Peter Mihalyi: Introduction

Chapter

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six The 2007-2009 Reform of the Hungarian Health Insurance System Peter MIHÁLYI et al.

CONTENT

1. Introduction

00

2. New laws and measures adopted in 2006

00

3. The Bismarck- Beveridge mix

00

3. The international context

00

4. The post-communist legacy

00

6. Conclusions

00

Appendix 1: János Kornai’s ethical and economic postulates of health care reform in post-communist countries Appendix 2: Financing of NHIA

00 00

Chapter

six The 2007-2009 Reform of the Hungarian Health Insurance System Peter MIHÁLYI et al.1

CONTENT

1. Introduction

85

2. New laws and measures adopted in 2006

86

3. The Bismarck- Beveridge mix

86

3. The international context

89

4. The post-communist legacy

93

6. Conclusions

99

Appendix 1: János Kornai’s ethical and economic postulates of health care reform in post-communist countries Appendix 2: Financing of NHIA

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“There is always competition for high-quality goods in short supply; in a non-market competition solidarity is always a loser.” Lajos Bokros (2004)

1. Introduction The Hungarian health care system is in crisis. This sweeping generalization is shared and voiced without reservation by patients, health care workers and government officials alike. But this allegation is a misleading and paralyzing exaggeration. First, the health care systems of virtually all OECD countries are subject to similar criticism. Second, the reality is that both exemplary and disastrous building blocks can be found in the Hungarian system. It would be a mistake to through out the baby with the bathwater. Let us start with the most important facts. Hungary is often referred in the EU-25, as a country where people have the worst life expectancy. Indeed, according to the 2004 figures, the data for both sexes were the lowest (77.2 and 68.7), except for the three Baltic countries. However, from the context of the reform objectives, the important thing is to see the change. As Graph 1 illustrates, Hungary had been hit by an epidemiological crisis between 19661993. But it is over. Since 1994, overall life expectancy rose by 4.0 years (from which 1.64 is attributed to drops in cardio-vascular mortality). In 2005, 45% of female death cases occurred among those beyond 80 years of age (for males 23%). The improvement in average life expectancy is one of the most significant positive outcome of the regime change. Hence, in this regard Hungary is already on track, further improvements are to be expected anyway. In the first half of the 1990s, important and progressive measures were introduced in health care financing. Since then, GPs have been financed on a per capita basis, with the help of a risk-equalizing redistribution scheme across the age and gender profile of the registered patients. In ambulatory and acute hospital care the German point system and an adapted version of the American DRG-system have been working quite well. Many useful elements of the formerly centralized resource planning system have been also retained (100 per cent patient coverage, nationwide disease management, centralized collection of morbidity and drug consumption data, etc.) There is no reason to make changes here, either. Since 1999, lot of experience has

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been gained from the so-called HMO-experiment through which patient management and financing of 2 mn people was outsourced to 15 geographically defined clinical networks.2 Chart 1. Life expectancy at birth (years) Females

80 70

Males

60 50

Crisis 40

Modernisation 30

1890

1925

1966

1993

2020

2050

Today, for the Hungarian healthcare system as a whole, there are three outstanding issues waiting for urgent solutions. First – and in our view foremost –, the insurance system needs to be reformed. This paper is entirely devoted to this subject matter. The other two, namely the regulation of the pharmaceutical markets and the restructuring of hospital network will be touched upon only briefly in the next section.

2. New laws and measures adopted in 2006 [Omitted. An updated analysis of this subject is incorporated into CHAPTER 7 of the present volume.]

3. The Bismarck – Beveridge mix With respect to healthcare financing, the continuity with the communist past is still striking. Like in all other Soviet-type economies, until 1989 the provider side was financed out of general revenues of the central budget. Money was not earmarked for health care, expenditures were lumped together with pensions and other social expenses. Then suddenly, under

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the direct influence of German Soziale Marktwitschaft model, health policy decision-makers opted for the re-institution of the Bismarckian social insurance model. This was thought to be a logical continuation of the pre1945 development path in Hungary, when 52 sickness funds provided coverage for 22% of the working population. There was not much public debate at that time, because other system building policy matters – such as multiparty democracy, privatization – occupied the mindset of most intellectuals. By 1994, the new model was put in place. Two extra-budgetary funds were created for health and pensions, respectively. At the time of their creation, both funds were close to equilibrium. The mandatory payroll contributions were sufficient to finance current expenditures. Law makers tried to make the shift from the old to the new system, as painless, as possible. • The healthcare benefit package remained vaguely defined, as under communism. • Virtually no punishment was built into the system against free-riders. • Health contributions were channelled to a single authority (National Health Insurance Administration – NHIA in Hungarian) in order to minimize the costs of administering the disbursements to the provision side. As it became clear only much later on, the result of these compromises was that the system became very resembling to the Beveridge model, where entitlements are not linked to contribution payments and virtually the entire decision-making power rests with the Ministry of Health. As years passed, the small initial deficits of the health fund have started to widen. In percentage terms, health fund expenditures in 2006 surpassed current revenues by more than 30%. Compared to GDP, this shortfall is more than 2 %. As Graph 2 illustrates below, the trends are exactly the same with respect to the pension fund. The two problems are juxtaposed; therefore the reform of the entire social security system cannot wait any more! With hindsight, three main origins of these deficits can be named, from which two roots in a certain kind of post-communist populism. Firstly, the reduction of contribution rates (Chart 3) was a celebrated fiscal objective of four successive governments. It was argued that high contribution rates constrain entrepreneurial activity, hence GDP growth. With a vague reference to the Laffer-curve effect, this policy was hailed as a sophisticated supply-side policy trick. The rates were reduced – both for employers and employees –, without even considering a proportional cuts on the expenditure side. It was naively hoped that lower contribution rates would lead to higher employment. Secondly, expenditures from the health fund

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Chart 2. The deficit of the two social security funds (as a % of GDP) Change? 6%

5%

4%

3%

2% Pension 1% Health 0%

1995 1996

1997

1998

1999 2000 2001 2002 2003 2004 2005 2006

2007

were allowed to grow year by year in order to accommodate the wage pressure and the rise of pharmaceutical prices. These developments were also hailed as an evidence of progress, social justice and technological advancements. A third, additional problem was the toleration of tax evasion. The Bismarck-Beveridge mix has created a triple incentive for employers and employees to hide wage-type payments. In this way not only personal income taxes, but social security health and pension contributions can be spared as well. Initially, such opportunistic behaviour was characteristic to the small- and medium sized firms in the private sector, but later large stateowned enterprises and other state run entities (including the health care sector itself) have started to introduce camouflaged employment schemes. It is no exaggeration to say that the social security system as such has become the strongest incentive of the black and grey economy. Finally, it is worth challenging the frequently underscored advantage of the present financing mechanism, namely its cost-effectiveness. In the official documents of NHIA, administrative costs are reported as 1.5% of outlays. This is a misleading figure in many ways. Out of HUF 1500 bn annual outlays, about HUF 500 bn is merely a technical item (financial support to families), with which there are virtually no costs, whatsoever. Another problem is that NHIA does not collect the payroll contributions – the associated expenditures are financed from the operating budget of the tax authority. And finally, it is also important to underscore that certain important activities (e.g. conscientious purchasing, ranking and rating of providers, morbidity and mortality

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Chart 3. Payroll contributions compared to gross wages (employers + employees) 26% 24% 22% 20% 18% 16% 14% 12% 10%

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

analysis) are simply not performed by NHIA, although they all belong to the routine tasks of an insurance company, proprement dit. In sum, we assume that the true costs of operation are likely to be in the 3-5 percentage range, similar to the operation costs of many for-profit insurance companies.

4. The international context Three waves of reforms. During the last three-four decades, there were three successive reform waves in the developed market economies. Hungary, as a late-comer has to handle now all three issues simultaneously. First, the problem of equal access was put into the limelight of policy makers in the OECD countries. In many countries, universal coverage was achieved only in the late 1980s (with the notable exception of the US). Fortunately, Hungary achieved this goal as early as 1972. Hence, there is no more work to be done. Cost containment was the popular policy issue of the 80s and the 90s. In this regard, Hungarian belongs to the group of moderately successful countries. Between 1990 and 2004, the share of total health expenditures rose by 1.2 percentage points only3, mainly because wage costs of salaried health employees were kept under strict state control. Since the outset of the new millennium, consumer choice and competition appear to be main driving forces of health policy of Anglo-Saxon countries. On the provider side, Hungarians have no reasons to complain at all. Except for the populace living in small, far away villages, most Hungarians have wide options to choose a GP, a specialist in ambulatory or hospital care without co-payment or any other costs. Although, there are de jure built-in constraints in the rules of utilization, up until

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now, these rules were totally disregarded de facto by the vast majority of patients. Moreover, the extensive development of parallel providing structures during the past 40 years, allows for a comfortable choice. Waiting times and queues are virtually unknown in Hungary for almost all types of care4. A German or a UK patient can’t even imagine how freely Hungarians can shop around in the system (with or without gratuity payment)! On the other hand, Hungarians do not have any possibility of choice on the financing side. Notionally, all Hungarians are “insured” by NHIA. There is no opting-out possibility, there are no private health insurance policies to buy. There is no territorial devolution, either. The nationwide risk pool of 10 million citizens is kept together by the force of the law. From the perspective of the individual, this was never a matter of choice, there was no contract signed by both sides. When NHIA was created in 1992 by administrative fiat, employees, pensioners and other family members were simply given a health card to document their eligibility for NHIA financed services. Neither contributions, nor expenditures are recorded on an individual basis. There are no individual insurance accounts. Hence, from the perspective of an individual, this is a truly Beveridge-type system, in which every citizen has the right to free health care at the point of delivery, irrespective to any past or current payment. As a matter of fact, in the language of Hungarian jurisprudence, today the system resembles more to Beveridge than to Bismarck. Out of the 10.3 million health card holders only 4.2 million are insured proprement dit, 5.2 million pensioners, under-aged children and family members have no contractual rights, they are eligible to health care services because the law says so.5 These proportions, however, are not mirrored by the financial data: the contribution of the central budget is less than 1/3 of the total income of NHIA (See Appendix 2). Summing up: According to both the Beveridge and Bismarckian standards, there is too much choice on the provision side. Judged by the logic of the Bismarckian system alone, there is too little choice on the financing side. But now, let us put aside the confusions arising from this strange, Hungarian mix of the Bismarckian and the Beveridge systems, and concentrate at the widely discussed shortcomings of both systems in the context of the globalized 21st century. In this regard, post-communist Hungary faces the same perplexing issues, like all the other OECD or EU countries. Since the possibility to reform such a vast social system like health care, is a rare historic moment, it is of utmost importance to use the present window of opportunity and shape the system according to the requirements of the next 30-40 years. The limits of collectivist schemes. In the 19th century, sickness funds and other state sponsored, collective health care financing schemes were

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designed to protect male industrial workers against the financial consequences of injuries at work and ill health after retirement. These male workers were organized according the logic of unionization: similar working conditions, similar health problems, similar family structures. Thanks to the unions, collecting payroll taxes was easy. Any attempt to avoid contribution payment would have been considered as a crude breach of workers solidarity. When these workers’ schemes were gradually expanded to cover family members, then later to office workers and finally to farmers, the cohesive force of solidarity weakened due to the increased diversity of membership. Until the mid-19th century, the sickness funds, as well as the Beveridge-type NHS models were more or less in actuarial balance. Birth rates were high, life expectancy was low. But this has all changed with the gradual advancement of modern medicine after that date. The increased length of life has brought about fundamental changes in family structures: • most working age families have more than one bread-winner; • divorce and re-marriage are frequent; • more and more people live in family without wedlock; • fertility rate among women varies greatly, etc. In addition to these demographic changes, the consequences of the prolonged life length and the growing importance of services are to be noted: • the beginning of working life – shifted from 15 years of age to 25 or even 30; • short-term, temporary working arrangements, free-lancing, and various other forms of self-employment are spreading (particularly among the schooled young cohorts and the already retired seniors); • within Europe borders disappear, workers move at short notice, their presence in another country is not even recorded. Using the terminology of labour economics, these are all atypical work forms, which are intrinsically resistant to comprehensive, all inclusive tax and insurance regulations. As a result, there is a growing need of insurance portability from time period to time period and from country to country. This is doable, of course, as long as the insurance policy is firmly tied to the individual wherever he/she is, rather than as a member of national risk pool with a presumed permanent residence in a given country. Modern medicine has produced tons of evidence to underscore the importance of self-inflicted health problems. Life style factors, such as smoking, drinking, obesity which are – to a great extent – matters of indi-

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vidual choice, have demonstrated direct effects on ill health. As a result people paying lot of attention to their own life styles are tempted question the moral righteousness of collectivist health financing schemes. “Why should I pay for the medical treatment of my fellow country-men, if his or her health problem is largely due to her irresponsible life style?” This is also a problem, which is likely to remain us for the rest of this century. Finally, the new understanding of health problems needs to be mentioned. In the 19th century, ill health was more or less a well-defined, objective state of affairs. Infection, injury, pregnancy are all straightforward issues, therefore the costs of treatment are also easily calculable. Once this is not the case, the maintenance of solidarity within collectivist forms of health insurance becomes less and less tenable. In our times, doctorpatient encounters are often aimed at various forms of pain reduction, the compensation of age-related discomfort. Very often people seek help from doctors in order to improve their nature-given, genetically determined characteristics. This applies not only to the often cited example of cosmetic surgery (e.g. breast enlargement), but in a more general form. People with under-average characteristics do not merely aspire to be at par with the average person; they want to be as strong, as pretty as the celebrities they know from the glossy magazines and the internet. In the language of descriptive statistics, for many not the average, but the extreme outliers have become the norm to be emulated. But this new development has also a certain amount of social content, too. With the advancement of the idea of prevention, health care has partly become a fashion of the educated classes.

5. The post-communist legacy As it happens in most countries, path dependency limits the reform options. 40 years of collectivist planning and communist ideology have greatly discredited all forms of solidarity. In health care financing, the strongest evidence is the relentlessly increasing contribution avoidance, the so-called free rider problem. On the utilization side, there is a strong pro-rich bias in the system. The working-age cohorts of the middle-class and the normcreating upper class are accustomed to unlimited, free choice. For them, the basis of comparison is medical care in Austria, Germany or in the United States, whatever they know about it from personal experience, friendly anecdotes and popular TV-series. This legacy in itself begs for strong, simple and merciless disciplinary type of reforms: flat insurance fees to neu-

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tralize the incentive to hide earned personal incomes, high co-payments and/or deductibles to reduce frivolous utilization. Unfortunately, there is another legacy of communism, a huge under-class of uneducated, unemployed, poor people most of which are trapped in small villages, or village-type small towns (Chart 4). Chart 4. Under socialism – nominally a classless society – a large underclass came into being. Adults (15+) without completed elementary studies (8 years) 2 000 000 1800 000 1600 000

683 thousand persons

1400 000 1200 000 1000 000 800 000 600 000 400 000 200 000 0

1990

2001

2006

2011

2016

2021

At the time of the regime change, this segment of the population represented 18% of the population, by now their share dropped below 7% due to a natural attrition process and further decline is to be expected. The demographic characteristics of this underclass are horrifying in every respect. These people are destined to die young, their life expectancy is actually shortening (Chart 5a, b) and their subjective well-being is much worse than that of their more educated fellow citizens (Chart 6). Since about 1990, the life expectancy gap at age 30 rose from 8.9 years to 16.5 years when males without 8 years of schooling compared with males with a higher education degree. The same gap among women is smaller, but shows an even larger increase (4.0
10.2 years). When the two extremes are compared (uneducated males vs. educated women), the gap is currently more than 20 years. The existence of such a gap is known in other European countries as well, what is unique, is the width of the gap. In view of the overall development level of Hungary (approx. $10,000 GDP/head), the proportion of uneducated people is not extreme, similar data are registered in Greece, Portugal, Spain and many Latin American countries. Our problem is the absence of family-based, rural employment opportunities, where these people could find work locally

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without travel costs and wasted travel time. Hungary, as it is well-known, privatized and restructured its economy in a historically very short period. Today, the service sector, industry and agriculture are dominated by large, new firms (many of them foreign owned), and they all prefer the young, upward-mobile generations vis-a-vis the older labourers with traditional skills. In addition, the relative generosity of all kinds of social assistance (including the still existing forms of pro-poor institutions within the health care sector itself), pushes many poor people to choose welfare instead of work. Honestly, the problem, illustrated by Charts 4-6, is bigger than it seems at first glance, because many children live in households, headed Chart 5a, b: Life expectancy of people with different schooling levels at age 30 a) Males

55 years 50 years 45 years 40 years

48,4 43,7

35 years

34.8 30 years

31.9 < 8 years

Higher education b) Females

55 years 50 years 45 years

52,4

40 years

47,8 43,8 35 years

42,2

30 years

< 8 years  1986–1990

 2000–2004

Higher education

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Chart 6: Self-assessment of health status in 2001 % 105 100 95 90 85 80 75 70 65 60

25–34 high school/university

35–44

45–54 Age groups less than 8 years 8 years

55–64 apprenticeship

65–75 baccalaureate (12 years)

by undereducated parents. There is a real danger, that the underclass will reproduce itself. Children growing up in such families will drop out from school, and will ’naturally’ grow in into an unhealthy life style (smoking, drinking, obesity, etc.) – as it happens elsewhere, too.6 Hence, it goes without saying that the vision and the implementation of the health insurance reform should take into serious consideration what will happen to the underclass. A strong safety net is required to prevent the further deterioration of this already alarming situation. At a final, positive note on the post-communist legacy, the relative plasticity of the existing institutions needs to be mentioned. Since the 1989 regime change, the new structures of the Hungarian health care system didn’t have too much time to ossify. Therefore, any Hungarian government with a comfortable majority in Parliament has a much larger room of manoeuvrability than its counterparts in Western Europe or America. The existing institutions and the medical profession working in Hungary don’t like reforms. They are inherently conservative, like everywhere else. But they are willing to go along and make the necessary adjustments, if the rules of the game are changed in a constitutional manner.

The new model Broadly speaking, the idea is to lay down quickly the foundations of a new, evolutionary model constructed from the elements of the recently

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installed Dutch and the Slovak insurance models.7 The German and Czech8 reform plans are also taken into consideration. In view of the election cycles, a critical mass of changes needs to be instituted in 2008, at the latest.9 The reform measures should be deep and all-embracing in order to minimize the chances of a reversal after the 2010 general elections. Table 1.: Changing and remaining elements of the present health financing system Main issues

Change now?

1. Significant redistribution among social groups (male – female; young - old; poor - rich; urban - rural).
Solidarity. 2. The rules of participation and contribution payment are anchored in law.
Virtually 100% coverage. 3. Soft budgetary constraint. Revenues do not cover outlays.
Direct budget subsidy to the insurance company(ies) 4. Medical care is financed from payroll contributions, taxation, and illegal payments.

NO NO YES YES

Further characteristics are: • Relatively safe and smooth transition from the old to the new system; • Managed competition among for-profit health insurance companies operating within the mandatory range of 0,1 - 2 million members; • Rigorous regulatory oversight ; • Strengthened connections between contribution payments and eligibility, but special protection to promote public health objectives and to guarantee fair treatment in access to medical care in case of catastrophic illnesses; • Rapid depolitization of the health care system; the government, the Ministry of Health will not be always in the first line of fire in case of local conflicts; • The insurance companies will have to operate with hard budget constraints. There will be no state guarantee for the companies; • There will be no risk rating; insurance firms cannot reject applicants; contributions will be redistributed through a risk-equalization fund; • Once a year, clients may change their affiliations; • After a 3-5 year transition period, clients of the insurance companies can choose among different policies All-in-all, the model is in line with the 9 ethical and economic postulates, laid down in Kornai (1999) and Kornai-Eggleston (2001).11 The new model is planned to be introduced from 1 January 2008, once the detailed legislative base is approved by Parliament during the sec-

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ond half of 2007. Hungarian citizens will – individually – join the newly established health insurance companies via a simple, signed unilateral declaration. It remains to be decided what will happen to NHIA. Basically, there are two possibilities. The gradualist option is that it will continue to operate in the old form, as long as anyone wishes to remain there. The radical solution is that after a pre-determined deadline – say 12 or 18 months –, the remaining NHIA-members will be transferred to the new insurance companies according to some kind of random algorithm. The advantage of this solution lies not only in its radicalism, but more importantly in the elimination of the suspicion that NHIA is the poor people’s insurance company. Indeed, there is a wide-spread agreement across the entire Hungarian political spectrum that the biggest challenge of the reform is to prevent the emanation of a two-tier system. An important feature of the model will be the separation of the ‘medical package’ into three tiers (or pillars).12 This will be similar to the approach applied in the Hungarian pension reform of 1998, where also three pillars had been created. Table 2 provides an overview of this scheme. Clearly, a lot of border case decisions will be required in the process of law making. The important thing is to ensure that the inevitable conflict between the for-profit insurance companies and the financially vulnerable households (i.e. the poor families) will be moderated in two important areas. Relying on tax financing in Pillar I., the funding of public health, blood collection etc. will be assured independently from business-minded considerations. The risk-pool will remain nationwide. As far as the most expensive, individual treatments are concerned, the unity of the risk-pool will be maintained, too (Pillar III). Hence, no single individual – whether rich or poor – will face the danger of a tug-of-war vis-a-vis his or her insurance company, when life is at stake. The approval of the decision and the financing burden of such interventions will remain in the hand of ministerial health administration. As it stands out from Table 2, NHIA will continue to exist in any case, even after the introduction of competition. NHIA will remain responsible for managing Pillar III., and it would make sense to give NHIA the responsibility of the management of the risk-equalization fund (explained below) in Pillar II. This latter decision, of course, is partly linked to a previously mentioned issue, how quickly NHIA-members will leave NHIA. If NHIA will continue to serve a large number of people as the insurance company, NHIA’s role as an impartial manager and arbitrator of the risk equalization fund is jeopardized.

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Table 2. The three pillars of the health care package Level Shares (pillar) in costs

Content fee

Insurance institution

III.

15-20 %

II.

60-65 %

I.

20 %

Catastrophic illnesses involving Proportional payroll very high costs (e.g. trans- taxes plantations, absolutely new innovative drugs) Long-term care (e.g. mental illness, drinking therapy) Basic or routine care. For a long transition Everything which is not period proportional covered by Pillar I. and III. payroll tax, flat fee after that. Surely: Preventive care, public None health measures, blood collection, school health, emergency ambulance, etc. Perhaps: Sickness payments, financial support in case pregnancy and child birth, etc. .

Responsible

NHIA

Mandatory private, for-profit health insurance companies (max. 8-10). Ministry of Health

Another important element of the model is the risk-equalizing capitation scheme suggested for Pillar II (Table 3). As a matter of fact, this scheme is not a novelty in Hungary. The so-called HMO Experiment which now covers more than 2 mn citizens, has been working with such a scheme from the onset. There are now 15 managed clinical networks, each of them with more than 100 thousand souls. Their experience shows that out of the 18 currently used separate budget line items, the first 5 or 10 lines represent 90 or 99 percent of Pillar II expenditures, respectively.

6. Conclusions The Hungarian healthcare is at cross roads. The timing is right for a major decision about the future of health financing. It is not an oversimplification to say that there are three options only. The easiest one is to postpone decisions and wait another election cycle. The other two choices are difficult: opening up the insurance market or a return to a tax-financed, state run Beveridge system.

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Table 3: Risk adjustment scheme and illustrative NHIA figures for 2004 Age groups:

0–4 Male Female

5–14 Male Female

15–34 Male Female

35–50 Male Female

51–60 Male Female

61–70 Male Female

71–80 Male Female

81– Male Female

Per capita utilization (HUF/year)

Acute hospitals Pharmaceuticals Out patient specialist GP Medical aids Chronic hospitals Dental CT/MRI Transportation of patients Balneotherapy Dialysis: Chronic Home care Dialysis: Acute Pulmonology Nephrology and psyhiatrics Addictology Oncology Skin and venereal diseases

Notes 1 This paper was drafted at the request of the Ministry of Health by Prof. Peter MIHÁLYI (Chairman of the Healthcare Working Group within the Public Finance Reform Committee of the Prime Minister). The development of the model outlined in this paper would not have been possible without discussions with outstanding Hungarian and international experts over the last decade. Valuable recent direct inputs of Minister Dr. Lajos MOLNÁR, as well as Dr. Laszlo ANTAL, Prof. Tamás BAUER, Prof. Lajos BOKROS, Dr. István CSILLAG and Professor György SURÁNYI are gratefully acknowledged. 2 See Mihalyi (2003) and Chapter 1 of this volume for details. 3 As a percentage of GDP, the figures were 7.1 and 8.3 per cent, respectively. 4 Except for transplantation, where the physical shortage of donors represent the effective constraint. 5 There are 10.0 mn Hungarians living inside the country. An additional 300 thousand health cards are hold by Hungarians living abroad. 6 People often ascribe this problem to the Roma community. This is partly correct. But not all poor and undereducated Hungarians are ethnic Romas. About 1/3 of them are ethnic Hungarians. 7 For the description and analysis of current health affairs in Slovakia, the best source of information is Into Balance, the quarterly review of the Health Policy Institute (www.hpi.sk) 8 See Hrobon et al. (2005) 9 EU-wide elections will be held in 2009. The Hungarian parliamentary election is scheduled for the Spring of 2010. 10 The act on the functions and the prerogatives of the Health Insurance Supervisory Authority was passed by Parliament in December 2005. The new body will start operations in the first half of 2007. 11 See Appendix 1 for the full list. 12 This was proposed first in Ministry of Finance (1998) and Mihályi (1999). The Czech reformers also suggest a 3-pillar division. See Hroboò et al. (2005)

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Appendix 1: János Kornai’s ethical and economic postulates of health care reform in post-communist countries 1.The transformation must increase the scope for the individual and reduce the scope for the state. 2.Help the suffering, the troubled and the disadvantaged. 3.There should not be a monopoly of state ownership and control. Let there be competition among various ownership forms and coordination mechanisms. 4.Forms of ownership and control that encourage efficiency need to emerge. 5.The state’s main function is to supply legal frameworks, supervise non-state institutions, and provide last-resort insurance and aid. 6.The link between welfare services and the tax burden must become apparent to citizens. 7.Time must be left for the new institutions of the welfare sector to evolve and for the citizens to adapt. 8.Let there be harmonious proportions between growth producing investments in the economy and resources used in the welfare sector. 9.The state budget must be continually capable of financing fulfilment of the state’s obligations. Source: Shortened and simplified from Kornai – Eggleston (2001) pp. 13-46.

Appendix 2: Financing of NHIA The system of health care financing payroll contributions, as from 2007 A) As a percentage of gross wages Financing health related financial Subsidies (e.g. sickness payment)

Financing health care institutions + pharmaceutical subsidies

+3%

+5%

+

Gross wage (or per capita cost of state financing) -3%

-4%

+ Total:

2 percentage point flat fee levied on all employees

Contribution of EMPLOYERS

+ 6%

+

Contribution of EMPLOYERS (or STATE)

9%

=

15%

17%

B) In absolute terms, and as a percentage of total income of health care related income of OEP HUF 697 bn

HUF 476 bn

HUF 558 bn

EMPLOYERS: 41%

EMPLOYERS: 27%

CENTRAL BUGDET: 32%

after 4.2 million insured, economically active people Note: Simpliefied scheme. Source: OEP, Ministry of Finance.

after 5.2 mn insured, economically inactive people

= HUF 1731 bn (6,8 bn euro) or HUF 14.000 head/month