population
The introduction of family medicine in Poland – a system in which physicians provide health
services for the whole family, treating common illnesses across such medicine domains as
internal medicine, gynecology, pediatrics, prevention and health propagation – has been
synonymous with both enhanced patient satisfaction and cost containment. Family medicine
needs to be extended to cover outpatient care for 100% of the population.
- Strengthen incentives for improved hospital financial management
In the short-run, this requires enforcing a hard budget constraint on hospital managers so as to
provide the necessary incentives for accountability and financial discipline. Over the more
medium-term, the Government needs to think about a strategy for further reducing the number
of hospitals and hospital beds through a system of hospital consolidation with a well-defined
strategy for closures. This would also require the development of bankruptcy procedures to
161
facilitate enforcement of hard budget constraints and improve financial discipline in the
public sector health care facilities.
- Promote use of generic drugs, where they exist, and rationalize prescription practices.
This is essential to contain the growth of prescription costs, particularly since this is the
largest item of private expenditures. One way could be to set reimbursement levels for drugs
based upon use and pricing of generic drugs, and to establish control triggers and benchmarks
for monitoring unnecessary and excessive prescriptions.
Equity
In the absence of accurate estimates of utilization and of costs, it is difficult to assess the
equity impact of public expenditures on health. However, an examination of the structure of
the equalization formula that redistributes part of the premium collections and of the burden
of out-of-pocket expenditures on health care suggests that equity is not a major problem in the
health sector in Poland. During the days of multiple Sickness Funds, part of the funds
collected by ZUS and KRUS was subject to “equalization” based on the principles of equity
and solidarity.51 The guiding principle of the equalization was that if financial resources were
to be distributed on the basis of need, with equal resources being allocated for equal need, it
would be followed by a fair distribution of personnel, drugs and supplies, all of which
together will lead to an equitable delivery system. In accordance with the provisions of the
Health Insurance Law, the Sickness Funds retained 80 percent of their collection, and set
aside the remaining 20 percent for redistribution and “equalization” across all funds. The
equalization algorithm redistributed funds on the basis of allocations adjusted by agedistribution of the Fund’s population. Since the elderly (over 60 years of age) consume more
health care, and providing health care to them is more expensive compared to the other agegroups, the equalization algorithm considered a 2.4 times larger allocation for the elderly
population compared to others. The algorithm also used an adjustment by income, but allowed
the Funds to retain some of their income advantage. In practice, the equalization formula
effectively transferred funds out of the richer funds to the poorer funds.52 However, there was
no provision in the algorithm in its present form to redistribute resources according to
population needs and health care utilization other than as predicted by age, which only
captured about 25 percent of the variation in use.
There is, therefore, an urgent need to redistribute resources according to fiscal effort,
population needs and utilization, in addition to the adjustments for age and income that are
presently available. Thus, the algorithm used for equalization of insurance premium
collections needs to be amended to include provisions to redistribute resources based on fiscal
effort, population needs and utilization, in addition to the adjustments for age and income that
are presently available.
Out-of-pocket Payments
Out-of-pocket payments have emerged as an important source of health care financing, and
take two forms: formal copayments and informal out-of-pocket payments. Formal copayments
were almost non-existent prior to the transition, reflecting the constitutional guarantee to free
51
Many other countries, like England, Netherlands and Germany, also redistribute resources among different
geographical regions and population subgroups on the basis of income differences, age and gender distribution.
52
There is transfer of funds from the richer funds, such as Dolnoslaska (Wroclaw), Mazowiecka (Warsaw),
Slaska (Katowice) and Branzowa (the Special Fund for Railway, Army, Police, etc.) to the poorer ones, of whom
the biggest beneficiaries are Podkarpacka (Rzeszow), Swietokrzyska (Kielce), Podlaska (Bialystok), Lubuska
(Jelenia Gora) and Warmińsko-Mazurska.
162
health care for all citizens, but now apply to many services, like dental care, and to
pharmaceuticals and medical prosthesis and have assumed significant proportions over time.
Informal payments, in cash or in kind, made by patients or others on behalf of the patients, to
public health care providers for health services received or expected to be received, existed
even during the socialist times, and are all-pervasive even now.
Share in Total
Expenditures
Expenditure on
Health
The latest burden of incidence analysis that is available is for the year 2000, based on the
2000 Household Budget Survey. An analysis of this survey data shows that an average Polish
household spent about 82.7 zlotys on health (or 26 zlotys per capita), equivalent to about 4.5
percent of its total expenditure. Overall, total private expenditure on health amounted to PLN
12,279 million a year, equivalent to 1.8 per cent of GDP. On average, urban households spent
a little more than rural households – both in absolute (88 zlotys versus 73 zlotys per month)
and relative terms (4.6% versus 4.4% of the total household expenditure). Expenditures on
drugs and medicines constitute between 60 to 80 percent of total health expenditure of a
household, and medical
consultations account for
Figure III.33: Out-of-Pocket Household Expenditures on Health
(monthly, in zlotys) 2000
almost 15% of total out-ofpocket health expenditures.
200
6
The analysis shows that
5
150
4
there
is
a
positive
100
3
correlation between living
2
50
1
standards, as measured by
0
0
equivalent
consumption,
1
2
3
4
5
6
7
8
9
10
Consumption Deciles
and health expenditures—
that is, the higher the
Monthly Household Expenditure on Health
Share in Total Household Expenditures
standard of living, the
higher
the
health
Source: Household Budget Survey, 2000; staff calculations
expenditure. Thus, richer
households
spend
considerably more on health care compared to the poorer ones; in terms of share of total
household expenditures, the differences range between 3 and 5 percent. These payments cover
both formal co-payments and informal payments.
While it is not possible to un-bundle out-of-pocket payments into formal and informal, the
latter have potentially far-reaching implications everyone in the country’s health care system.
By their very nature, informal payments are unauthorized and contribute to the general
environment of corrupt practices and the growth of a parallel health care financing system.
Variously referred to as “envelope payments” or “gray payments” in Poland, informal
payments introduce perverse incentives in the health system and compromise governments’
efforts to improve efficiency, accountability and equity in the public sector. The nontransparent and discretionary nature of informal payments have adverse effects on equity and
access to health care, with the more vulnerable segments of the population having to pay
disproportionately large amounts for the health services that should otherwise be available
free of charge. The act of asking for and receiving informal payments cannot be entirely
pleasant for all physicians as well, and it is reasonable to expect that many would be
concerned by the unethical nature of this practice
Given the adverse effects on equity and access to health care, the government must come
down heavily on the practice and institution of informal payments in the health sector.
163
Solutions to this problem are not straightforward, and can only be addressed by changing the
culture of giving and accepting such payments in the existing system.
Summary
In order to address the existing problems in the health sector and to consolidate the gains
made so far, several changes need to be brought about on many fronts. The most immediate of
these are:
 Reimburse hospitals in a way that ensures a direct linkage between compensation
and services provided to the patient;
 Introduce case-mix payment systems, like DRGs etc. for payments to hospitals;
 Contain hospital debts by imposing hard-budget constraints;
 Control expenditures on pharmaceuticals by promoting use of generics where they
exist and by rationalizing prescription practices;
 Institute mechanisms to eradicate informal payments; and
 Address inefficiencies in collection and redistribution of premiums so as to
improve allocations among health funds;
Key expenditure areas that need immediate attention are hospitals and pharmaceuticals, which
combined account for almost 75% of total health expenditures. Cost containment in hospitals
can be effected by introduction of case-mix payment systems and ensuring that hospital
managers face a hard-budget constraint. Linking services provided to compensation and
ensuring that the “money follows the patient” will promote the most cost-effective means of
production and delivery. As far as delivery of health services is concerned, the reform
measures should concentrate on extending the family physician system to cover 100%
primary care, and instituting a system of heavy penalties to dissuade violation of the referrals
system. And finally, in the area of organization and management, there is an urgent need to
reduce the number of hospitals and hospital beds through a system of hospital consolidation
with a well-defined strategy for closures. This would also require the development of
bankruptcy procedures to facilitate enforcement of hard budget constraints and improve
financial discipline in the public sector health care facilities.
164
References:
Poland Ministry of Health (2004): Finansowanie ochrony zdrowia w Polsce - Zielona Księga, MOH, Warsaw
Poland Ministry of Health (2004): Analysis of Debts, MOH, Warsaw
World Bank (2005): Options for an equalization mechanism in the funding allocation of the National Health
System in Poland, Washington DC.
World Bank (2002): Poland - Informal Payments in Health, Washington DC.
World Bank (2002): Public Expenditure Review, Washington DC.
World Bank (2001): Evaluating the impact of health care reforms in Poland: The challenges of systemic
changes in a transforming environment, Washington DC.
165
Slovakia
1. Introduction
The Slovak Republic has the unique distinction of being the only country among the new
European Union member states to have launched comprehensive and systemic health sector
reforms, which address all the key aspects of the health system, including production,
financing, delivery, quality, organization and management. That the reforms are being driven
by a minority coalition government, which has twice succeeded in passing difficult and
contentious legislation in the parliament, is testimony not only to the determination with
which this government is addressing the problems in the health sector, but also to the
widespread acceptance among the population in general of the importance and urgency of
finding of resolving the fiscal crisis and improving the delivery of health services.
Started in real earnest in 2003, the first two years of the reform program have been hugely
successful in meeting the narrowly defined objectives for this phase of the reform.
Stabilization measures – the first of the three steps in the reform program – aimed at
controlling the growing indebtedness of the health system, and consisted essentially of
introduction of nominal copayments for patients, simple but effective changes in
pharmaceutical policies and pilot projects of hospital restructuring. In two years since the
introduction of fees in the health care system, Slovaks have paid a total of SSK 2.7 billion to
doctors, pharmacies, and hospitals, and the number of visit to physicians has decreased by 8
percent. Initial survey reports and public opinion polls do not provide any evidence of adverse
effects on access and utilization of health care following the introduction of copayments, with
less than 2 percent of those surveyed claiming that copayments deterred them from seeking
care. While this has had little or no impact on costs of outpatient services – since primary care
providers are paid on a capitation basis per enrollee while specialists are paid for services with
limits on the number of points reimbursed – fewer visits has meant fewer prescriptions for
drugs, and thus savings in pharmaceutical expenditures, which together with changes in
procurement principles, dropped the growth rate of expenditures on drugs in 2004 to low
single digits compared to 12 to 15 percent increases annually in the previous years.
Restructuring and rationalizing of health facilities has started, and the first wave of mergers
and consolidation is already underway in the big cities of Bratislava, Kosice and Banska
Bystrica. The net result of the stabilization measures is that annual systemic debt fell from
SSK 9 billion (almost 1 percent of GDP) in 2002 to SSK4.8 billion (0.4 percent of GDP) in
2003 to SSK 2.4 billion (0.2 percent of GDP) in 2004.
System measures – the second of the three steps in the reform program – intend to increase
the efficiency of the system and mobilize resources, and supporting legislation for this step of
the reform program has already been passed in the parliament. The system measures place
emphasis on reforming the health insurance system and reducing the benefit package covered
by mandatory social health insurance. Legislation with respect to these measures has taken the
form of six Acts – on health insurance, on health insurance companies, on providers, on
emergency care, on health care and on treatment – which are presently in the stage of
implementation. Network measures – the third of the three steps in the reform program – aim
at improving the quality and efficiency of health care providers. A Health Care Surveillance
Authority has recently been set up for this purpose, and is expected to be fully operational
soon.
However, the pace of the reforms is slowing down somewhat in recent months, partly as the
affected stakeholders get reorganized and partly as the novelty of the measures starts wearing
off. Implementation worries are also beginning to set in, especially as attention shifts from
conceptual elegance and design consistency to operational details and legal challenges. At the
same time, there is growing concern that public restlessness with tangible results might force
some short-cuts which could potentially compromise the foundations of a sustainable reform
program.
This hiatus in the momentum also provides an opportunity to reflect on the acts of
commission and omission that led to this situation of huge fiscal imbalances in the health
system in the first place. In this context, the main objectives of this report are to take stock of
recent trends in health expenditure aggregates in the public sector, identify the key areas of
health expenditures, and trace the progress of specific areas of health expenditure reform
consistent with the objectives of stabilizing the fiscal situation without adversely affecting the
production, delivery and utilization of health services. The rest of this report is organized as
follows. Section 2 presents the macroeconomic background in order to set the context in
which the fiscal situation in the health sector can be best understood. Slovakia, like other
countries in the region, is undergoing a demographic transition as a result of which the
population is ageing rapidly, and these issues are discussed in Section 3. Section 4 presents
the health status of the people of Slovakia, and compares it with other countries in the region.
Section 5 contains a brief background on the health sector in Slovakia and highlights some of
the structural characteristics of the health care system. Health financing issues are discussed
in Section 6 and major expenditure areas are highlighted in Section 7. Conclusions are
presented in Section 8.
2. The Economy
Real GDP has risen steadily from 4.5 percent in 2003 to 5.5 percent in 2004, topping 5.8
percent in the fourth quarter of 2004 (Table III.31). Real GDP revisions for the period since
2002 in December 2004 revealed higher output growth in 2003 and stronger contribution from
consumption. Net exports contributed negatively by 3.7 percent, but stocks and consumption
continued to rise. Household consumption increased by 3.5 percent year-on-year recovering
much faster than expected. Although gross fixed investment recorded growth of only 2.5
percent, an almost 20 percent increase in stocks indicates that a large number of investments
await completion. Fixed capital formation is therefore expected to be a major contributor to
growth in 2005-06. Export growth at 15.3 percent was the weakest of the last four quarters.
Average consumer price inflation for the 2004 settled at 7.5 percent after experiencing much
volatility during the year. Despite high inflation rates, further cuts in interest rates, and several
rounds of market intervention, the koruna has continued to appreciate (5.5 percent year-onyear at end-December 2004).
Table III.31: Macroeconomic Indicators
GDP at market prices (SSK billion)
2000
934
2001
1,010
2002
1,099
2003
1,201
2004
1,325
GDP (US$ billion)
20.3
20.9
24.2
32.7
41
2
3.8
4.6
4.5
5.5
Consumer price inflation (average; %)
12
7.1
3.3
8.6
7.5
Population (million)
5.4
5.4
5.4
5.4
5.4
Exports of goods fob (US$ million)
11,915
12,629
14,368
21,838
27,752
Imports of goods fob (US$ million)
-12,822
-14,764
-16,500
-22,479
-29,208
Real GDP growth ( percent)
167
Current-account balance (US$ million)
-704
-1,756
-1,939
-277
-1,447
The main origins of GDP in 2003 were services (66.6 percent), industry (29.7 percent), and
agriculture (3.7 percent). The main components of the GDP were private consumption (56.6
percent), followed by investment (24.7 percent) and public consumption (19.4 percent).
The current account deficit, despite an increase in Q3 to 2.4 percent of GDP, remains within
comfortable margins. Foreign direct investments have regained their movement upwards with
many new contracts in the automotive, electronics and engineering sector, although the levels
are still lower than in 2002. The expansion in exports halved, from 22.5 percent in 2003 to
11.4 percent in 2004, below the 12.7 percent growth rate of imports. The negative
contribution of net exports to overall economic growth, caused primarily by the retooling of
the German-owned Volkswagen Slovakia car assembly plant, Slovakia’s major exporter is
expected to be temporary occurrence. Rising technology imports and recovering domestic
demand is expected to further fuel the rapid rise in imports.
The registered unemployment rate stabilized at over 14 percent for 2004, lower than the
reported 15.2 percent for 2003. Regional disparities remain deep, with registered
unemployment rate at just 3.1 percent in the capital, Bratislava, but approaching 30 percent in
eastern districts. According to Ministry of Labor, four of Slovakia's eight regions recorded
above-average unemployment in March 2005. Meanwhile, the duration of unemployment
continues to rise.
The fourth quarter of 2004, fuelled by rapid GDP growth and tightening labor market
conditions, reported the fastest rate of annual wage growth recorded in any quarter during the
year. The average gross nominal monthly wage in the economy as a whole stood at US$587 in
the fourth quarter, which represents a 4.4 percent real increase y-o-y, bringing the cumulative
annual gain in 2004 to 2.5 percent. Telecommunications recorded a 14.3 percent growth rate,
with gains of 11 percent in the service sectors as well. Real wage growth in industry was
below the economy-wide average in 2004, at 2.3 percent, while real wages in retail trade rose
by 3.8 percent in 2004, after shrinking by 4.4 percent in 2003.
The fiscal outcome for 2004 was better than expected, supported by strong revenue
performance. While expenditures grew by only 0.7 percent, the revenues of the State budget
exceed plans by 4.5 percent, reflecting better than expected personal income tax collections
(36 percent), corporate income tax collections (35 percent) and value added tax (2 percent).
The 2004 consolidated budget deficit (including local budgets and off-budget costs) was 3.3
percent of GDP, lower than the 3.9 percent prediction, aided largely by the government’s
recent tax reform. The 2005 public finance deficit is targeted at 3.8 percent of GDP, including
the costs of pension reform, which will divert a portion of payroll taxes from the state-run
pay-as-you-go scheme to private accounts. Adjusted for pension reform, however, the deficit
would decline to 3.4 percent of GDP (the pay-as-you-go pillar revenue shortfall is projected at
0.4 percent of GDP in 2005, 1.0 percent of GDP in 2006 and 1.1 percent of GDP in 2007).
According to the government's EU convergence program, the deficit is expected to fall further
to 3.5 percent of GDP in 2006 and 3 percent of GDP, which is in line with the Maastricht
treaty's requirements for adoption of the euro in 2007.
3. Demography
Slovak Republic, like many other countries in the region, faces the consequences of
population ageing caused by reduced fertility and mortality rates on the one hand and
168
increasing life expectancies on the other. Total Fertility Rates (TFR) in Slovak Republic fell
from 2.28 in 1980-85 to 1.28 in 2000-2005 and is expected to increase somewhat to 1.63 by
2020-2025 (Figure III.34).53
Figure III.34: Total Fertility Rate, Slovak Republic, 1980-2025
2.5
TFR
2
1.5
1
0.5
0
1980-1985
1990-1995
2000-2005
2010-2015
2020-2025
Life expectancy at birth has been steadily rising and is expected to continue rising. Life
expectancy at birth for females increased from 74.7 years in 1980-85 to 77.6 years in 20002005, and is projected to rise to 79.9 in 2020-2025. Likewise, life expectancy at birth for
males increased from 66.8 years in 1980-85 to 69.8 years in 2000-2005, and is projected to
rise to 73.4 in 2020-2025. Overall, life expectancy is projected to rise to 77.4 years in 2025,
compared to 70.6 years in 1980-85 (Figure III.35).
Figure III.35. Life Expectancy at birth, Slovak Republic, 1980-2025
Male
85
Female
Total
Years
80
75
70
65
60
1980-1985
1985-1990
1990-1995
1995-2000
2000-2005
2005-2010
2010-2015
2015-2020
2020-2025
The net result of decreasing TFR and increasing life expectancies is that the share of people
aged 60 years and older, which was 13.7 percent in 1985, is projected to increase to 38.6
percent in 2025 (Figure III.36).
53
TFR is the average number of children a woman is expected to have by the end of her reproductive period.
Since it is measured using information from births to women aged 15-49 in a certain period, it is the average
number of children a woman is expected to have between age 15-49.
169
Figure III.36: Slovakia: Broad Age Groups (percent)
Population <15
Population 15-64
Population 60+
75
65
55
45
35
25
15
5
-5
1995
2000
2005
2010
2015
2020
2025
This will result in a dramatic “upside-down” change of the age pyramid (Figures III.37a and
37b).
Sl o vaki a 2 0 2 0
Figure III. 3 7 a : S lova kia 2 0 0 5
75+
3. 15
70-74
65-69
55-59
35-39
30-34
40-44
0-4
8
10-14
6
2
0
2
4
0-4
6
4. 97
5. 21
5. 06
4
5. 05
5. 55
5. 20
5. 61
5. 19
5. 59
6. 42
5. 76
6. 37
5. 74
20-24
7. 78
7. 05
7. 12
6. 99
7. 17
5-9
10
7. 73
7. 71
8. 32
7. 85
10-14
30-34
7. 53
8. 49
15-19
8. 23
8. 32
9. 03
20-24
7. 37
8. 78
6. 53
8. 12
6. 30
7. 79
6. 88
6. 98
6. 59
6. 57
50-54
7. 31
7. 24
7. 32
6. 76
6. 65
7. 70
40-44
6. 55
6. 53
5. 88
7. 51
45-49
25-29
60-64
4. 73
5. 65
50-54
4. 90
5. 78
4. 05
4. 06
7. 41
3. 72
70-74
3. 76
3. 15
60-64
3. 72
6. 13
2. 58
8
10
P e rc e nt a ge
4. 69
5. 36
10
8
6
4. 80
4
2
0
2
4
P e r c e nt a ge
The old age dependency ratio and total dependency ratio are also expected to rise sharply.
Another challenging demographic issue is the population decline, and by 2050, there will be
4.61 million inhabitants in Slovak Republic, almost 0.53 million less than today.54
54
Source for all data used in this section: Population Division of the Department of Economic and Social Affairs
of the United Nations Secretariat, World Population Prospects: The 2004 Revision and World Urbanization
Prospects: The 2003 Revision, http://esa.un.org/unpp, 11 May 2005; 10:33:11 AM.
170
6
8
10
4. Health Status
The health status of the people of Slovak Republic compares favorably with the health status
of the people of the new member states of the European Union (except Malta and Cyprus),
though not as favorably with the health status of the people of countries belonging to the
European Union before May 1st 2004 (or EU-15). As Table III.32 shows, life expectancy in
Slovak Republic (73.91 years in 2002) is within the range of life expectancy in the new
member states (70.46 to 76.52 years), but lower than the life expectancy in EU-15 (average
79.06 years). Likewise, disability-adjusted life expectancy in Slovak Republic is almost 5
years less than the EU-15 average. Infant deaths in Slovak Republic – 7.63 per 1,000 live
births – is also well within the range of the new member states (varying from 3.9 in the Czech
Republic to 9.44 in Latvia), but is higher than the EU-15 average of 4.61. The incidence of
Tuberculosis in Slovak Republic – 16.57 per 100,000 – is much higher than the EU-15
average of 8.65 per 100,000, while the rate of clinically diagnosed AIDS – 0.0370 per
100,000 – is much lower than the EU-15 average of 1.61.
Table III.32: Health Status Indicators, Slovak Republic and new EU Member States
(2003)
Life
Expectancy
Slovenia
Hungary
Czech Republic
Estonia
Slovakia
Poland
Latvia
Lithuania
EU-15 average
Disabilityadjusted life
expectancy a
76.52
72.59
75.40
71.24 a
73.91 a
74.65 a
70.46
71.96
79.06
69.50
64.90
68.40
64.10
66.20 a
65.80
62.80
63.30
71.69
Infant deaths
per 1000 live
births
4.04
7.29
3.90
5.69 a
7.63 a
7.52 a
9.44
6.73
4.61 a
TB
Incidence
per
100,000
13.77
24.31
10.79
41.15
16.57
25.05
72.51
74.26
8.65
Clinically
diagnosed
AIDS per
100,000
0.3005
0.2567
0.0784
0.7388
0.0370
0.4328
2.4900
0.2606
1.6100
a
Data for 2002
Source: WHO, European Health for All Database (January 2005 update), as accessed online at
http://data.euro.who.int/hfadb, on May 24 th, 2005, 5pm.
Tables III.33 and III.34 present the standardized death rates (SDRs) for a wide variety of
causes. A comparison of the death rates from main causes between countries gives broad
indications of how far the observed mortality might be reduced. SDRs in Slovak Republic
compare favorably to the other new member states, but are much higher when compared with
the EU-15 average. SDR from all causes in Slovak Republic is well within the range of SDR
from all causes in the new member states, but is higher than the EU-15 average of 640.
Likewise, SDR from circulatory system disorders, cerebrovascular disorders, ischemic heart
diseases, selected alcohol-related and smoking-related causes is higher in Slovak Republic
compared to the EU-15 average, but well within the range of new member states.
Table III.33: Standardized Death Rates (per 100,000), different causes (2003)
All
Causes
Slovenia
Hungary
795.49
1047.97
Circulatory
System
295.29
508.30
Cerebrovascular
Ischemic TB
Alcohol
Smoking
heart
Related
Related
diseases
Causes
Causes
78.76
94.37 1.05
111.42
251.08
134.59
232.66 2.41
149.55
491.02
171
Czech Republic
Estonia a
Slovakia a
Poland a
Latvia
Lithuania
EU-15 averagea
899.60
1090.58
971.49
891.55
1113.62
1008.26
639.88
61.88
560.35
527.71
413.89
593.02
519.78
236.32
132.37
154.06
88.18
98.57
206.23
117.37
59.05
176.09
323.00
283.48
125.78
291.58
327.75
92.89
0.68
6.10
1.19
2.33
8.70
9.45
8.65
89.74
174.29
92.80
88.95
160.22
176.98
61.28
380.91
541.74
443.02
306.79
566.77
518.51
220.78
a
Data for 2002
Source: WHO, European Health for All Database (January 2005 update), as accessed online at
http://data.euro.who.int/hfadb, on May 24 th, 2005, 5pm.
Table III.34: Standardized Death Rates (per 100,000), different causes (2003)
Slovenia
Hungary
Czech Republic
Estonia a
Slovakia a
Poland a
Latvia
Lithuania
EU-15 averagea
Malignant
Neoplasms
203.66
263.81
234.22
200.60
213.32
216.67
193.40
193.57
180.50
Trachea
Cancer
Bronchus of the
Lung
Cervix
Cancer
41.23
4.11
66.49
7.16
45.27
6.05
40.43
6.67
38.11
6.58
53.22
8.41
36.85
6.76
36.20
10.64
37.05
2.35
Infectious Respiratory Digestive
&
System
System
Parasitic
Diseases
Diseases
Disease
4.31
62.05
53.33
3.98
41.42
79.94
2.55
42.35
38.50
8.43
36.26
42.82
3.81
55.20
52.86
6.18
37.62
36.68
13.32
29.32
38.07
13.23
39.10
41.99
8.38
48.31
30.81
Liver
Diseases
&
Cirrhosis
31.31
53.53
16.66
21.72
26.55
12.98
14.00
20.98
12.62
a
Data for 2002
Source: WHO, European Health for All Database (January 2005 update), as accessed online at
http://data.euro.who.int/hfadb, on May 24 th, 2005, 5pm.
Likewise, SDRs from malignant neoplasms, lung cancer, cervical cancer, diseases of the
respiratory system, diseases of the digestive system and liver diseases and cirrhosis are higher
in Slovak Republic compared to EU-15 averages, though SDR from infectious diseases (3.81)
is lower than the EU-15 average. Overall, observed mortality can be reduced significantly in
Slovak Republic if the health system and other determinants of health are more effective in
addressing health problems that account for high levels of mortality, like diseases of the
circulatory system, malignant neoplasms and ischemic heart diseases.
5. General Characteristics of the Slovak Health System
Prior to its split from the Czech Republic in 1993, the Slovak health system was financed by
general taxes, along the lines of the former Soviet model that was characterized by strong
central government control in all aspects of health care finance and provision. In 1994, this
tax-based system was replaced by a Bismarck-style social health insurance model, in which
economically active individuals are expected to make health insurance premium contributions
calculated on the basis of their wage-income, while the state finances the premiums on behalf
of the economically inactive population. The new system, based on the principles of
universality and solidarity, introduced radical changes on the health financing side but left
virtually intact the structure of the supply side as well as the type and number of services
covered by public health insurance. The network of health care providers was physically
available, but its ability to provide health care services to the entire population was
compromised by the lack of adequate funds to finance an infinite health care package and
inefficiencies in the allocation of existing resources within the health care production per se.
172
These phenomena, accompanied by the ageing of the population, spreading of non-infectious
and chronic diseases and the development and use of advanced technologies resulted in a
financially unsustainable health system. Serious financing problems started to emerge in the
form of increasing arrears and informal out-of-pocket payments by patients, which had a
regressive nature and created access barriers. Accumulated arrears of health institutions
(health insurance companies and health care providers) stood at SKK 26.6 billion at the end of
2002, representing 40 percent of the annual health budget or 2.5 percent of the GDP for that
year.55
In an effort to cope with increased expenditure, the government has repeatedly cleared arrears
of health insurance companies and health care providers, using, amongst others, privatization
resources. These extra-budgetary resources have grown rapidly and for the period of 20002003 a total of SKK13.9 billion were injected in the health system. 56 At the same time,
throughout the 1990s, a number of reform measures encompassing a wide range of initiatives
– from privatizing providers to changing reimbursement mechanisms and decentralizing
management – have been introduced, though not all proposed measures were always realized.
Almost all GPs have been privatized and 83 percent of the specialists are private. The
transformation of hospitals into autonomous for-profit organizations, such as shareholder
owned companies, has proceeded to a more limited extent. Several reforms have been made to
the provider payment mechanisms in an attempt to improve incentives for efficiency. GPs in
private practices were initially paid a mix for fee-for-service and capitation, but now receive a
capitation payment. Since the introduction of social health insurance, payments for hospitals
have been changed several times, with different governments moving back and forth from per
diem payments to prospective payments (budgets). Currently, tertiary care is financed on a
broadband Diagnoses Related Group (DRG) basis. Some devolution of responsibilities for
hospitals from the state to local municipalities has taken place, although the process of
decentralization has not progressed in a fast pace. Overall, however, reforms in the 1990s
lacked a systematic approach, and non-recurring revenues continued to be used to fund
recurring expenditures (debts), underscoring the weakness in the financing of the health
system.
6. Structure of Health Financing
The main source of health funding in the Slovak system are social security contributions,
followed by general taxes and out-of-pocket payments. Public funding including government
and individuals health insurance contributions accounted for 89 percent of total health
expenditure, well above the OECD average of 72 percent in 2000.57 Out-of-pocket
expenditure is the main source of private financing, as private health insurance is virtually
non-existent. Formal out-of-pocket payments represented around 11 percent of total health
expenditure, compared to the OECD average of 18.7 percent in 2000. This is, however, a low
estimate since it does not take into account informal payments which, according to some
estimates of the Ministry of Health, might be as high as SKK 6.5 billion per year. In 2003,
public to private ratio of health care expenditure remained very close to 2000 levels, with
public funding representing 87 percent of total health expenditure and private funding the
balance 13 percent (Table III.35).
Zajac and Pazitny, power point presentation ‘Debt reduction strategy’ presented at World Bank workshop in
Warsaw, May 2003.
56
Zajac et al. (2004).
57
OECD (2003).
55
173
Table III.35: Structure of main sources of finance, 1998-2003 (billion SKK)
1998
Total health expenditure
51.5
Public
47.4
Contributions
28.6
Taxes
18.8
Private
4.1
Out-of-pocket
4.1
Private insurance
0.0
A s percent of total health expenditure
1999
54.1
48.7
29.3
19.4
5.4
5.4
0.0
2000
56.7
50.8
31.7
19.1
5.9
5.9
0.0
2001
61.9
55.6
34.6
21
6.3
6.3
0.0
2002
68.5
61.7
37.2
24.5
6.8
6.8
0.0
2003e
72.9
63.4
41.8
21.6
9.5
9.5
0.0
Public
90.0
54.2
35.9
10.0
10.0
0.0
89.6
55.9
33.7
10.4
10.4
0.0
89.8
55.9
33.9
10.2
10.2
0.0
90.1
54.3
35.8
9.9
9.9
0.0
87.0
57.3
29.6
13.0
13.0
0.0
92.0
55.5
36.5
8.0
8.0
0.0
Contributions
Taxes
Private
Out-of-pocket
Private insurance
Notes: 1. ‘Taxes’ are calculated as ‘Public’ - ‘Contributions’; 2. e denotes estimated.
Source: Author’s calculations using data from the Ministry of Health.
Overall, total expenditure on health care in 2003 was SKK 72.9 billion or SKK 13,500 per
capita. Total health expenditure represented 6.9 percent of the GDP, while health revenues
were equal to 6.5 percent of GDP (Figure III.38). Both expenditure and revenues as
percentage of GDP have fluctuated moderately in the past few years. New annual debts in the
health sector were about SKK 5 billion in 2003, as a result of about SKK 4 billion savings
following the stabilization measures. The debts are expected to drop to SKK 2.4 billion in
2004 and to zero by 2005, according to the estimates of the Ministry of Health.
Figure III.38: Fiscal position of the health sector (% of GDP)
7.6
7.5
7.0
5.5
6.9
6.1
7.3
6.9
6.4
6.2
6.0
7.3
7.2
7.2
7.0
6.5
7.7
7.6
1.0
6.8
6.4
6.5
6.4
0.0
0.6
6.6
6.4
-0.2
-0.1
-0.6
5.0
0.8
6.9
0.4
6.5
6.5 0.2
0 0.0
-0.2
-0.4
-0.5
Deficit
Revenues and Expenditure
8.0
-0.4
-0.7
-0.6
4.5
-0.9
-0.9
-0.9
-0.8
4.0
-1.0
1995
1996
1997
Revenues (left axis)
1998
1999
2000
2001
2002
Expenditures (left axis)
2003
2004
2005
Deficit (right axis)
Source: Ministry of Health of the Slovak Republic.
Note 1: Figures for 2004 are estimates; for 2005 are forecast
Note 2: Revenues and expenditures in 2004 and 2005 reach relatively lower shares of GDP because of the high
growth rate of the Slovak economy.
Note 3: The revenues in years 2003 and 2004 do not include the bailing out of hospitals and HIC approx. SKK
15 billion) via state owned company Creditor
174
Table III.36 presents the revenues and costs of the health system. The stock of debts, which
stood at around SKK 26.6 billion at the end of 2002, is expected to be bought by the Creditor,
a special public entity created to absorb this cumulative debt. The Creditor will purchase total
debt (receivables) from creditors, but paying only for its nominal part, that is excluding fines
and penalties. The Creditor is expected to buy receivables equal to SKK 26.6 billion by 2005
using resources of the National Property Fund (privatization resources) and the Ministry of
Finance (which will issue bonds). The debt reduction strategy will be carried out in three
phases.58 In the first phase, receivables belonging to decentralized inpatient facilities will be
purchased, amounting to SKK 6 billion; in the second stage the Creditor will purchase
receivables related to public finances and primary and secondary care, as well as the ones
belonging to pharmacies, in total SKK 10.5 billion. In the third and final phase, receivables
belonging to state-owned inpatient facilities equal to SKK 10 billion will be purchased.
However, the possibility that resources for debt reduction might be limited suggests that a
certain amount of debt might still be outstanding by 2005; at the same time, it cannot be
guaranteed that new debts will not appear in the system. At present, the government believes
that the full introduction of a number of reform measures, such as the transformation of health
insurance companies and hospitals to autonomous entities, independent from the state budget,
will be the solution to the problem of continuous indebtedness. Although such transformation
is expected to establish the basis for reduction of debts in the health system in the future, it
would be a little difficult for insurers and providers to operate as private companies in a year’s
time, and the state will most likely be forced to bail out many of them.
Table III.36: Revenues and Costs of the Health System, 1998-2003 (billion SKK)
1998
1999
2000
2001
2002
2003e
28.6
19.7
7.3
1.3
0.0
0.3
10.5
0.5
0.1
1.7
41.4
29.3
20.1
7.5
1.4
0.0
0.3
11.1
0.6
0.3
1.9
43.4
31.7
21.9
8.1
1.4
0.0
0.3
11.2
0.5
0.4
1.4
45.2
34.6
23.6
9.2
1.5
0.0
0.3
13
0.4
0.2
1.4
49.6
37.2
25.2
10.2
1.5
0.0
0.3
15.3
0.5
0.3
1.7
55.0
41.8
28.5
11.4
1.6
0.0
0.3
16.5
0.0
0.3
0.0
58.6
4.7
1.3
4.1
4.4
1.3
5.4
4.5
1.0
5.9
4.9
1.1
6.3
4.8
1.2
7.0
4.8
0.0
10.2
Total revenues
COSTS
51.5
54.5
56.6
61.9
68
73.6
Primary outpat. care
4.2
1.5
25.6
16.1
5
4.4
1.8
25
18.8
4.1
4.7
1.9
26
20.6
6.9
4.9
2.1
28.1
22.8
7.7
5.1
2.2
30.1
24.1
8.3
5.2
REVENUES
Individual contributions
From employers
From employees
From self-employed
From non-residents
Others
Government contributions
NLO contributions1
Penalties, fines, etc.
Other resources
Total resources of HIC2
Revenues of MOH chapter
SIA resources for treatment
Out-of-pocket payments
Secondary outpat. care
Inpatient care
Drugs & med. devices
Others
3
2.3
30.5
25.5
10.2
Zajac and Pazitny, power point presentation ‘Debt reduction strategy’ presented at World Bank workshop in
Warsaw, May 2003.
58
175
Expenditure from MOH chapter
4.8
Total costs
4.7
57.1
4.4
58.5
4.5
64.6
4.9
70.5
4.8
74.6
78.5
Surplus-deficit
-5.6
-4
-8
-8.6
-6.6
-4.9
Notes: 1. NLO denotes National Labor Office; 2. HIC denotes Health Insurance Companies; 3. SIA denotes Social Insurance
Agency; 4. e denotes estimated.
Source: Zajac and Pazitny (2002)
6.1 Social Health Insurance
Health Insurance Companies
According to the law, all permanent residents in Slovakia should be covered by the social
health insurance scheme and be enrolled with a health insurance company.59 At the time that
social health insurance was introduced in 1994, more than ten public non-profit insurance
companies operated in the system.60 However, stricter legal requirements for running a health
insurance company adopted in 1995 resulted in the reduction of the number of insurance
companies to five at present. The largest is the General Health Insurance Company that covers
around 66 percent of the population. Three sector health insurance companies covering
military employees and the employees of the Ministry of Interior and the National Railway,
merged in 1998 to form the Common Health Insurance Company, which is the second largest
insurer with around 13 percent of the population. The Common Health Insurance Company
insures individuals working in the three above-mentioned sectors, but allows for any citizen to
be insured with them. The other three health insurance companies (Apollo, VZP-Dovera and
Sideria) insure around 7 percent of the population each.
Under the current system, all insurance companies offer the same state guaranteed package of
benefits and contract with all health care providers. Prices for health services are set by the
Ministry of Health and health insurance companies have no control over this process.
Reimbursement rates for outpatient and inpatient care are defined in terms of global budgets,
which in turn are based on historical data. The fact that health insurance companies cannot do
any selective contracting or participate on the price setting procedures is evidence of their
rather weak role as active purchasers of health care services. Furthermore, although health
insurance companies set global ceilings for contracts with health care providers, the latter
always challenge these ceilings and demand payments for services, such as emergency care,
that exceed the contracted volume. Since hospitals have been bailed out in the past for
providing services higher than total contracted services, they have no incentives in controlling
their service volume or curtail costs. Health insurance companies, therefore, have little or no
control over both volume and price of services and operate more as quasi-governmental
organizations. Until recently the state guaranteed the solvency of the General Health
Insurance Company and the Common Health Insurance Company, but not of the three
‘private’ insurance companies.
The Health Insurance Act and the Health Insurance Companies and Surveillance Authority
Act envisage major reforms in the operation of health insurance companies, and many of these
59
Only those who are abroad for more than 12 months and are insured in their country of temporary residence
are excluded. In addition, individuals who are employed or self-employed but they do not have permanent
residence in Slovakia should be compulsory insured (European Observatory on Health Systems and Policies,
2000).
60
Exact numbers vary between 12 insurance companies (European Observatory on Health Systems and Policies,
2000) and 13 insurance companies (Zajac and Pazitny, 2002).
176
changes are already in advanced stages of design and implementation.61 According to the
government’s reform strategy, health insurance companies will be granted greater
organizational and managerial autonomy in order to become active purchasers of health
services on behalf of the insured. Health insurance companies will continue to be responsible
for collecting insurance contributions. They will be permitted to retain only 5 percent of their
collections and would be required to deposit the rest in an equalization pool, which will then
be redistributed among the insurers on the basis of a risk-adjusted formula taking into account
the age and gender of the insurees. The health insurance companies will be allowed to
selectively contract with a number of providers, with the law defining the minimal provider
network, while they would also be able to implement new provider payment systems in an
effort to address cost containment and increase efficiency and quality of services. The state
will no longer guarantee the solvency of any of the health insurance companies, which will
become joint-stock companies. Health insurance companies will be subject to mandatory
independent audits, financial reporting and strict solvency requirements. After the
transformation of health insurance companies to joint-stock companies takes place, the state
will become the owner of the General Health Insurance Company, the transformation of
which is estimated to cost around SKK 40 million. This amount is planned to increase the
equity capital of the company to the minimum required volume of SKK 100 million. The
supervision of both health insurance companies and health care providers will be the
responsibility of a special supervised authority, the Health Care Surveillance Authority, which
has recently been set up and is now functional. Initial costs to start the operation of the Health
Care Surveillance Authority are estimated to be around SKK 100 million and are being
financed by the state budget. After the first year of operation, this authority will receive its
resources from health insurance contributions. The annual budget of the Authority is
estimated to be SKK 350 million.
The Ministry of Health will also support institutional and organizational capacity building,
including training of staff of health insurance companies, the development of health
information systems to maintain patient records and monitoring costs and quality of services.
Table III.37: Expected Number of Insurees, 2000-2006
Type of insuree
Total population
Employed individuals
Self-employed
State insurees
2000
2001
2002
2003
2004
2005
2006
5,402,547
5,378,951
5,379,161
5,379,371
5,379,581
5,379,791
5,380,001
2,101,700
2,132,700
2,127,000
2,150,400
2,150,400
2,165,500
2,198,000
233,472
233,472
233,472
233,472
233,472
233,472
233,472
3,067,375
3,021,779
3,018,689
2,955,499
2,984,909
2,980,819
2,948,529
As a percent of total population
Employed individuals
Self-employed
State insurees
38.9
4.3
56.8
39.6
4.3
56.1
39.5
4.3
56.1
40.3
4.4
55.4
40.2
4.3
55.5
40.3
4.3
55.4
40.9
4.3
54.8
Source: Statistical Office of the Slovak Republic, MESA 10 prognosis.
Contributions
Table III.37 presents the breakdown of the number of insurees in the health system. Health
insurance contributions are mandatory for the entire population and are collected and
administered by health insurance companies. Health insurance in Slovakia is offered on an
individual basis and does not provide family coverage. Contributions rates are defined by law
and relate to wages. Under the new reform process, economically active individuals (around
61
Ministry of Health, Health Care in the Slovak Republic – Concept, April 2004.
177
2.4 million) pay 14 percent of their monthly wage, otherwise called assessment basis.
Employees pay 4 percent of their wage, while their employers cover the remaining 10 percent.
The self-employed pay the full 14 percent of their wages. The maximum assessment basis for
the calculation of insurance contributions equals three times the average wage, giving the
system a regressive nature. Employers of the disabled contribute only 2.6 percent of the
assessment basis, and the rest is made up by the state. Contributions for the economically
inactive population, such as children, pensioners, persons caring for children or disabled
persons, soldiers in military services, prisoners, refugees, etc. (around 3 million individuals)
are also paid by the state and equal 4 percent of the average wage for each insuree. Until
recently, the National Labor Office contributed for unemployed individuals; however a
change in legislation resulted in such contributions being made directly by the state from 2003
onwards. In 2003, health insurance premiums paid by the state represented around 28 percent
of total health insurance revenues, while contributions paid by the economically active
population represented around 71 percent of total health insurance revenues (Table III.38).
Table III.38: Resources of Health Insurance Companies, 1998-2003 (% of total
resources of HIC)
Individual contributions
From employers
From employees
From self-employed
From non-residents
Others
Government contributions
NLO contributions
Penalties, fines, etc.
Other resources
1998
69.1
47.6
17.6
3.1
0.0
0.7
25.4
1.2
0.2
4.1
1999
67.5
46.3
17.3
3.2
0.0
0.7
25.6
1.4
0.7
4.4
2000
70.1
48.5
17.9
3.1
0.0
0.7
24.8
1.1
0.9
3.1
2001
69.8
47.6
18.5
3.0
0.0
0.6
26.2
0.8
0.4
2.8
2002
67.6
45.8
18.5
2.7
0.0
0.5
27.8
0.9
0.5
3.1
2003e
71.3
48.6
19.5
2.7
0.0
0.5
28.2
0.0
0.5
0.0
Notes: 1. NLO denotes National Labor Office; 2. e denotes estimated.
Source: Zajac and Pazitny (2002)
Although contributions are defined by the law, on several occasions in the past, the National
Council had amended the level of contributions paid by the state.62 In 1994, while the
contributions were 13.7 percent of minimum wage, the state only paid on 10 percent of the
minimum wage. In 1995, the 13.7 percent contributions payment applied to 54 percent of the
minimum wage, which increased to 75 percent in 1996 and this level has been preserved until
recent years. Such frequent changes bring about an element of uncertainty, and have an
adverse effect on the public finances of the system. Debts created because the health
insurance companies do not receive all contributions are then transferred to the rest of chain,
resulting in a situation in which the health insurance companies do not pay providers in full,
who then do not pay the suppliers of goods and services in full.
Redistribution mechanism among insurers
Individuals can freely enroll with any of the health insurance companies. Since the very
beginning of the implementation of social health insurance, evidence of adverse selection was
noted in the financial administration of the health insurance companies. Because insurance
companies had a wide range of enrollees, belonging both to the economically active and
inactive population and with varying health care utilization patterns, the revenues and
expenditure of each insurance company varied and certain companies, mainly the ‘public’
62
European Observatory on Health Systems and Policies (2000)
178
ones, faced the highest arrears. In order to deal with this issue, a mechanism was introduced in
1995 under which 60 percent of all contributions were pooled into a special account of the
General Health Insurance Company. The pooled revenues were, in turn, redistributed among
insurance companies based on the age structure of the insurees. In a new mechanism put into
force in 1999, all 100 percent of insurance contributions collected were redistributed on the
basis of a risk index based on a more sophisticated age grouping. 63 A central registry of
insured persons was also created in order to introduce more transparency and accountability in
the whole process.64 The General Health Insurance Company was responsible for
administering this register, but due to a number of complaints, the Ministry of Health took
over responsibility for the central registry in 1999. Given though that the redistribution
mechanism caused tension among insurers until recently, new changes were introduced under
the reform process that started in 2002.
value of risk index
Figure III.39: Redistribution by Risk-Adjusted Index
6
5
4
3
2
1
0
0 to 5 to
4
9
10
to
14
15
to
19
20
to
24
25
to
29
30
to
34
35
to
39
40
to
44
risk index - females
45
to
49
50
to
54
55
to
59
60
to
64
65
to
69
70
to
74
75 80 +
to
79
risk index - males
Source: Pazitny and Zajac, power point presentation ‘Health Reform in Slovakia,’ September 2004.
Based on the reform agenda of the government as expressed in the Health Insurance Act, the
rules of redistribution change. The basis of redistribution is now 95 percent of compulsory
insurance premiums, and the risk-adjusted index is refined to take into account both age and
gender of the insurees (Figure III.39). The new legislation aims at eliminating selection on the
basis of health conditions (cream skimming), as high-risk groups are assigned more resources
than low-risk groups. In addition, no special account exists for the redistribution, but every
single payer (individual or state) pays the premium directly on the account of the relevant
health insurance company to which the insuree is enrolled. In turn, insurance companies
whose total premiums exceed the sum of risk-adjusted per capita payments transfer funds to
insurance companies with insufficient resources.
63
The initial age adjusted risk index assigned a higher coefficient only to individuals over 60 years old, while the
mechanism introduced in 1999 separated insurees into five-year age groups and assigned different coefficients to
each group (Pazitny and Zajac, 2002).
64
The registry aimed at solving the problem of ‘double souls’, where for three consecutive years before the
introduction of the registry, Slovakia registered 200,000 more insurees than the actual number of inhabitants
(Pazitny and Zajac, 2002).
179
6.2 Complementary Sources of Financing
Although the main source of finance for the health system is health insurance contributions
from employees, employers and the self-employed, the state also contributes through various
channels. It pays premiums on behalf of the economically inactive population; it supports
capital investment; and it finances the system of so-called budgetary organizations. The latter
includes a network of 37 public health institutes, the National Health Promotion Center, the
Institute for Health Information and Statistics, the State Institute for Drug Control, the Slovak
Medical Library, and educational institutes such as the secondary health schools and the
Slovak Postgraduate Academy of Medicine. In all, the state contributed SKK 21.6 billion to
the health care system in 2003 (Table III.38). From these resources, SKK 16.5 billion
represented contributions for the economically inactive population, while the rest SKK 5.1
billion formed part of the state budget and were used inter alia for capital investment,
prevention, public health and administrative costs. However, the share of total health
expenditure financed through taxes has decreased every year. In 1998, 36 percent of total
health expenditure was financed through taxes, which fell to 29 percent by 2003. The gap
created by the reduction in tax-financed expenditure was partially covered by an increase of
60 percent in private spending. Out-of-pocket payments increased from 8 percent of total
health expenditure in 1998 to 13 percent in 2003, while contributions of employees,
employers and the self-employed remained relatively stable, at around 57 percent of total
health expenditure in 2003 as compared to 55 percent in 1998. The increasing share of private
financing has provided space for the government to reduce its participation in health
expenditure financed through general taxation. The fact that the Slovak health system is
financed through a combination of insurance contributions and taxes thus creates a situation
where the amount of available resources depends not only on the contributions generated in
the real economy, but also on the political decision regarding the amount of resources
financed by the state.
Out-of-pocket payments
Before the introduction of the reform process of 2002, cost-sharing arrangements for patients
for services included in the guaranteed state benefit package were rather limited. These
arrangements included mainly dentistry, some types of elective surgery and a relatively small
portion (about 6 percent to 10 percent) of drugs.65 Expectedly, the absence of co-payments
provided no incentive to patients to decrease the use of health care services. In an effort to
modify patient decisions on service utilization and raise additional (albeit limited) revenue for
health care providers, patient co-payments were introduced in June 2003. Co-payments apply
to all levels and types of care, except for emergency care, preventive care and health services
for children under the age of six years. Under this arrangement, patients are required to pay
SKK 20 per outpatient visit and SKK 50 per day for every inpatient service day (the last day
being free), in addition to a prescription fee of SKK 20 (Table III.39). The Ministry of Health
estimates that these co-payments will increase formal out-of-pocket spending by patients by
SKK 50 per month.
Table III.39: Co-payments introduced as of June 2003 (SKK)
Primary outpatient care
Secondary outpatient care
Accommodation and food in inpatient care
65
Patient
Health Insurance
Company
Provider/
Pharmacy
20
20
0
0
0
20
20
50
50 per day
World Bank (2003)
180
Transport
Prescription fee
2 SKK/km
20
15
5
Source: Pazitny and Zajac, power point presentation ‘Health Reform in Slovakia,’ September 2004.
According to survey data and opinion polls, the introduction of co-payments was followed by
a 10 percent reduction in outpatient visits and individuals perceive that there is also a drop in
corruption from 32 percent of respondents associating health care with corruption in
November 2002 to 10 percent in January 2004.66 There was also a drop in the frequency of
bribes and gifts, which fell from 18 percent in 2002 to 14 percent in 2003 for specialists from
14 percent to 11 percent for the same period for hospitals.
As far as co-payments are concerned, there are no exemptions as such for the poor and the
vulnerable (except that they pay a maximum of three days inpatient stay only).67 However,
individuals identified as poor and vulnerable receive a monthly subsidy of SKK 50 per person
towards out-of-pocket medical expenditure which is paid to them irrespective of whether or
not they incur that expenditure that month.
Further on the issue of co-payments, the Act on the Scope of Health Care Covered by Public
Health Insurance mandates the creation of a priority list of diagnoses covered by public
health insurance.68 This is a positive list of diagnoses on which there can be no additional copayment other than what was introduced in June 2003. Diagnoses not included in this list can
be the subject of additional co-payments. At present, the list of priority diagnoses comprises
approximately 6,700 diagnoses, which is almost two thirds of the total list of diagnoses
(11,000) listed in International Classification of Diagnoses-10 (ICD-10).69 Under the
assumption of constant prices and present utilization patterns for health care services, patients
are expected to pay in total almost SKK 3 billion (Table III.40). According to estimates of the
Ministry of Health, the average additional co-payment per patient per case would not exceed
SKK 200.
Table III.40: Priority List Diagnoses and Other Diagnoses
Priority
Other
Total
19,990
9,989
29,979
Percent of total cases
41
59
100
Percent of total costs
67
33
100
100
0-95
New volume of payments by insurers (million SKK)
19,990
6,992
26,982
New volume of payments by patients (million SKK)
00
2,997
2,997
0
50-200
Present volume of payments by insurers (million SKK)
Percent of new payments from public insurance
Average annual payment by patients (SKK per diagnosis)
Source: Zajac et al. (2004).
Although official co-payments did not exist for the majority of health care services before the
introduction of the 2002 reform, informal payments were and still are widespread in the
system. According to a 1999 survey by the World Bank/USAID, 71 percent of GP visits and
66
Zajac et al. (2004).
The definition of the poor and vulnerable includes, besides the poor, individuals in a health state that does not
allow them to provide consent (e.g. coma), mothers with children under 6 years of age, blood donors, psychiatric
patients, and chronically-ill patients.
68
Ministry of Health, Health Care in the Slovak Republic – Concept, April 2004.
69
Zajac et al. (2004).
67
181
59 percent specialist visits involved informal payments. It is also estimated that at least three
in 10 hospital patients make informal payments to providers.70 Informal payments aim at
obtaining faster access to care, selecting preferred providers or gaining access to treatment
that is otherwise unavailable. Although public health insurance (until the recent reforms)
offered coverage over a comprehensive package of health care services in theory at least, a
paucity of resources has resulted in reduced services, thus creating non-explicit rationing of
care. Despite the absence of official waiting lists, delays and barriers in accessing services do
exist, and in many cases can be reduced through some form of direct and immediate payment.
Private health insurance71
At present, private health insurance represents a very small proportion of health care spending
in Slovakia. There is only one insurance company providing private health insurance on a
commercial basis to persons that they are not covered by public health insurance – usually
foreigners. This insurance covers medical and hospital costs and its share of total insurance
market was less than 0.2 percent in the year 2000. In addition, some commercial companies
offer some types of sickness insurance – often in the form of cash benefits providing income
replacement. The Financial Market Authority is the entity supervising and regulating the
market of private insurance companies.
The Health Insurance Act distinguishes for the first time public health insurance from private
health insurance in Slovakia. There are a rather small number of issues clearly stated in the
Act. The Act includes limited requirements with respect to the operation of insurers offering
private health insurance, given that regulation of private insurance is expected to be minimal.
The Act states that insurers will not face restrictions on premiums rates and explicitly permits
insurance companies to determine the scope of covered benefits on the basis of medical
examinations. The Financial Market Authority is set as the agency supervising the solvency
and capital adequacy of insurers. On the other hand, the Act leaves a number of unanswered
questions. The Act does not specify whether private coverage may duplicate services covered
by public insurance. From discussions with stakeholders of the health sector, some
duplication is envisioned with respect to coverage of fast access to care. Nevertheless, private
health insurance is anticipated to serve primarily as supplementary insurance, by covering
additional benefits to those covered by the mandatory public insurance. Insurers will also be
permitted to offer products that cover co-payments of services included in public insurance
and other out-of-pocket costs. It is expected that private health insurance would be offered by
both, health care companies offering public health insurance and commercial insurers,
although further clarification is needed. Tax advantages regarding the purchase of private
health insurance are not envisaged.
External Sources of Financing72
Foreign governments, the European Union, as well as international organizations and agencies
have offered valuable resources to the Slovak health system. In particular, the Government of
Switzerland has offered assistance to Slovakia for the purchase and utilization of medical
equipment for intensive care units, while the European Union has offered assistance under the
PHARE program. Substantial technical assistance has been provided from the World Health
Organization Regional Office for Europe under the EUROHEALTH program, mainly in
70
Murthy and Mossialos (2003), in OECD (2004).
The OECD Report on ‘The Slovak Health Insurance System and the Potential Role for Private Health
Insurance: Policy Challenges’, (2004), provides a comprehensive analysis of private health insurance issues.
72
This section draws heavily on the Health Care Systems in Transition, Slovakia, European Observatory on
Health Systems and Policies, 2000.
71
182
environmental health, prevention of non-communicable diseases, AIDS prevention and health
promotion programs under the Healthy Cities and Health Promotion Schools. USAID has also
substantially supported the establishment of a cardiac surgery center for children in
Bratislava. Their help has taken the form of technical assistance and human resource training
and development, aimed at strengthening professional and management capacity within the
health sector. Furthermore, foreign agencies and domestic private firms provided assistance
equal to SKK 203 million in 1997 and SKK 218 million in 1998 to individual health care
providers. It is not clear to which extent these resources are included in total health
expenditure.
Resources have also been allocated to the health sector through the State Health Fund, an
institution created by the government by collecting resources from privatization, penalties,
gifts, etc. to support priority programs in the health sector. These resources amounted to SKK
504 million in 1996, SKK 180 million in 1997 and SKK 56 million in 1998. The
municipalities contributed the lump sum of SKK 200 million in 1996, SKK 199 million in
1997 and SKK 176 million in 1998 to health care from their budgets. Substantial privatization
resources have also been injected in the system during the period 2000-2003. In particular,
SKK 3.5 billion were allocated to the health system in 2000, SKK 3.4 billion in 2001, SKK
3.6 billion in 2002 and SKK 3.4 billion in 2003.73
7. Major Expenditure Items
This section highlights the major expenditure areas in the health sector as of beginning of the
current reform program. As the Slovak health care system is undergoing significant changes
almost on a daily basis, it is important to note that improvements in the last two years may
have changed the situation quite a bit. Subject to this caveat, the major expenditure areas in
the health sector as of mid-2002 were hospitals and hospital infrastructure, pharmaceuticals,
and the broad and generous scope of covered services.
7.1 Hospitals and Hospital Infrastructure
A disproportionate share of public resources is devoted to hospital care as compared to
primary and secondary level outpatient care. In 2002, inpatient care costs represented 40
percent of the total health costs, as compared to 7 percent of total costs for primary care and 3
percent of total costs for secondary outpatient care (Table III.41).
Table III.41: Health Sector Costs, 1998-2003 (type of care as percentage of total health
costs)
Primary outpatient care
Secondary outpatient care
Inpatient care
Drugs and medical devices
Others
MOH Expenditure
Total costs (SKK billion)
1998
1999
2000
2001
2002
7.4
2.6
44.8
28.2
8.8
8.2
57.1
7.5
3.1
42.7
32.1
7.0
7.5
58.5
7.3
2.9
40.2
31.9
10.7
7.0
64.6
7.0
3.0
39.9
32.3
10.9
7.0
70.5
6.8
2.9
40.3
32.3
11.1
6.4
74.6
Source: Pazitny and Zajac (2004), Table 9.
73
Zajac et al. (2004).
183
2003
(estimated)
6.6
2.9
38.9
32.5
13.0
6.1
78.5
Part of the problem, in 2002 and even now, is infrastructure, since there is large excess
hospital capacity in Slovakia. There are 92 hospitals, including 7 faculty hospitals, 4
specialized hospitals, 75 general hospitals and 6 psychiatric hospitals. The number of
hospitals as well as hospital beds is very high by international comparisons, though
government efforts in recent years have resulted in a decrease in the number of hospital beds
per 1,000 inhabitants from 7.6 in 1991 to 6.5 in 2000, which is still higher than the EU
average of 5 (Table III.42). Hospitals in Slovakia continue to be underutilized, and most
operate at less than 70 percent of the bed capacity compared to 80 percent and more in most
OECD countries. Average length of stay in acute hospitals is 8.9 days, which is relatively
high compared to other countries of the region, like Hungary (7.0) and Austria (6.8). In line
with the emphasis on hospital care in Slovakia, the number of physicians in hospitals has
increased by 23.7 percent in the last 10 years.
Table III.42: Hospital indicators, 1991-2000
Beds7.6
per 1,000
Average
Length of
Stay
% Capacity
Utilization
Number of
employees
1991
1992
7.6
1993
7.9
1994
7.1
1995
7.5
1996
7.5
1997
7.3
1998
6.7
1999
6.6
2000
6.5
12.9
13.4
12.7
11.2
11.5
11.3
11.2
10.1
9.1
8.9
75.6
75
73.4
76.6
79.3
79.5
78.4
77.9
69.5
70.7
..
..
..
..
77,137
62,506
72,178
72,197
69,789
71,605
Source: Pazitny and Zajac (2002), Table 2, 14 and 17.
In terms of economic classification of hospital expenditures, 51 percent of all hospital
expenditure in 2001 went to the payment of salaries of personnel. In the period 1996-2001
and despite decreases in the number of hospital employees, including doctors, the share of
salaries has increased by 9.5 percent of total hospital costs, which is partly explained by
higher salaries.74 Approximately 20 percent of total hospital costs are on medical supplies
(drugs, blood and special medical material), 8.5 percent on administration, 4.6 percent on
utilities, 3.2 percent on maintenance and 5.7 percent on depreciation (Table III.43).
Table III.43: Structure of costs, 1996-2001 (percentage of total costs)
Fixed costs
Salaries
Depreciations
Maintenance
Utilities
Administration
Other
Variable costs
Drugs
Blood and blood products
Special medical material
Laundry
Medical transport
Meals for patients
1996
72.0
46.3
4.7
3.7
4.7
7.5
5.1
28.0
10.3
1.4
10.7
1.4
0.5
3.7
1997
73.3
48.8
5.0
3.3
4.6
7.5
4.2
26.7
10.0
1.3
10.4
1.3
0.8
2.9
1998
75.1
49.0
5.4
3.1
4.3
8.9
3.9
24.9
9.7
1.2
9.3
1.2
0.8
2.7
1999
77.5
50.2
6.0
3.2
4.4
9.6
4.0
22.5
8.4
1.2
8.8
0.8
0.8
2.4
2000
76.1
48.6
6.2
3.1
4.6
9.7
3.9
23.9
8.9
1.2
9.7
1.2
0.8
2.3
2001
76.6
50.7
5.7
3.2
4.6
8.5
3.9
23.4
8.5
1.4
9.6
1.1
0.7
2.1
Source: Pazitny and Zajac (2002), Table 14.
In 2001, the ratio of a physician’s salary to the nominal salary was 1.95 as compared to 1.56 in 1995. Pažitný –
Zajac, 2002
74
184
The majority of hospital expenditures are on staff (treated here as fixed costs), which leaves
few resources for variable costs. This has implications for the quality of care, and buildings
and medical equipment are not maintained. In addition, hospitals have limited resources to
buy other variable inputs. From a physical perspective, old buildings designed for different
purposes in a different era characterize the hospital system. Typically, these buildings have
amounts of dysfunctional or dead space, e.g., large, empty corridors, and multiple-bedded
patient rooms without washrooms, and are expensive to heat and maintain. The only way to
consolidate the efficiency gains in this situation is to rationalize the number of hospitals and
hospital beds by closing a number of hospitals and consolidating the rest.
High fixed costs, over-employment, high number of beds etc. are the symptoms and not the
reason for poor technical and allocative efficiency of public hospitals. Institutional and
organizational economics suggest that one of the main reasons for lack of efficiency is the
lack of appropriate incentives and accountability mechanisms. All hospitals are still owned
and operated by the MOH, and the employees remain civil servants. There are few strong
administrative imperatives to manage these facilities effectively and efficiently. No hospitals
have been closed or liquidated for debts and no directors sacked for financial
mismanagement. None of the hospitals has seen any significant reduction in staffing levels; at
the same time, individual hospitals are not able to hire or fire staff and makes changes in
salary levels. Within hospitals, medical professionals predominantly occupy management
positions, and have little management training.
In 2002, hospitals in Slovakia had accumulated debts of US$300 million to suppliers of drugs,
medical supplies and equipment. Although health insurance funds (HIFs) set a budget
constraint for hospitals by specifying the total amount that hospitals will receive for services
provided under compulsory medical insurance, hospitals routinely treat more cases and in the
process generate debts. Hospitals fulfill their social function of providing health care to the
community, but have little or no incentives to operate in an efficient manner.
Reform Measures, 2003
Rationalize the number of hospitals and hospital beds by consolidating hospitals and
reconfiguring the mix of hospital beds is a priority item in the ongoing reform program of the
Ministry of Health. A detailed assessment of all hospitals has been carried out and a master
plan of hospitals is close to finalization. A network of essential hospitals is being determined
and will be strengthened during the rationalization process. Hospitals and hospital beds
identified as excess capacity in three big cities of Bratislava, Banska-Bystrica and Kosice are
included in the first round of the consolidation process. The Ministry of Health has also
established a Hospital Restructuring Fund to support specific capital investment in the
hospital sector in the near future.
In addition, steps are being taken to corporatize the public hospitals and make them fully
autonomous in their functions. Corporate hospitals will not have an implicit government
guarantee, which will send an important signal to suppliers that they cannot simply continue
to lend to hospitals. This is expected to create hard budget constraints for hospitals and
compel them to accord high priority to efficiency. Corporate hospitals will be allowed to
retain savings and keep revenues, which may then re-invest in the hospital operation, thus
generating additional incentives for hospitals to change their input mix and align inputs more
closely with outputs. For hospitals that continue to build arrears, there will be the prospect of
185
bankruptcy or the possibility of selected bailouts by the Government or commercial backs in
exchange for a rationalization plan.
Since the hospital restructuring program is focusing on the three big cities of Bratislava,
Banska-Bystrica and Kosice where overcapacity is most severe, the rationalization process of
hospitals facilities is not likely to have a negative impact on access to health care services.
However, the Ministry of Health recognizes that rationalization of hospital services in rural
areas will need to be conducted with caution. This is particularly true for mountainous areas,
where travel time to the nearest facility might be severely extended in case of a hospital
closure. These facilities are proposed to be included in the network of essential hospitals and
protected from closure.
7.2 Pharmaceuticals
After hospital expenditure, which accounted for 40 percent of total health expenditure, drugs
and medical devices are the second-biggest expenditure items, and accounted for 32 percent
of all expenditure in 2002. The dramatic increase in the cost of drugs is also reflected in the
drug share in the overall costs of health insurance companies, which reached 40 percent in
2002 (Table III.44).
Table III.44: Drug Expenditures, EUR million
1996
1997
1998
1999
2000
2001
Drug expenditures
165.2
193.6
229.0
239.0
309.9
360.9
Annual growth in percent
17.2
18.3
4.3
29.7
16.5
Source: IMS, 2004 (NB: HIC uses another methodology, so the data may not be fully comparable)
2002
383.5
6.3
A number of reasons are behind the high expenditures on pharmaceuticals. First, the
prescription rates are very high, and each year an estimated 52 million prescriptions are made
out, containing as many as 92 million items, and which until recently were fully or partly
reimbursed by health insurance companies. Second, the pricing policy of the government was
not very transparent and often resulted in the determination of higher prices. And finally,
imports of drugs grew by 16.8 percent between 1999 and 2000, which was greater than the
10.1 percent growth in overall consumption and 4.8 percent growth of resources in the health
system, which resulted in an increase in drug costs.
Reform Measures
In order to control pharmaceutical expenditures, the government launched an ambitious drug
policy in 2003, employing a series of measures dealing both with the demand and the supply
side.



Introduction of a flat prescription fee (SKK 20);
Introduction of fixed ratio after the categorizing has taken place. Thus, if the
pharmaceutical company decreases the price of a drug after the positive list is
published, then the ratio between the reimbursement, paid by the health insurance
company, and the co-payment, paid by the patient, remains the same;
Introduction of a mechanism where insurance companies reimburse patients on the
basis of the lowest price in every therapeutic category. The lowest price, in turn, is
determined on the basis of daily dose requirement and published in a handbook that is
186






widely circulated among pharmacies.75 The pharmacies are required under the law to
explain to the patient the substitutability and availability of drugs and the different copayments associated with them. Patients choosing the higher priced drug make the
higher co-payment as determined in the handbook;
Open competition among pharmaceutical providers, which is conducted on line so that
all bidders have complete information about the bids of their competitors as well;
Introduction of a flat prescription fee;
Changes in the process of setting maximum prices;
Changes in the staffing of the Categorizing Committee –setting co-payments for
procedures and drugs- favoring economists compared to doctors;
Frequent updating of the cataloguing and categorizing processes, which take place
four times a year compared to once a year before 2003;
Introduction of the ‘fast track’ process, whereby if a pharmaceutical company
decreases the price of a product by 10 percent or more compared to the cheapest drug
in the cluster, then no evaluation takes place at the Categorizing Committee. The
reimbursement rate, paid by the health insurance companies, in the cluster is
automatically decreases with a 25 percent bonus (compared to fixed ratio). The 25
percent bonus means that the fixed ratio is changing in favor of the patient.
500
40
400
30
20
300
10
200
0
100
-10
0
-20
1996
1997
1998
1999
Expenditures on Drugs
2000
2001
2002
2003
percentage
euro million
Figure III.40: Growth of Expenditures on Drugs
2004
Annual Growth in Expenditures
Data supplied by health insurance companies show a substantial slowdown in the growth of
expenditures allocated to drugs. While in previous years that growth was regularly in the
double digits, in 2003 it dropped to 8.9 percent. Figures for the first half of 2004 were also
encouraging, with drug expenditures falling by 11 percent year-on-year (Figure III.40).
7.3 Scope of Services
The Constitution of the Slovak Republic guarantees free health care for all its citizens, and the
current range of covered services as evolved over time is too generous both in terms of the
content (range of benefits offered) and volume (number of benefits paid) considering
resources available for health care. It is very difficult to define what health services are not
included, except some usual omissions such as cosmetic surgery. Virtually all mainstream
75
Drugs are classified in 600 Anatomical Therapeutical Chemical Groups (ATC). The drugs are further
separated in three broader croups. Croup A is free of charge and includes around 1,700 drugs (30 percent of total
number of drugs). Group B is partially covered by public health insurance and Group C are drugs over the
counter for which the patient pays the full price and accounts for around 5 (10 percent of total number of drugs).
187
services provided by health care providers qualify for health insurance reimbursement.
Patients have little incentive to limit their use of health services, since there is no official cost
sharing at the point of service (although informal payments are common). 76 Capitation-based
payment for primary health care has increased referrals to specialist care. Hospitals and
specialist outpatient clinics have been interested to increase volumes given incentives
embedded in reimbursement schemes, even when overall contract amount is capped.77
Expectedly, therefore, service volumes are high, and Slovaks average 10-15 outpatient visits
per year. At the same time, the wide scope of the health care services covered by public
insurance has contributed to the health sector deficit.
Reform Measures
Within the framework of the government’s health sector reform strategy, the Act on the Scope
of Health Care Covered by Public Health Insurance defines the basic benefit package as a
positive list of illnesses, based on ICD-10.78 This list, also called priority list, includes
approximately 6,700 diagnoses that are subject to no additional co-payment other than the
low, flat co-payments defined in June 2003. The priority list is expected to be approved by the
Parliament based on a proposal by the Government and reflects the citizens’ preferences with
respect to the diagnoses that they believe should be fully covered by public health insurance
(Table III.45).
Additional to the priority list, two more mechanisms are established; the mechanism of
cataloguing and the mechanism of categorizing. The first mechanism involves a process
where a list of interventions (standard diagnostic and therapeutic procedures) is assigned to
each disease, priority or not. The Catalogue shall be compiled by the Cataloguing Committee,
which includes predominantly physicians and is nominated by the Minister of Health. The
second mechanism refers to the diseases not included in the priority list, where categorizing
determines the level of co-payments paid for the interventions assigned to these diseases. The
entity responsible for categorizing is the Categorizing Committee, which includes
predominantly economists and is also nominated by the Minister of Health.
Table III.45: List of Citizens’ Priority Diseases
Disease
Cardiovascular diseases
Cancer
Diabetes, metabolic disorders
Orthopedic diseases
Mental and psychiatric diseases, stress, disorders of the nervous system
Influenza
Allergies
Respiratory diseases
Infection diseases, hepatitis, TB and AIDS
Incorrect diet, obesity
Alcoholism, smoking, drug addiction
Dental problems
76
Percentage
74.2
68.8
26.2
16.6
16.1
12.1
10.9
8.6
6.3
6.2
4.6
1.4
Exceptions include dentistry, which involves significant co-payments, some types of elective surgery, and a
relatively small portion (about 6-10 percent) of drug costs.
77
Providers hope to get payments for overprovided services at later term as part of a bail-out package and also
have in the past succumbed to prisoner’s dilemma when sliding fee schedules were applied.
78
Ministry of Health, Health Care in the Slovak Republic – Concept, April 2004.
188
Skin diseases
Gynecological diseases
0.9
0.8
Source: FOCUS, Public Opinion Poll, January 2004.
In addition, as discussed earlier, copayments were introduced in June 2003 at all levels of care
except for emergency care, preventive care and health services for children under the age of
six years. Patients are now required to pay SKK 20 per outpatient visit and SKK 50 per day
for every inpatient service day (the last day being free), in addition to a prescription fee of
SKK 20. Following the introduction of copayments, utilization of outpatient services has
dropped about 8 percent compared to earlier levels.
Data on private household expenditure for health care collected by the Statistical Office show
that following the introduction of copayments, private household expenditure on health
increased from 1.35 percent of total consumption in 2002 to 1.53 percent in 2003 and 2.17
percent in 2004. As already mentioned although the poor and the vulnerable are not exempted
from co-payments; however, they receive a monthly subsidy of SKK 50 per person, which is
paid to them irrespective of whether or not they incur out-of-pocket expenditure on health
care.
Figure III.41 b: Use fo Pharmaceuticals
Figure III.41 a: Access to Health Care
23%
22%
Did not need doctor
Did not visit doctor
2%
Stopped
2%
Less than before
58%
Stopped
Less than before
54%
Same behavior as before
Same behavior as before
18%
21%
Source: FOCUS, Public Opinion Poll, January 2004.
Initial survey reports and public opinion polls do not provide any evidence of access and
utilization of health care services being adversely affected by the introduction of co-payments.
In particular, as far as medical consultations are concerned, only 1.5 percent of the
interviewees responded that they have stopped visiting a doctor because of the introduction of
co-payments (Figures III.41a and 41b). More than 50 percent of the interviewees responded
that they had the same utilization pattern as before, while 18 percent responded that they
consulted a doctor less than before. There were similar results as regards utilization of drugs.
Only 2 percent of all interviewees reported that they stopped buying drugs because of copayments, while 21 percent reported buying less. However, from the results of the opinion
polls it is not evident if more poor people reported having stopped going to the doctors or
buying drugs as compared to non-poor people. The same applies for other vulnerable groups
as the Roma, whose health status is widely believed to be worse compared to the non-Roma
and who are believed to have limited ability to access utilities and public services.
189
8. Conclusions
Faced with a huge structural crisis punctuated by massive and growing debts, the Government
of Slovakia has launched comprehensive and systemic reforms that touch almost all aspects of
the health care sector. Realizing that piecemeal solutions would not be effective in combating
a deep-rooted problem, the reform program chose to employ structural and systemic solutions
to address structural and systemic issues. In order to set in place the conditions needed for
ensuring fiscal sustainability over time and managing fiscal discipline as part of day-to-day
business of managing the health sector, the sector-wide reforms aim at improving the
efficiency and effectiveness of public expenditures on health care, enhancing quality of
services, and increasing the regulatory, planning and policy-making capacity in the Ministry
of Health.
The strategy governing the design of reforms has been straightforward and the approach
business-like. Three key expenditure areas have been identified – hospitals and hospital
infrastructure, pharmaceutical costs and costs of provision of services due to excessive
utilization – and specific measures have been designed to address each of the three
expenditure areas, which are being implemented as part of the stabilization phase of the
reforms. Mindful of the integrated nature of a health system and in order to sustain the
stabilization effect over time till the system itself becomes stable, deep-rooted changes are
being brought about in order to reorient the underlying incentives so that the behaviors of the
key players in the system – patients, providers, payers, and the government – adjust in ways
that optimize not only their own objective functions but also of the health system as a whole,
which is to provide health services for all in a fiscally responsible manner and in ways that
guarantees protection of catastrophic costs.
The reform program leaves untouched the basic parameters of the pre-2002 system in terms of
coverage (which remains universal), premium contributions (which remain wage based for the
economically active population and state responsibility for the economically non-active), and
free choice (people are free to choose their insurer and subject to rules of gate-keeping, their
provider). However, several changes are sought to be brought about in the institutional design
of health insurance companies, determination of premium contributions, purchasing of
services, regulation and market exposure of the health system.
In a bid to convert the so-called health insurance companies to real health insurance
companies, the legal basis of the existing health insurance companies is being changes from
that of a public fund to that of joint-stock companies. Bankruptcies – very complicated in the
pre-reform system – are now allowed, which effectively translates to hard budget constraints
for the health insurance companies. Incentives in the health insurance companies are sought to
be realigned, and the companies are being permitted to make and retain profits, as opposed to
surpluses in the pre-reform system. This is accompanied by a system of solvency monitoring
in order to protect the interests of the citizens and the requirement that the health insurance
companies have an independent audit as per rules in force for commercial ventures.
As regards the determination of premiums, the definition of economically active population is
left unchanged, but the minimum contribution base is increased from SKK 3,000 to the
current minimum wage of SKK 6,000. At the same time, the maximum contribution base has
been increased to SKK 45,000 from the current level of SKK 32,000. In order to remove the
uncertainty of state contributions for the economically non-active population, the
determination of state contributions is fixed at the level of 4% of average wage. This is a
190
departure from the earlier practice in which the state contributions were determined by the
parliament every year and were subject to political positioning and bargaining.
On purchasing, the reforms stress the use of patient management as the basis for all
purchasing, and empower the health insurance companies to become active purchasers of
services from providers, as opposed to the earlier system when the health insurance
companies were simply passive payers of bills. Payment mechanisms are deregulated, and the
health insurance companies can selectively choose the providers with whom they wish to
contract, as along as they adhere to the minimum network as defined by the regulator. A
Health Care Surveillance Authority has been set up as the chief regulating body, with wide
powers raging from overseeing the functioning of health insurance companies to overseeing
the production of quality services by health providers.
Perhaps the most fundamental change introduced in the system, no doubt guided in a big way
by the prevailing ideology, pertains to the market exposure of the health system. The health
insurance companies, previously protected and guarded as public entities, are now subject to
market rules, with competition in the purchasing of care and clear transparent rules for entry
of new companies in the market. Likewise, the providers of healthcare are also subject to
market exposure, and are no longer guaranteed contracts with the payers (except for providers
in the minimal network). The scope of services available to the patients is no longer undefined
(in practice, defined as being comprehensive), but is defined and has a close correspondence
with a national list of priorities.
How far these reforms will succeed in ensuring that quality health care is provided to all in a
fiscally sustainable manner depends much on the implementation successes of the ongoing
measures. As noted earlier, the pace of the reforms has slowed in recent months, partly as the
affected stakeholders have begun to organize to protect their interests and partly as the
novelty of the measures has started to wear off. The continuing fragility of the political
balance and simmering public restlessness are further causes for concern. Irrespective of how
it all plays out in the end, however, the sheer boldness and comprehensiveness of the health
reforms in Slovakia set an example for other countries in the region – facing or likely to face
– similar problems in their health systems.
191
References:
European Observatory on Health Systems and Policies (2000), Health Care Systems in Transition, Slovakia,
EOHSP, Brussels.
Ministry of Health (2004), ‘Health Care in the Slovak Republic - Concept,’ Ministry of Health, Bratislava.
OECD (2004), ‘The Slovak Health Insurance System and the Potential Role for Private Health Insurance: Policy
Challenges,’ OECD Health Working Paper, OECD, Paris.
Pazitny, P. and Zajac R. (2002), ‘Health Policy,’ Internal Report.
World Bank (2003), ‘Health Sector Modernalization Support Sectoral Adjustment Loan to the Slovak Republic,’
Program Document, Human Development Unit, Europe and Central Asia, The World Bank, Wahsington D.C.
Zajac R., Pazitny, P. and Marcincin, A. (2004), “Slovak Reform of Health Care: From Fess to Systemic
Changes,” Czech Journal of Economics and Finance, 54.
192
Slovenia
1. Introduction
Maintaining fiscal balance in the health sector has been at the core of all health sector reforms
in Slovenia ever since it gained independence in 1991. In response to challenges and
opportunities brought about by the transition away from central planning towards a marketbased economy following independence, Slovenia introduced a number of reforms in the
finance, delivery and management of the health sector, the most far-reaching of which was the
establishment of a social health insurance system that brought about a separation between
payers and providers of healthcare. At the same time, the health care system was reorganized
and a wide variety of systemic and specific issues were sought to be addressed through such
measures as decentralization, greater autonomy for public health institutions, greater choice
for patients and the establishment of new provider payment mechanisms. The initial years of
the reform were marked with a continuation of the huge losses and threats of insolvency, with
the system being grossly underfinanced (only 5 percent of GDP was dedicated to the health
sector) and with not even all the earmarked finances reaching the health sector. These teething
problems were rapidly resolved by 1994, with the state intervening and allowing a temporary
increase in insurance contributions.
Despite the widespread decentralization and deregulation, the state maintained control over
the establishment of the maximum level of contributions for compulsory health insurance and
on the definition of the network of health care providers. In this way, the state maintained the
ability to directly monitor public expenditures on health care and also keep a close watch on
the contracting and purchasing of health services. Communication was emphasized between
the different partners of the health care system – as embodied by the Health Insurance
Institute of Slovenia (HIIS), the Association of Public Providers of Health Care, the various
medical chambers etc. – and all agreements on goals, directions and processes continue to be
finalized through negotiations.
The fiscal balance in the health system received a jolt in 1996, following a strike by doctors
demanding increased compensation. The strike was resolved with the government committed
to link doctors’ pay to that of judges’ overtime, a move that has since been completed.
Another fiscal pressure came with the introduction of the value-added tax, which also
increased the price of health services, drugs and equipment. These two unanticipated
increases in expenditures could not be buffered within the system itself and state intervention
was again needed to re-establish the fiscal balance.
The turn of the century has seen new and rising losses in the accounts of HIIS, with
expenditures rapidly increasing due to the rising costs of pharmaceuticals. The doctors again
went on strike in 2002, and while there was broad agreement that there was a shortage of
doctors in Slovenia and that doctors were generally overworked, the then government of
Prime Minister Drnovsek was not inclined to agree to yet another pay increase. Further, it was
felt that additional increases in pay would trigger demands and pressures from other streams
of professionals as well, threatening the government’s efforts to maintain balanced public
finances. To prevent any erosion of competitive capacity of the economy as pay in the noncommercial sector was already growing at a rapid rate, the government started preparing for a
law on public sector pay to correct the imbalance between the different professions and
regulate salaries in the whole public sector. The problem of shortage of doctors continues,
however, and the Health Minister Andrej Brucan recently announced that Slovenia was
actively considering importing doctors from the EU, particularly Czech Republic and
Slovakia.
The directions of health sector reforms have also been at the center of political debates. In
2003, the then Health Minister Dusan Keber, in a White Paper on health reforms, suggested
ways and means of improving fairness, accessibility, quality and efficiency in the health care
system. The White Paper proposed to end additional payments required for voluntary medical
insurance and substitute them by new mandatory health contributions of 1.95 percent of
salaries. Concerned over the long waiting periods, the White Paper proposed setting a
maximum limit and specifying that limit for all sorts of surgeries, reducing waiting periods on
elective surgeries to a maximum of eighteen months within 4 years. The White Paper
proposed increased efficiency in the use of the finance system, suggesting that standard prices
would be set for all hospitals based on groups of comparable cases and linking payments to
treatments. These proposals came in sharp criticism by the then opposition parties, the Social
Democrats (SDS) and the National Parties (SNS), which essentially argued that the suggested
measures would cover losses only at the expense of quality medical treatment while spending
the scarce resources in non-essential areas.
The current governments’ basic strategic development document, the Slovenian strategy for
economic development, highlights the need to continue the structural reforms to stimulate the
strengthening of the economy’s competitive capacity and increase financial investment. One
of the priorities of the structural reform program is to bring about internal rationalization in
the health sector so as to improve efficiency in the use of existing resources. The strategy for
economic development underscores the need to stabilize the operations of HIIS and to
stabilize public finances. The strategy also focuses on adopting measures in the area of public
finance so as to ensure the long term stability in the light of the ageing of the population, and
issue that is rapidly becoming very important in the context of demographic changes in
Slovenia.
Slovenia is one of the few countries in the EU-8 in which there are no significant arrears and
debts in the health sector. Further, Slovenia also has the distinction of being perhaps the only
country in the region to have faced many expenditure-side pressures – from salaries, from
pharmaceuticals – and found ways to address those problems and rapidly regain equilibrium.
In many ways, therefore, the example of Slovenia provides important lessons for other
countries experiencing similar problems at this point of time. In this context, the main
objectives of this report are to take stock of recent trends in health expenditure aggregates in
the public sector and trace the progress of specific areas of health expenditure reforms
consistent with the objective of maintaining fiscal balance. The rest of this report is organized
as follows. Section 2 presents the macroeconomic background in order to set the context in
which the fiscal situation in the health sector can be best understood. Slovenia, like other
countries in the region, is undergoing a demographic transition as a result of which the
population is ageing rapidly, and these issues are discussed in Section 3. Section 4 presents
the health status of the people of Slovenia, and compares it with other countries in the region.
Section 5 contains a brief background on the health sector in Slovenia and highlights some of
the structural characteristics of the health care system. Health financing issues are discussed
in Section 6. Slovenia has undertaken several reforms aimed at managing expenditures, and
some of these are discussed in Section 7. Conclusions are presented in Section 8.
194
2. The Economy
Real GDP growth increased from 2.5 percent to 4.6 percent year-on-year between 2003 and
2004, which is the highest recorded growth rate since 1999. Industrial production growth
accelerated to 4.8 percent year-on-year, but the primary driver of economic growth was the
much improved external performance. Inflation fell steadily, with restrained wage growth and
decreasing unemployment rates. Strong credit and wage growth, along with the one-off-effect
of accession to the EU, led to high domestic expenditures in the first half of 2004. In the
second half of the year, decelerating growth in fixed investment outweighed an upturn in
public consumption (in line with EU funding inflows) to pull domestic expenditure growth
below 4 percent by the end of the year.
Table III.46: Macroeconomic Indicators
2000
2001
2002
2003
2004
4,252
4,762
5,314
5,747
6,191
19.1
19.6
22.1
27.7
32.2
Real GDP growth ( percent)
3.9
2.7
3.3
2.5
4.6
Consumer price inflation (average; percent)
8.9
8.4
7.5
5.6
3.6
Population (m)
2.0
2.0
2.0
2.0
2.0
8,808
9,343
10,471
12,913
15,778
GDP at market prices (SIT bn)
GDP (US$ bn)
Exports of goods fob (US$ m)
Imports of goods fob (US$ m)
-9,947 -9,962 -10,723 -13,538 -16,753
Current-account balance (US$ m)
-548
31
325
-99
-213
The main origins of GDP in 2004 were services (59 percent), manufacturing (29 percent),
construction (5.8 percent), utilities (2.9 percent) and agriculture and forestry (2.7 percent).
The main component of the GDP was private consumption (54 percent), followed by
investment (24.7 percent) and public consumption (19.8 percent).
Employment is rising and the unemployment rate stabilized at 6.0 percent in the third quarter.
Inflation, after falling for several months, rose to 3.6 percent year-on-year in November 2004,
reflecting seasonal price increase of food, clothes, and shoes as well as the higher prices of
oil, refined petroleum products and gas. The beginning of 2005 saw very volatile inflation
figures and the Statistical Office reported year-on-year first quarter inflation as 2.7 percent.
As the government prepares for its goal of euro adoption in 2007, a longer-term
disinflationary trend is clearly in place, and the Bank of Slovenia expects inflation to come
down by almost 1 percent in the next year.
Real wages are growing at almost 2 percent year-on-year, well behind productivity growth
which is at levels around twice this rate. Nominal wage growth in manufacturing reached 7.1
percent, suggesting real wage growth of around 3.5 percent, also well below the pace of real
growth in value added in the sector last year. Inflation was very low in the first quarter of
2005, in part owing to base-year effects, as import duties in place in early 2004 were removed
when Slovenia joined the European Union.
195
The current account deficit remained low at 0.3 percent of GDP in the first nine months of
2004. Despite strong recovery in the exports sector, with merchandise exports rising by 11.5
percent year-on-year in euro terms, growth in imports was even stronger at 13.4 percent,
increasing the trade deficit substantially. Meanwhile, the net financial outflow amounted to
2.5 percent of GDP.
The fiscal deficit in 2004 is estimated at around 2.1 percent of GDP, slightly higher than
envisaged in the May 2004 Convergence Program, due to the inclusion of the activities of two
extra-budgetary funds within the general government and the change in the composition of
expenditures and revenues in 2004. For example, custom duties represented 7 percent of all
budget income in 1996, but fell to 1.5 percent of revenue by 2004 and are expected to fall
further in coming years. In 2004 customs revenue shrank by more than 30 percent in real
terms compared with 2003, primarily due to Slovenia’s access to the EU. The general
government deficit is expected to fall to 1.8 percent of GDP by 2006, due to cyclical factors
as well as the continuing restructuring of expenditures.
The government intends to adopt the euro in 2007. To maintain this schedule the government
will have to maintain tight fiscal discipline over the forecast period, and bring down still
further the rate of inflation, which has fallen considerably in the past two years. Limited room
for fiscal maneuver and constraints on monetary policy are making the public-and privatesector wage policy increasingly important for meeting the inflation criterion and for
maintaining a stable exchange rate.
3. Demography
Slovenia, like many other countries in the region, faces the consequences of population ageing
caused by reduced fertility and mortality rates on the one hand and increasing life
expectancies on the other. Total Fertility Rates (TFR) in Slovenia fell from 2 in 1980-85 to
1.14 in 2000-2005 but is expected to increase to 1.46 by 2020-2025 (Figure III.42).79
Figure III.42: Total Fertility Rate, Slovenia, 1980-2025
2.5
2
1.5
TFR
1
0.5
0
1980-1985
1990-1995
2000-2005
2010-2015
2020-2025
Life expectancy at birth has been steadily rising and is expected to continue rising. Life
expectancy at birth for females increased from 75.5 years in 1980-85 to 79.8 years in 200079
TFR is the average number of children a woman is expected to have by the end of her reproductive period.
Since it is measured using information from births to women aged 15-49 in a certain period, it is the average
number of children a woman is expected to have between age 15-49.
196
2005, and is projected to rise to 83.2 in 2020-2025. Likewise, life expectancy at birth for
males increased from 66.9 years in 1980-85 to 72.6 years in 2000-2005, and is projected to
rise to 76.4 years in 2020-2025. Overall, life expectancy is projected to rise to 79.4 years in
2025, compared to 71.1 years in 1980-85 (Figure III.43).
Figure III.43: Life Expectancy at birth, Slovenia, 1980-2025
Male
90
Female
Total
80
70
60
Years
50
40
30
20
10
0
1980-1985
1985-1990
1990-1995
1995-2000
2000-2005
2005-2010
2010-2015
2015-2020
2020-2025
The net result of decreasing TFR and increasing life expectancies is that the share of people
aged 60 years and older, which was 15.1 percent in 1985, is projected to increase to 40.2
percent in 2025 (Figure III.44).
Figure III.44: Slovenia: Broad Age Groups (%)
Population <15
Population 15-64
Population 60+
75
65
55
45
35
25
15
5
-5
1995
2000
2005
2010
2015
2020
2025
This will result in a dramatic “upside-down” change of the age pyramid (Figure III.45a and
b).
197
S l ov e ni a 2 0 2 0
Figure III.45a: Slovenia 2005
75+
3. 62
70-74
3. 62
65-69
8. 17
4. 55
60-64
60-64
5. 91
8. 28
45-49
30-34
25-29
7. 45
30-34
6. 89
7. 97
20-24
6. 94
6. 75
6. 12
5. 57
7. 19
7. 45
7. 55
7. 04
7. 61
7. 38
7. 56
7. 55
8. 15
40-44
7. 48
7. 66
7. 55
7. 61
7. 61
7. 68
7. 87
35-39
7. 14
7. 50
7. 50
50-54
7. 38
8. 18
40-44
5. 41
7. 07
5. 31
6. 21
50-54
4. 72
70-74
5. 12
5. 38
55-59
6. 32
5. 02
20-24
6. 69
5. 10
5. 04
4. 59
4. 93
15-19
6. 63
5. 91
10-14
10-14
4. 39
5. 38
4. 72
4. 18
4. 92
4. 39
5-9
4. 87
4. 43
0-4
0-4
4. 76
10
8
6
3. 88
4. 50
3. 98
4. 23
4
2
0
2
4
6
8
10
10
P e rc e nt a ge
8
6
4
2
0
2
4
6
P e r c e nt a ge
The old age dependency ratio and total dependency ratio are also expected to rise sharply.
Another challenging demographic issue is the population decline, and by 2050, there will be
1.63 million inhabitants in Slovenia, almost 0.25 million less than today.80
4. Health Status
The health status of the people of Slovenia compares favorably with the health status of the
people of the new member states of the European Union (except Malta and Cyprus), though
not as favorably with the health status of the people of countries belonging to the European
Union before May 1st 2004 (or EU-15). As Table III.47 shows, life expectancy in Slovenia
(76.52 years) is the highest amongst the new member states but lower than the life expectancy
in EU-15 (average 79.06 years). Likewise, disability-adjusted life expectancy in Slovenia is
almost 2 years less than the EU-15 average. Infant deaths in Slovenia – 4.04 per 1,000 live
births – are also on the lower end of the range of the new member states (varying from 3.9 in
the Czech Republic to 9.44 in Latvia), and are lower higher than the EU-15 average of 4.61.
The incidence of Tuberculosis in Slovenia – 13.77 per 100,000 – is higher than the EU-15
average of 8.65 per 100,000, while the rate of clinically diagnosed AIDS – 0.3 per 100,000 –
is much lower than the EU-15 average of 1.61.
80
Source for all data used in this section: Population Division of the Department of Economic and Social Affairs
of the United Nations Secretariat, World Population Prospects: The 2004 Revision and World Urbanization
Prospects: The 2003 Revision, http://esa.un.org/unpp, 11 May 2005; 10:33:11 AM.
198
8
10
Table III.47: Health Status Indicators, Slovenia and other new EU Member States
(2003)
Life
Expectancy
Slovenia
Hungary
Czech Republic
Estonia
Slovakia
Poland
Latvia
Lithuania
EU-15 average
a Data
76.52
72.59
75.40
71.24 a
73.91 a
74.65 a
70.46
71.96
79.06
DisabilityInfant deaths
TB Incidence Clinically
adjusted life
per 1000 live
per 100,000
diagnosed AIDS
expectancy a
births
per 100,000
69.50
4.04
13.77
0.3005
64.90
7.29
24.31
0.2567
68.40
3.90
10.79
0.0784
64.10
5.69 a
41.15
0.7388
a
a
66.20
7.63
16.57
0.0370
65.80
7.52 a
25.05
0.4328
62.80
9.44
72.51
2.4900
63.30
6.73
74.26
0.2606
71.69
4.61 a
8.65
1.6100
for 2002
Source: WHO, European Health for All Database (January 2005 update), as accessed online at
http://data.euro.who.int/hfadb, on May 24th, 2005, 5pm.
Tables III.48 and III.49 present the standardized death rates (SDRs) for a wide variety of
causes. A comparison of the death rates from main causes between countries gives broad
indications of how far the observed mortality might be reduced. SDRs in Slovenia compare
favorably to the other new member states, but are somewhat higher when compared with the
EU-15 average. SDR from all causes in Slovenia is the lowest amongst the new member
states, but is higher than the EU-15 average of 640. Likewise, SDR from circulatory system
disorders, cerebrovascular disorders and selected alcohol-related causes are higher in Slovenia
compared to the EU-15 average, but well within the range of new member states.
Table III.48: Standardized Death Rates (per 100,000), different causes (2003)
All Causes
Slovenia
Hungary
Czech Republic
Estonia a
Slovakia a
Poland a
Latvia
Lithuania
EU-15 average a
a Data
795.49
1047.97
899.60
1090.58
971.49
891.55
1113.62
1008.26
639.88
Circulatory
System
295.29
508.30
61.88
560.35
527.71
413.89
593.02
519.78
236.32
Cerebrovascular
78.76
134.59
132.37
154.06
88.18
98.57
206.23
117.37
59.05
Ischemic TB
Alcohol
Smoking
heart
Related
Related
diseases
Causes
Causes
94.37
1.05
111.42
251.08
232.66
2.41
149.55
491.02
176.09
0.68
89.74
380.91
323.00
6.10
174.29
541.74
283.48
1.19
92.80
443.02
125.78
2.33
88.95
306.79
291.58
8.70
160.22
566.77
327.75
9.45
176.98
518.51
92.89
8.65
61.28
220.78
for 2002
Source: WHO, European Health for All Database (January 2005 update), as accessed online at
http://data.euro.who.int/hfadb, on May 24th, 2005, 5pm.
Table III.49: Standardized Death Rates (per 100,000), different causes (2003)
Slovenia
Hungary
Malignant
Neoplasms
203.66
263.81
Trachea
Cancer Infectious
Respiratory Digestive
Bronchus of the
& Parasitic System
System
Lung
Cervix Disease
Diseases
Diseases
Cancer
41.23
4.11
4.31
62.05
53.33
66.49
7.16
3.98
41.42
79.94
199
Liver
Diseases
&
Cirrhosis
31.31
53.53
Czech Republic
Estonia a
Slovakia a
Poland a
Latvia
Lithuania
EU-15 average a
a Data
234.22
200.60
213.32
216.67
193.40
193.57
180.50
45.27
40.43
38.11
53.22
36.85
36.20
37.05
6.05
6.67
6.58
8.41
6.76
10.64
2.35
2.55
8.43
3.81
6.18
13.32
13.23
8.38
42.35
36.26
55.20
37.62
29.32
39.10
48.31
38.50
42.82
52.86
36.68
38.07
41.99
30.81
16.66
21.72
26.55
12.98
14.00
20.98
12.62
for 2002
Source: WHO, European Health for All Database (January 2005 update), as accessed online at
http://data.euro.who.int/hfadb, on May 24th, 2005, 5pm.
SDRs in Slovenia due to cerebrovascular (78.76), ischemic heart diseases (94.37) and
smoking related causes (251.08) are the lowest among new member states, but higher than the
EU-15 average. Likewise, SDRs due to diseases of the respiratory system (highest amongst
the EU-8 at 62.05), diseases of the digestive system and liver diseases and cirrhosis are higher
in Slovenia compared to EU-15 averages, though SDR from infectious diseases (4.31) is
lower than the EU-15 average and the lowest among the new member states. Overall,
observed mortality can be reduced significantly in Slovenia if the health system and other
determinants of health are more effective in addressing health problems that account for high
levels of mortality, like circulatory system, malignant neoplasms and smoking related causes.
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5. Structural Characteristics of the Slovene Health System
Compulsory health insurance, administered by the Health Insurance Institute of Slovenia
(HIIS), is at the cornerstone of health financing in Slovenia, and is defined by the 1992 Law
on Health Care and Health Insurance. HIIS is the sole provider of compulsory health
insurance and is autonomous in its operation, although the government has influence over
some elements of the structure of the scheme, such as the contribution rate and scope of
benefits. By design, the health insurance scheme covers the entire population, and opting out
is not permitted. There are 21 categories of insured people, and there are two main groups.
The first group is employees (and their non-earning dependents) who pay contributions based
on income, at the rate of 13.5 percent of gross salaries and wages. Contributions are shared
between employers (6.89 percent) and employees 6.36 percent). Additional contributions may
be required from employers to adjust for claims that are excessive as a result of occupational
diseases and injuries. The second group covers unemployed persons, other persons without a
fixed income who are not registered as unemployed, pensioners, farmers and the selfemployed, who pay a fixed contribution to the national fund. The National Institute for
Employment pays fixed amounts for the registered unemployed, and self-governing
communities are required to pay for persons without any income. Pensioners pay a fixed
contribution of 5.65 percent of their gross pension.
Benefits Package
Beneficiaries are entitled to a very comprehensive package of primary, secondary and tertiary
health services, as well as non-medical (cash benefits such as salary compensation after
absence from work for 30 days). Essential services – which include services for children and
adolescents, family planning and obstetric care, preventive care, diagnosis and treatment of
infectious diseases (including HIV), treatment and rehabilitation of a range of diseases
including cancer, muscular and nervous diseases, mental diseases and disability, emergency
care (including transport), nursing care visits and home care, donation and transplantation of
tissues and organs, long-term nursing care – are covered in full, while “less essential services”
are subject to co-payments, ranging from 5 percent to 50 percent. Co-payments are paid by
the patient, and can also be covered through voluntary health insurance. There are several
population groups that are exempt from co-payments. Drugs are classified according to three
lists: positive, intermediate and negative. Pharmaceuticals, which are on the positive list, are
reimbursed at 75 percent by the compulsory scheme (the remaining 25 percent can be covered
through voluntary health insurance), while drugs in the intermediate list are covered 25
percent by compulsory insurance. Negative list drugs are not eligible for reimbursement.
Drugs for children and particular diseases are covered in full by the compulsory scheme.
Co-payments were introduced in 1992 for most services (in-patient, outpatient,
pharmaceuticals). Voluntary (complementary) health insurance was mainly introduced to
cover the cost of co-payments. The large coverage of voluntary health insurance – covering
94 percent of the population – is most likely due to the relatively high co-payments for drugs
in the mandatory health insurance and the high risk for citizens related to consumption of
drugs, which are the most commonly and widely used form of health services. There are three
providers of voluntary health insurance, one of which is a branch of the HIIS, but they all
offer the same package.
There are about 3,000 pharmaceutical entities approved for the market, of which about 2,000
are chosen for the drug list. The drug list is made by a committee of the Health Insurance
Institute, and all pharmaceuticals on the positive list are evaluated for safety and efficacy
201
following rigorous procedures put in place about 10 years ago (though there are still a few
drugs available for the market that are holdovers from previous times, but that list is steadily
shrinking). For about five years, the drug regulatory program has been harmonized with the
European Union process.
The Health Council, which is appointed by the Minister of Health, advises the Ministry on
such issues as health technology use. These issues may be reviewed following the submission
of applications for investment from providers or the review may be asked directly by the
Ministry of Health. The Health Council members serve on a voluntary basis and do not do
health technology assessment in any systematic sense. No systematic search for evidence is
carried out, and neither is any systematic review of the literature done. Costs or estimated
expenditures are considered, but the review of these issues is not rigorous. The Health
Council has developed a protocol of issues to be covered in an application from a provider,
and even though the number of applications is not very large, the requested sum far exceeds
the available resources for investment in any particular year. The Health Council has no
mechanisms for setting priorities for investments in the health care sector, and to this extent
decision making by the MOH on investments may be ad-hoc.
Purchasers of health services are different from providers of health services in the Slovene
health system, and the purchaser of services – HIIS – negotiates contracts with health care
providers for services on a collective basis each year. Annual contract negotiations between
the HIIS and the health care providers, represented by the Society of Health Institutions of
Slovenia, take place at three levels. First, the general agreement is negotiated, which defines
types of services (capacity, needs and extent) to be provided within the agreed funding
framework. Second, an agreement is negotiated for each type of provider (for example,
hospitals), covering the rights and responsibilities of each provider, method of payment and so
on. And third, the HIIS holds negotiations and contracts with each individual with respect to
type and volume of services, prices and payments.
Health Care Delivery
Historically in Slovenia, as in the other former Yugoslav countries, all health facilities were
state owned and private practice was forbidden. Physicians were salaried employees of the
state. Many of these features are still reflected in the current health care delivery system,
which is still mainly public, with most practitioners employed as salaried employees of the
state.
The Law on Health Services classifies health care as follows: (i) Primary level (including
basic health and dispensary services); (ii) Secondary level (including specialist outpatient and
hospital services); (iii) Tertiary level (including management services of clinics and institutes
and other authorized health institutions); and (iv) Socio-medical, hygiene, epidemiological
and health-ecological services are performed as particular specialist services at secondary and
tertiary levels. The 1992 health insurance legislation created the scope for the privatization of
health care providers, and privatization is taking place gradually, especially at the level of
primary care.
Primary care
Primary care in Slovenia is delivered by public and private providers. Public providers
include health care centers and health stations that serve rural and dispersed populations.
Health care centers provide integrated preventive and public health services, including to
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populations that are at a high risk from the public health point of view. A primary health care
facility (health care center or health care station) is available within 20 kilometers from
almost all locations in Slovenia. In rural areas, physicians largely practice as family
physicians, with as many as 3,000 patients, where as in the capital city of Ljubljana, a
physician may have as few as 750 patients. The average number of patients per general
practitioner is about 1,800 (which normally includes only up to 10 percent of all children
since their care is typically organized through primary care pediatricians). Public sector
employees are salaried, although physicians and dentists have obtained the right to a special
contract, giving them a separate negotiations position with the health insurance funds and an
opportunity to supplement their salaries.
Doctors with good patient registers earn greater incomes than those on public salaries. Most
private practitioners work in private health care centers or rent public premises for individual
or group practices. Private providers can obtain a concession from the local community to
provide services (and therefore receive financing) under the compulsory health insurance
scheme, which gives the same rights as any public provider (except that a private provider
cannot apply for public funds for capital investments). Those with no concession must charge
patients directly for services, and receive no financing from the public system. The increasing
number and share of private clinics has brought competition into the market, which appears to
have had a positive impact on the professionalism and efficiency of publicly-operated primary
care clinics. The majority of those practitioners who are licensed for private practice are
contracted by the health insurance fund. About 550 physicians operate outside the public
system, and these are largely dentists. Under compulsory insurance, patients are allowed to
choose their doctor, who then acts as a gatekeeper to higher levels of care.
Secondary and Tertiary Care
Although the primary care physician acts as a gatekeeper to secondary and tertiary care,
patients referred are entitled to choose their specialist and hospital. Specialist secondary care
is performed in hospitals, polyclinics and spas. University hospitals and university institutes
provide more complex tertiary health care services. Secondary outpatient medical services are
provided at the polyclinics affiliated with hospitals or in community health centers contracted
through a hospital specialist or consultant. As of 2000, most hospital polyclinics worked
within the public health network of health care services. These polyclinics also organize
outpatient consultation for self-paying patients under regulations certified by the Ministry of
Health. There are also a few purely private health care providers of secondary specialist care
and diagnostic services, but most work on contract with the HIIS. Slovenia has no combined
public-private polyclinics yet, but the medical and dental professions aspire to move in that
direction. Treatment in spas can be suggested by the personal physician or by a physician in
the hospital who is treating the patient.
Hospitals provide about 75 percent of secondary care, either as inpatient or outpatient care.
There are 26 hospitals, including nine regional and three local general hospitals and the main
tertiary and teaching hospital, the University Medical Center in Ljubljana. In addition, there
are 12 specialized hospitals, which provide orthopedic, pulmonary, gynecological and
psychiatric care as well as care for children and youth with severe chronic diseases and
disorders.
Apart from the Clinical Center in Ljubljana, there are two other national tertiary institutions:
the Institute of Oncology and the Institute for Rehabilitation. All hospitals are state-owned,
but there have been some initiatives for private hospital care. Private hospitals may be
203
established out of the network of publicly financed providers. There are also opportunities for
private investment in new hospitals, although this has not as yet taken place.
Table III.50 presents data on utilization of inpatient services and hospital performance in
Slovenia as compared with EU25 countries. While Slovenia’s indicators meet the European
averages, there may be opportunities for further efficiency gains without compromising
quality and access to care. Occupancy rates are on the lower side, and there is scope for
lowering hospital length of stays even further. As regards outpatient care, the number of
outpatient visits per capita in Slovenia is 7.4, which is on the high side. Referrals to specialists
have been steadily increasing, from only 55 per 1000 visits in 1990 to 145 per 1000 visits in
2001, which suggests that there are opportunities to constrain unnecessary demand.
Table III.50: Performance of Acute-Care Hospitals in the European Region (2002 or
latest available year)
Hospital beds per
Admissions per
1000 population
100 population
Country
Austria
6.2
27.2
Belgium
5.5
18.8
Czech Republic
6.3
18.7
Denmark
3.3
19.1
Estonia
5.6
18.7
France
4.1
20.0
Germany
6.4
20.3
Greece
3.9
14.5
Hungary
6.6
22.4
Ireland
3.0
14.1
Italy
4.5
17.1
Latvia
6.1
20.0
Lithuania
6.3
20.9
Luxembourg
5.5
18.4
Netherlands
3.3
9.1
Portugal
3.1
11.9
Slovakia
6.9
18.9
Slovenia
4.6
16.1
Spain
3.0
11.2
United Kingdom
2.4
21.4
Source: WHO Health for All Database, 2004
Average length
of hospital stay
6.3
8.7
8.8
5.5
7.3
5.5
10.7
NA
NA
6.5
7.1
NA
8.3
7.7
7.7
7.3
9.4
7.6
8.0
5.0
Occupancy rate
(percent)
75.5
79.9
70.7
79.9
66.1
77.4
81.6
NA
NA
83.0
74.1
NA
76.0
74.3
58.4
75.5
71.0
73.2
77.3
80.8
Access to Care
Patients interviewed in Slovenia on their satisfaction with health services mention waiting
time as a critical problem. Waiting lists are a feature of any well performing health system,
but their management is essential to ensure that perceived or actual access barriers do not
create life-threatening or incapacitating circumstances for patients posed by the existing
system. In Slovenia, the number of patients on the waiting list for elective surgery has been
steadily increasing and in 2000, 14 percent of all patients requiring elective surgery were on a
waiting list compared to zero percent in 1998.
Public Health
Public health services are the responsibility of the municipalities and the Institute of Public
Health (IVZ). The IVZ is responsible for planning and implementing health protection and
promotion programs. It maintains several national databases, including the national death
register, hospital statistics database, outpatient statistics database and the database on national
health care providers. The IVZ has also gone through a reform process, not providing
204
extensive rough morbidity and mortality data but providing information relevant for public
health ad policy making, including information about effective interventions and covering
also non-infectious diseases.
Social Care
Social care in Slovenia is organized through community nursing services which are part of
self-governing communities and are based in health care centers. Homes for elderly and
disabled people provide long-term care. Access to long-term health care is through the local
community social agency based on the recommendation of a physician. A full-time, registered
physician combined with nurses provides care in long-term care facilities. Specialists are
brought in on a need-be basis. Nearly all homes are public and there is growing demand as the
Slovene population ages.
Health Policy and Regulation
The Ministry of Health (MOH) is responsible for policy-making and priority-setting. Its role
in the health sector has been quite weak till recently, though it has gotten actively involved in
recent years in setting the agenda for health reforms. There are other regulatory agencies such
as the Office of Medicinal Products, which is responsible for implementing the national
policy on drugs and medicinal devices. The Institute of Pharmacy and Drug Research is
responsible for controlling the quality of medicinal products. However, MOH and the HIIS
are in need of expanding their capacity and getting an adequate regulatory framework for
decision making on new health technologies to be included into the benefits package of HIIS
as well as on the distribution of these technologies over the various levels of care and over the
country.
Human Resources
In 2003, there were 21.6 physicians in Slovenia for 10,000 population, which is higher than
the EU15 average of 10.2 physicians. There were 71 registered nurses per 10,000 population
in Slovenia as compared to the EU15 average of 67, 6 dentists (EU15 average 6.4) and 3.9
pharmacists (EU15 average: 7.9). In addition to the numbers, there are concerns related to the
inter-regional distribution of health personnel, and a much lower number of physicians
operate in rural areas.
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6. Health Expenditures and the Performance of the Health Sector
Health is a constitutional right in Slovenia and is based on strong egalitarian principles. The
implementation of social insurance as well as policy reforms in health financing reflects the
core principles of equity and access to health care for all Slovenians. The main sources of
financing for the health sector are public, which comprise about 87 percent of total spending
on health and include compulsory health insurance contributions and direct state budget
transfers. Private spending comprises the remaining 13 percent and includes including
voluntary health insurance and out-of-pocket payments.
Public spending on health constitutes around 14 percent of total general government spending,
third after government spending on social protection and general public services (Figure
III.46). This amounts to about 6.8 percent of GDP in 2003 (up from 6.75 percent in 2002).81
Inclusive of private out-of-pocket spending, total spending on health in Slovenia amounts to
about 7.82 percent of GDP.
20
15
10
5
ea
lth
Ed
uc
at
io
on
n
om
Pu
ic
bl
A
ic
ffa
O
irs
rd
er
&
Sa
fe
ty
Re
D
cr
ef
ea
en
tio
ce
n
En
&
vi
Cu
ro
nm
lt u
re
en
tP
ro
te
ct
io
n
H
ou
sin
g
Ec
ic
S
er
v
ic
ct
io
ot
e
Pu
bl
pr
So
ci
al
H
es
0
percent of GDP
1200
1000
800
600
400
200
0
n
billion SIT
Figure III.46: Struture of General Government Expenditures
General Government Expenditure, 2002
General Government Expenditure, 2003
Percent of GDP, 2002 (right axis)
Percent of GDP, 2003 (right axis)
The state budget (MOH) pays for capital investments for all secondary and tertiary facilities
from the state budget. Budget financing also covers public health programs, including
prevention and promotion, medical education and training, national health information,
reform projects and health care coverage for specific groups such as soldiers, prisoners and
refugees. Communities are supposed to be responsible for capital investments for primate
health care facilities with funding collected at the local level. In reality, some funds are
received from the state budget and the MOH.
Direct out-of-pocket spending includes co-payments for services covered under compulsory
insurance, where the patient does not have voluntary insurance, payments to private
practitioners who have not received a concession or for purchasing services not covered under
compulsory or voluntary insurance, and informal payments to shorten the waiting list
(although efforts are being made to formalize these payments).
81
Data for 2004 will be available end of 2005 only.
206
Health Insurance Institute of Slovenia
Besides the payment of health services, compulsory health insurance also guarantees sick pay
during temporary absence fro m work, death benefits, funeral costs refunds, and
reimbursement of travel expenses related to obtaining health services. In 2003, the amount of
paid contributions amounted to SIT 367.53 billion, an increase of 8 percent compared to 2002,
while total spending of the HIIS from all public sources, including budgetary sources, was
approximately SIT 378.9 billion in 2003. This amount refers to the expenditure of (public)
funds, collected on the basis of contributions paid by employers and employees, and by
several other categories of contribution obligors.
Premium contributions constitute 99.6 percent of the income of HIIS, most of which comes
from contributions paid by employers and the employees (SIT 284.72 billion in 2003, or 77.5
percent of total). Contributions to the pension fund account for SIT 58.85 billion followed by
the contributions of pension fund, equivalent to 16 percent of total, and contributions of
farmers and others account for SIT 19.31 billion, or 5.3 percent of total.
Calculation of contributions
Contributions to HIIS are calculated either as a percentage of a specified basis or as a flat sum
charge. Articles 50-57 of the Law on Health Care and Health Insurance (subsequently
broadened in 1998 by the Law on Contributions for Social Security) provide the bases for
computing contributions for different groups of insured persons and flat charges for specified
groups of persons. HIIS contributions depend on the salary or other income earned by the
insured person, which ensures a high degree of solidarity within the system. Health insurance
contributions are paid directly by national or local community budgets for some groups of
insured persons, such as the unemployed and the recipients of the social security allowances.
Box III.1: Negotiating A Common Scope of Health Programs
The representatives of the health care service providers (chambers, associations), of the Ministry of Health Care
and of the Health Insurance Institute of Slovenia (Institute) take part in negotiations and agree upon the common
scope of the programs of health care services and the funds necessary to cover the program, at the national level.
As the result of the negotiation process, a written agreement is signed, which then represents a legal basis for the
concluding of contracts with public health care institutions and private service providers. The significance of the
negotiations lies with a responsible determination of the “upper limits” for the public funds for health care, and
responsible spending of financial means collected in a solidarity manner in the form of contributions for
compulsory health insurance from all insured persons in Slovenia. In Slovenia, this upper limit is set to
approximately 6.9 percent of the GNP. Observing the general economic potential, the Agreement determines the
overall extent of the health care service program, priority areas, necessary capacities and elements (prices) to be
applied in valuation of the services.
Each year, based on the adopted Agreement, Institute publishes a public competition open to all health care
service providers eligible (concessionaires) to perform their services within the network of the public health care
service network. In 2003, the Institute concluded contracts with 1.356 health care service providers. Of these,
210 were public institutes and 1.146 private practitioners, including pharmacies.
Thus, in 2003, of the total compulsory health insurance budget, the Institute designated a sum of approximately
SIT 260 billion for health care services, SIT 68 billion for medication, medical aids, blood and social medicine
and SIT 40 billion for various financial benefits.
Source: http://www.zzzs.si/zzzs/internet/zzzseng.nsf/dok_ste/72, June 5, 2005, 11am.
HIIS pays providers in a number of different ways, depending upon the type of health care
activity. Physicians providing primary health care, including pediatricians and gynecologists,
are paid on the basis of capitation combined with fee for services. Health education and some
prevention programs are funded by the Institute in the form of fixed sums. Outpatient
specialists are paid for a fee-for-service basis, and standards are specified to determine the
207
annual planned number of visits per team. For some services, like dialysis, prices are set for
different types of services (e.g., 5 types for dialysis services). Inpatient care is paid on the
basis of reimbursement payment per Australian-type Diagnostic-Related Groups, combined
with a fee for service system for some high cost services and materials. The same
compensation system is used for ambulatory providers as well.
Subscription medicines and technical aids issued by pharmacies are separately invoiced to
HIIS, which also has specific contracts with suppliers of technical aids. For health resorts, the
price of a non-medical daily charge is set, which covers the services of residence and daily
rations. The system of the average daily charge is used to compensate social care and social
habilitation institutions. Emergency transport services are valuated on the basis of a planned
budget for emergency transports, while a price per kilometer is used for non-emergency
transports. Separate prices are used for transport services for special treatments, like dialysis,
etc.
Health Expenditures by Function
Salaries and wages account for almost 40 percent of total public spending on health, followed
by social benefits in cash and kind, intermediate consumption and investments (Figure III.47).
percent of total
Figure III.47: Public Expenditure on Health
Function and Type
40
30
20
2002
2003
10
0
Salaries &
Wages
Social Benefits Intermediate
(cash & kind) Consumption
& Taxes
Capital
Formation
Others
Over 80 percent of all health personnel are in the public sector. In the late 1990s, the
Government increased physicians’ salaries so as to bring about parity with other professions,
but this has led to a huge increase in the wage bill, which threatens the fiscal sustainability of
the health sector.
Inpatient care accounts for over 31 percent of total public spending on health, followed by
pharmaceuticals at 18 percent. Expenditures on inpatient care as a percentage of total health
expenditures is low in Slovenia in comparison to EU15 (average of 38 percent) and the
majority of Europe and Central Asia countries where expenditure on inpatient care can
average between 40-70 percent of total health expenditures. Expenditures on pharmaceuticals
are slightly on the high side, since the majority of EU15 countries spend between 9.8 to 12
percent on pharmaceuticals and medical supplies. Expenditures on pharmaceuticals have been
steadily increasing in recent years, partly due to increasing consumption of medicines in
hospitals and outpatient care in parallel with uncontrolled prices increases for medicines. In
1995, the government intervened to manage drug prices in the wholesale and retails sectors by
208
establishing a new agency (the Office for Medicinal Products) and taking control over pricesetting. However, the impact on overall expenditures has been minimal so far due to the
increase in bulk consumption of several drugs as well as the high prices of innovative drugs.
7. Managing Health Expenditures in Slovenia
In 2002, Slovenia began a process of health system improvements aimed at improving the
long-term performance of the health sector. The underlying motivation for the reforms was
the continuing growth in health expenditures largely fueled by rising costs of pharmaceuticals,
medical personnel and other consumables and the ongoing demographic and epidemiological
changes in the country and the potential for continuing growth in health expenditures in the
context of joining the EU (growing consumer and provider expectations regarding improving
the quality of care). The reforms have focused on managing pharmaceutical costs, improving
provider payment mechanisms, and improving quality of care improvements. The underlying
objective was to improve the cost-effectiveness of care and limit unnecessary consumption of
health services while mitigating any problems with access and quality. Each of these areas is
discussed below.
7.1 Pharmaceutical Costs
Concerned with increasing pharmaceutical costs – due to increasing consumption levels as
well as rapid increases in the price of medicines – the government, in 1995, intervened under
special legislation to control the drug prices in the wholesale and retail sectors, and took over
control of price-setting. The price of all pharmaceuticals, including; ethical pharmaceuticals,
medicines for hospital use, generics and OTC products, are determined by the state, and on
behalf of the state, by the Agency for Medicinal Products, set up as a department of the
Ministry of Health. The wholesale price of the drug is set in accordance with the law and in
such a way that it does not exceed 85 percent of the average wholesale price of an identical or
similar product within a reference basket of three countries (Germany, France and Italy). The
only exemption to this law is for innovative products and some orphan drugs, in which case
the price cannot exceed 96 percent of the average set by the three countries listed above.
HIIS is fully responsible for the reimbursement of prescribed pharmaceuticals. HIIS
reimburses each pharmacy a fee for their services. The pharmacy margin is between 8-9
percent. Pharmacies also paid a duty, but only in regional centers. The VAT for all
pharmaceuticals is 8 percent (lower than the normal rate of 19 percent), and is applied to the
wholesalers' prices. Pharmacies earn extra income from the sale of medical aids, cosmetics
and other items. The agreements between wholesalers and retailers are not monitored or
regulated.
Reimbursement
According to the Law (Decision on the Classification of Medicines to Lists, 1996), all drugs
are classified into a “positive” drug list or “intermediate” drug list. The positive drug list
contains about 1250 pharmaceuticals, and includes: (i) Medicines applied in prevention and in
therapy for certain groups of insured persons (children under 18 years, students, pregnancy
and motherhood) and medicines for the diseases and health states defined in paragraph 1 of
Article 23 of the Law on Health Care and Health Insurance (medicines for the treatment of
most important contagious diseases including AIDS and STD's, diabetes mellitus, major
psychiatric diseases, epilepsy, muscular dystrophy, multiple sclerosis and psoriasis); (ii) those
medicines in particular pharmacological groups that are most effective, professionally most
209
justified and essential for the therapy of particular diseases and population groups not
specifically provided in paragraph 1 of Article 23 of the Law; (iii) those medicines provided
in paragraphs 1 and 2 herein being mono-component as a rule (there are some exceptions);
and (iv) ambulatory medicines designed for self-administration by the insured persons
suffering from diabetes and are specially trained in self-management of the disease.
Drugs on positive drug list are reimbursed 100 percent by HIIS for medicines applied in
prevention and in therapy of the specified groups of insured persons and of the diseases and
health states defined in paragraph 1 of Article 23 of the Law on Health Care and Health
Insurance, and 75 percent for all other medicines. The intermediate drug list contains about
350 pharmaceuticals, and is reimbursed at 25 percent by compulsory health insurance. There
is no official negative drug list, and non-reimbursed medicines are primarily OTC
pharmaceuticals. These medicines may be covered by voluntary health insurance scheme.
Monitoring Prescriptions
In order to contain the growing costs of pharmaceuticals, the Health Insurance Institute has
begun to monitor prescriptions of pharmaceuticals at the national and individual level.
Pharmacies are required to send all prescription data to the Health Insurance Institute where
the data is processed and analyzed. The data on pharmaceutical consumption is compared to
international data and published in the Rational Pharmacotherapy, a Slovenian drug bulletin
which is distributed free to every physician. Further, physicians are allowed to prescribe only
one pharmaceutical on each prescription, and no more three months supply can be prescribed.
Since the price differences between original pharmaceuticals and generics are usually not
significant, prescribing of generics is not generally promoted (though HIIS does try to
encourage the prescribing of generics). The reason for this is that most generics are “branded
generics” produced by Slovenian firms (45 percent of the market).
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7.2 Provider Reimbursement Systems and Provider Contracts
In the last 3 years, payment mechanisms, especially for acute care hospitals, have undergone
several changes. Prior to 1993, hospitals were paid according to a global budget defined on a
costliness factor based on previous expenditures. There were many problems with this system:
(i) it did not generate incentives for efficiency or quality; (ii) hospital tended to over-provide
items of service and items of high payment values; and (iii) it did not encourage fair payment
for nursing or physical therapy. In 1993, this system was changed to inpatient days of stay as
the unit for payment. The strengths of this model were that it provided more useful
information about the care being provided to patients, and it generated incentives for
efficiency (reduce the provision of items of service). However, this system did not generate
any incentives for reducing the average length of stay. In 2000, Slovenia introduced a percase method of paying hospitals, the basis of which was cost per case. Since then (2002-04)
Slovenia has developed a Diagnostic Related Group (DRG system) to define cases, and has
developed a base rate and relative values (to adjust for case complexity). Currently, all 19
acute care hospitals in Slovenia have a DRG system. The focus during the early
implementation phase has been very much on refining this method of payment by building the
capacity of the HIIS and hospitals in coding and billing and improving hospital product
costing. The availability of more and better information is considered critical for improving
transparency and accountability in payment mechanisms. Application of DRGs for resource
allocation is being carried out in an incremental manner. As Table III.51 shows, the mean
length of stay in hospitals implementing DRGs has fallen, with the mean length of stay for
some conditions falling by as much as 50 percent.
Table III.51: Mean Lengths of Stay (selected DRGs, 2001 and 2003, Ljubljana Clinical
Centre)
2001
DRG
2003
Cases
Days
ALOS
Cases
Days
ALOS
N62B
Mnstrl&Oth Fem Repr Sys Dis-Cc
3,317
14130
4.26
4,336
35035
8.08
O63Z
Abortion-D&C,Asp Crtg/Hystromy
341
767
2.25
2,254
2434
1.08
I68B
N-Surg Neck,Back-Pn Pr A<75-Cc
1,687
16482
9.77
1,353
9173
6.78
F71B
N-Mjr Arythm&Condctn Dsrd-Cscc
1,237
5455
4.41
1,138
3084
2.71
J67B
Minor Skin Disorders – Cc
1,364
6602
4.84
1,075
5827
5.42
K64B
Endocrine Disorders – Cscc
1,322
7390
5.59
1,010
5262
5.21
G67B
Oesphs,Gastr&Mis Dg D A>9-Cscc
827
4648
5.62
991
3964
4.00
F65B
Peripheral Vascular Dsrd –Cscc
427
4620
10.82
936
5054
5.40
B70C
Stroke - Other Cc
993
22273
22.43
841
12935
15.38
G68B
Gastroenteritis A<10 – Cc
787
2259
2.87
835
1912
2.29
J65B
Trauma To Skn,Sub Tis&Bst A<70
286
1301
4.55
717
1893
2.64
F62B
Heart Failure & Shock – Ccc
825
8324
10.09
678
6495
9.58
E62C
Respiratory Infectn/Inflamm-Cc
860
8858
10.30
667
5343
8.01
J66B
Moderate Skin Disorders – Cscc
676
3995
5.91
642
4391
6.84
D63B
Otitis Media & Uri – Cc
1,186
3878
3.27
614
1578
2.57
L64Z
Urinary Stones & Obstruction
663
4130
6.23
592
3209
5.42
G66B
Abdmnl Pain/Mesentrc Adents-Cc
926
3148
3.40
579
1691
2.92
F66A
Coronary Atherosclerosis + Cc
61
650
10.66
575
3973
6.91
L63C
Kidny & Urnry Tract Infcs A<70
559
3360
6.01
560
3259
5.82
211
F72B
Unstable Angina – Cscc
1,838
15127
8.23
555
2769
4.99
F66B
Coronary Atherosclerosis – Cc
486
4102
8.44
543
2574
4.74
C63B
Other Disorders Of The Eye –Cc
1,125
6615
5.88
517
3490
6.75
I69C
Bone Dis & Specfc Arthrop A<75
408
5312
13.02
501
2505
5.00
T64B
Oth Infectous&Parstic Dis-Cscc
668
2565
3.84
482
1745
3.62
B76B
Seizure A>2 – Cscc
637
3625
5.69
465
3274
7.04
F69B
Valvular Disorders – Cscc
837
9215
11.01
455
2707
5.95
F74Z
Chest Pain
123
592
4.81
447
1350
3.02
7.3 Reducing Inappropriate Admissions
Another area where changes were introduced was in reducing the number of inappropriate
admissions. The contracts between the HIIS and providers stated that hospitals with
unsatisfactory levels of inappropriate admissions would have to undertake additional work to
reduce their waiting time for targeted case types. The inclusion of this contracting
requirement has eliminated the problem of inappropriate admissions thereby contributing to
improved cost-effectiveness. In addition to addressing payment methods for specific levels of
care (primary, acute care, tertiary care), under the health reforms, substantial work has been
undertaken on introducing payment mechanisms that encourage quality and cost-effectiveness
across the spectrum of care (primary, secondary, etc.). The idea of Episode Management
Units had been developed and is being explored. This reflects the view that in order to really
bring about fiscal sustainability in personal care, issues such as continuity of care and patient
compliance need to be addressed. Therefore, while individual payment methods may improve
efficiency and quality at a particular level of care, the challenge was to link across the
spectrum of care.
7.4 Improving Quality of Care
The health reform strategy realized early on that improving quality and coordination of care is
critical for improving fiscal sustainability in the health system without compromising the
health of the population or patient satisfaction. In the last three years, a Slovene manual for
the development and introduction of clinical guidelines, adapted for Slovenian circumstances,
was developed and adopted by all the stakeholders, including the medical community. This
was due to a broad participatory process, involving also the medical association, and creates
favorable conditions for the implementation of the protocols in daily practice. Clinical
pathways, which are multidisciplinary plans of best clinical practice for specified groups of
patients with a particular diagnosis that aid the coordination and delivery of high quality care,
have been introduced in many health care settings and the plan is next to link clinical
pathways to payment mechanisms.82 Clinical practice guidelines and clinical pathways are
82
Clinical Pathways are multidisciplinary plans of best clinical practice for specified groups of patients with a
particular diagnosis that aid the coordination and delivery of high quality care. Wigfield & Boon (1996, p.732)
claim that Clinical Pathways are able to standardize care for 60-70 percent of patients with a similar diagnosis,
procedure or symptom. Clinical Pathways are more easily applied to surgical procedures where the plan of care
may span a few hours or days. Some Clinical Pathways may extend to other healthcare facilities such as
rehabilitation units or out into the community for continued care. They may even span a lifetime of care in such
chronic conditions as multiple sclerosis or congestive heart failure. Clinical Pathways differ from practice
guidelines, protocols and algorithms as they are utilized by a multidisciplinary team, can even go across levels of
care and institutions and have a focus on quality and coordination of care. There are four essential components of
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used for optimization of services delivery and provide the opportunity for improving clinical
governance. More than 40% of all cases are expected to be covered by clinical pathways in a
few years time (Figure III.48).
Figure III.48: Estimated Percent Cases Covered by Pathways (selected EU countries,
2004 and 2009)
UK
Germany
Estonia
Ireland
Belgium
Austria
The Netherlands
Slovenia
2009
2004
France
0
30
60
90
Source: Ministry of Health, Slovenia, 2004
8. Conclusions
Slovenia has made significant progress in the management of several health sector issues,
including financing, production and delivery off health services, but continues to face several
challenges in improving fiscal sustainability of the health system. The exponential growth in
pharmaceutical expenditures has yet to be controlled and there are pressures on account of
both pricing of pharmaceutical products as well as number of pharmaceutical prescriptions.
The issue of salaries of physicians is bound to come up again, as comparisons with salaries of
physicians across the border in EU15 countries begin to distract the fragile equilibrium. There
is vast improvement in the hospital sector, where accountability levels are still low and where
the existing incentives lack strength. Finally, Slovenia is going through impressive
demographic changes, which are dramatically going to increase the number and proportion of
the elderly in the country.
a Clinical Pathway: a timeline, the categories of care or activities and their interventions, intermediate and long
term outcome criteria, and the variance record
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The Government is aware of these challenges, and is constantly exploring opportunities to
identify measures that would help meet the objectives of fiscal balance and effective delivery
of care. In a recent enunciation of the Government’s plans, Health Minister Andrej Brucan
outlined his ministry’s objectives of the year as establishing a balance between public and
private health care, improving breast cancer treatment and replacing outdated diagnostic and
treatment devices. In an attempt to motivate private investors to invest in public health care,
the ministry is drafting new legislation for awarding concessions to the private sector and
realigning the public-private balance. The Government is planning infusion of resources into
investment, particularly to improve treatment of life-threatening conditions. In order to
improve breast cancer treatment, the ministry’s program is to combine outpatient clinics and
mammography clinics, and ensure that all eligible women will be examined as necessary and
as per protocol. Overall, the ministry's objectives are increasing the overall efficiency of the
system, ensuring high-quality services, investing in health care management and promoting
healthy living.
214
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Albreht, Tit, 2002: Health Reforms in Slovenia, Twelve years after, time to re-evaluate, Institute of Public
Health of the Republic of Slovenia, Trubarjeva 2, 1000 Ljubljana.
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Brussels.
International Monetary Fund. 2003. Article IV Consultations.
Ministry of Health. 2005. Presentations: New Directions in Health Care Workshop, Center for Excellence in
Public Finance, Ljubljana, Slovenia.
Republic of Slovenia: Official Website of Slovene Government, http://www.uvi.si/eng/slovenia/backgroundinformation/budget-memorandum-2001/June 5, 1pm.
World Bank. 1999. Health Sector Management Project. Project Appraisal Document, The World Bank,
Washington DC.
World Bank. 2004. Implementation Completion Report: Slovenia Health Sector Management Project, The World
Bank, Washington DC.
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