Chapter

one The Rise and Fall of the New Health Insurance Act Peter MIHÁLYI *

The beginnings. The reform of Hungary’s health insurance system was originally proposed by the junior coalition partner, the Alliance of Free Democrats1 (SZDSZ or Liberal Party for short) in 2006. Although its negotiation was put on hold due to the general elections in May of that year, and later on due to the launch of the re-elected government’s austerity program, it remained high on SZDSZ’s agenda. The original proposal envisaged the decentralization and liberalization of the state-run single-payer health system, allowing for a full-scale participation of private insurance companies. SZDSZ obviously had to attain the consent of the larger coalition partner, the Hungarian Socialist Party (MSZP or Socialists for short).multiPolitical opposition parties used every possible move to block this reform, but also every other reform the government had initiated. On 23 October 2006, precisely on the 50th anniversary of the 1956 Hungarian Revolution, FIDESZ2 and the Christian Democratic Peoples’ Party3 proposed ∼ $ 1.74) ‘visit fee’ paid by a referendum on cancelling the HUF 300 (∼ patients to doctors and the ’nursing fee’ paid to hospitals, along with the higher education tuition fee – i.e. the two measures the government proposed to introduce from 2007 onwards.4 With the same breath, FIDESZ also promised to re-nationalize the health insurance system and to reinstate the previous system as soon as they return to power. The MSZP was also concerned about introducing a system of private, for-profit insurance funds allegedly similar to the model working in the

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United States. Inter-party talks resulted in a compromise in the form of a mixed system, which allowed for the partial privatization of the healthcare insurance management funds (egészségpénztárak) and a competition among the funds for customers. The government envisaged that competition and better management control would rationalize the country’s ostensibly inefficient and costly healthcare system, as well as leading to improved services. A core element of the mixed model was that NHIA’s present responsibilities – as the monopolistic managing authority of the HUF 1200bn (∼ ∼ $ 7 bn) Health Insurance Fund – will be initially taken over by 22 non-profit sickness funds: one for each county in Hungary and four for the country’s capital city of Budapest and its surrounding areas. These funds will be subject to privatization and competition. Private investors will be able to acquire up to 49% of the shares, but they will have a good deal of management rights pertaining to financial questions. A minimum price of the shares will be determined prior to the bidding process.5 The sickness funds’ (or health insurance companies’) task is to guarantee the efficiency of the system by contracting 11 thousand service providers: general practitioners (GPs), specialists and hospitals. The management funds will be given a per head contribution for each insured person, based on a complex, riskadjusted capitation formula. Pursuant to the provisions of healthcare legislation, all insured persons are entitled to receive health services of the same professional content and standard, without any kind of discrimination. Only those funds which were successful in acquiring at least 500,000 customers within a certain period of time would be able to function. Since the maximum size is set at 2 million, eventually 5-8 funds are expected to remain on the market. FUND, COMPANY OR PÉNZTÁR? As it is often the case, with new institutions there is an insurmountable translation problem from Hungarian to English. In 2006, the State Reform Committee proposed to label the new institutions ‘pénztár’, a trivial Hungarian word meaning ‘counter’ (e.g. in a shop or a bank), but also a financial institution (e.g. a mutual fund). In the second meaning, the Hungarian word pénztár is almost identical with the German “Kasse” or the French “caisse”. As a matter of fact, this problem arose already 10 years ago in the context of the 1997/98 pension reform, too. The solution was the same. The Hungarian private pension funds are still called ‘pénztár’ in Hungarian.

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A risky compromise. Volume I of this book followed the sequence of events until 1 July 2007, when the Socialists and the Liberals agreed on the salient points of the mixed model and listed them in a lengthy, detailed amendment to the 2006 Coalition Agreement (reproduced in Ch. 14). Once this document had been signed, the politicians of the parliamentary parties gladly went off on their Summer holidays, leaving the elaboration of details and codification of the text of the bill to party experts and ministry staff. Although this was obviously not the ideal way of doing things, there had been such solutions on several occasions in the past, so it came as no great surprise to anyone. The consortium of 14 general insurance companies6 – which had been working dili-gently over the preceding 12 months – was somewhat more surprised, however. They had been holding regular meetings to discuss matters at the Ministry of Health (MoH), had undoubtedly discussed the relevant issues amongst themselves as well, and had probably prepared innumerable reports and executive summaries in English and German for the bosses of their parent companies. Nevertheless, given that the opening of a big and growing market was at stake, they did not bat an eyelid when they were invited back in to meetings on the hot summer days of July and August. When the details of the compromise agreement became known, however, these seasoned insurance experts buried their heads in their hands, describing it as a ’hybrid solution’ that would be worse than if things stayed the same. Indeed, it was not easy to fathom for them or for others to understand why the Liberal Party and the MoH (by then headed by Mrs. Ágnes HORVÁTH, MD) accepted this patently incoherent compromise. Well, there were 3 + 1 major arguments in favor of the compromise: 1. Although many took the view that mixed ownership, and especially the 49% minority ownership of the private investors, were patently absurd, it is important to recall that in the course of privatization of stateowned Hungarian companies (Malév, Matáv, power plants, etc.) this was the very first, starting step – and it did not cause any problems. In the middle of the 90s, with these privatization transactions the same ideological questions arose as now in the case of health insurance reform. The debates were held by the same two parties, and they arrived at similar compromises. But after a few years, and often even after only a few months, life went on beyond these inevitable compromises, and the majority ownership of the private investors was achieved in each and every case. This gradual change did not cause problems in political terms either, because

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by that time the parties have moved on to fight other battles. Taking these experiences into consideration, it was not unreasonable to assume that a few years after the corporatization of the health insurance business the proportions of ownership could be normalized in the case of the 5-8 health insurance management companies. 2. One of the main points laid down in the coalition agreement fully met the demands of the Liberal Party, and on this basis there was good reason to hope that in the course of the codification there would be an opportunity to assert points of view dictated by common sense: “From the beginning, the new health insurance management funds will recruit members throughout the country, and will be entitled to sign contracts for healthcare services across the entire territory of the country. The funds will compete to acquire as many customers (insured persons) as possible, while at the same time also having distinct territorial responsibility.” I personally concurred with the view that this sentence of the agreement provided an unquestionable guarantee against the danger of creating small, territorial monopolies. 3. After the coalition agreement was reached by the politicians, experts sat down at the negotiating table with a clear instruction that, in order to make the reform successful, all other regulations could be amended if necessary, naturally with the exception of the Constitution and laws requiring the approval of a two-thirds majority. The Prime Minister also gave political directions that management rights should be regulated in a way acceptable to investors as well. The fourth argument was entirely political. The Socialist Party leaders stopped at the point from where they simply could not go along with the Liberals without being vetoed by their own parliamentary fraction. The Liberals were also in a political trap. They understood that if they reject this comprise, there is no room for further negotiation and they have to terminate the coalition. But this was not feasible, because the general mood in the party would simply not permit this. Party activists and voters would not have been willing to accept that the coalition government breaks down because of some ‘technical disagreements’ of the otherwise accepted health insurance reform. The Ministry of Health was left alone. The summer months were spent with very intensive work. However, what seemed to be emerging as the

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end result painted a depressing picture. The two Socialistled ministries playing a key role in codification – the Ministry of Finance and the Ministry of Justice – didn’t show any sense of ownership to it and totally ignored the instructions and authorization outlined under point 3 above. Experts of these two ministries did not seek to identify where and how the existing regulation might be amended for the sake of the reform’s success, but rather had their minds set on how to keep reshaping the model of multi-payer insurance companies so that it could be squeezed into the existing legal framework, and into the new conditions invented by Socialist health policy experts every day. Whether the new model as a whole would be able to survive this constant reshaping, and whether there would be any investor of sound mind who would undertake to get involved in all this, was apparently of no interest to them. The Ministry of Health was left alone. From day to day, the situation was getting more and more discouraging, a view shared by the insurance companies attending the negotiations. This was why, in the final days of August, the author of this paper confidentially asked the leader of the consortium of insurance companies to signal their concerns to the leaders of the two parties. The calculation seemed to work. The message was driven home, and Prime Minister Ferenc GYURCSÁNY duly convened a meeting in the Parliament building on 13 September, with the participation of leaders and experts of the two coalition parties’ parliamentary groups, as well as potential investors. Looking back to this crucially important meeting – which received considerable media coverage, but which, all the same, proved totally unsuccessful – the opening and closing moments were the most memorable for me. Everybody was already in the meeting room when the Prime Minister, accompanied by his closest assistants, arrived last. He sat down at the head of the table next to Minister of Health Ágnes Horváth, smiled at her amiably, and then, looking at those sitting close by, said half under his breath: “Let’s try to make a plus zero out of this thing.” Everything was in there, in this utterly sincere, short sentence in the business jargon style, just as it was in the long, similarly sincere sentences of his infamous speech in Oszöd, often cited because of the rudeness of their style. Another sentence, with which Ms. Ildikó LENDVAI7 summarized the conclusions of the meeting after the representatives of the insurance companies had already left the room, was also memorable for me: ‘The insurance companies have just said “No” to us, although it’s true they did so in a very polite way.’ Clearly, the leaders of the MSzP saw already in September 2007 that they had no chance against their own parliamentary group. There is no

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way of reaching a sensible and working compromise with them. For six months from this point on right up until the co-payment referendum on 9 March 2008, Gyurcsány’s aim was only damage limitation and minimizing the loss of his own prestige. But let us return in time to the events of Autumn 2007. Patches on a cow – or leopard’s spots? Unfortunately, the choice between the single-payer and the multi-payer model cannot be narrowed down merely to the issue of ownership, or to a ‘do you trust capitalists?’ type of public debate although these are the type of straightforward questions the media likes so much. Whoever favors allocating all 10 million Hungarian citizens to a preagreed number of new insurance companies through a single legal act, will also have to answer the question of what principles or criteria to apply in this triage. At first sight it seems logical that this allocation – at least for a transitional period – should be carried out on a territorial basis: everybody lives somewhere, so let the insurance companies be set up on a county or regional basis. In fact, this proposal has been on the agenda for 10 years. It was first put forward by Éva OROSZ at the beginning of the 1990s, and the idea of regional insurance companies – at least in slogan form – already featured in earlier party manifestos of both the SzDSz and the MSzP. However, there are three crucial dilemmas for which we have not found a satisfying answer, either at that time or in the course of present debates: (i)

In fact, the reality is not as simple as “everybody lives somewhere”. As it is well known in Hungary, the place of abode (registered permanent address) means little. We need only think of students from secondary schools to universities, those serving in the armed forces, those living in rented flats, and those who own both a regular home and a weekend house, besides the several hundred thousands of people who – due to con-siderations of inheritance – have registered their place of abode with relatives or friends, but live somewhere else.

(ii)

It is a source of inextricable problems that Budapest – together with the agglomeration that has grown up closely around it – takes up one-third of the total capacity of the national healthcare services. If this territorial unit were to be allocated to a single insurance company, it would result in an immeasurably disproportionate situation when it comes to insurance companies sign-

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ing contracts with service providers operating on their territory. How could one exclude the possibility that the Budapest insurance company – representing the interests of its own customers – would conclude an advance contract for the maximum capacity of healthcare services in the region? On the other hand, if Budapest were to be divided into several territorial units, the outcome would be terrible chaos and conflict, as close neighbors – for example, those living on opposite sides of the same street – might be allocated to different insurance companies. (iii)

Aside from the problems in the capital, considerable discrepancies also exist between the various regions of the country. In the wealthier region of Western Transdanubia, for example, people visit doctors more often and spend more on medicines than those living in the poorer regions of eastern Hungary. Consequently, if the income generated from social security contributions were to be distributed among the insurance companies on the basis of per capita figures according to age and gender (the only fair way to do it), the national average figure per capita would not be sufficient in Transdanubia, and would be too much in the region east of the river Tisza. Of course, in theory it would be possible to make corrections in the per capita figures on the basis of actual expenditure in the past; however, in legal terms this would mean that the insurance company would be entitled to get more money for an insured person in Transdanubia than for a Hungarian citizen who happens to live in Szabolcs county in the northeast of the country. It is difficult to imagine that such a proposal would ever be accepted by the Parliament of the Republic of Hungary, where nearly two-thirds of MPs are elected on a territorial basis.

After the MSzP discarded the ‘gradual model’ in the name of solidarity and forced the ‘big bang approach’ on the SzDSz in the summer of 2007 (see Ch. 1 in Vol. I. pp. 24-25), the problem of territorial allocation became unavoidable. The fight concerning the various models for carrying out this division went on for weeks, both in expert circles and in public. It was then that the idea was raised to divide the country so that the map would resemble the pattern of a leopard’s spots. In other words, the basis of the division should be either the 6,600 GPs’ practices, or perhaps the 168 socalled “small regions.” Another pattern was also proposed resembling the patches on a cow, carrying out the division

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according to counties or areas the size of a region covering three counties – as, too, was the pattern of allocation to the insurance companies on the basis of church dioceses. In the end, the debate ended in a compromise, whereby, on the one hand, the county was to be considered as the unit of division (18 units), while on the other hand Budapest was to be divided into four parts. In this way, the idea of establishing a total of 22 insurance companies was born, and eventually included in the law. While this solution tackled some of the problems, there was a price to pay. First, it was expected that the division of Budapest would have created a great deal of discontent, if the two sides of the same street had fallen into the catch area of two different insurance companies. Second, it was very difficult – and, in fact, it turned out to be impossible – to explain to the public why 22 health insurance funds were needed if later they would merge anyway and no more than 5-8 funds would remain on the market. Counter-coalition of the right and the extreme left forces. As the codification work progressed speedily, political tensions mounted inside and outside of Parliament. Key Socialist MPs threatened to vote against the law eliminating the otherwise sufficient majority of the coalition parties. Outside of parliamentary politics, various health-related interest groups tried to organize themselves for strike actions and demonstrations. Among the most vociferous opponents, the President of the Hungarian Medical Chamber8 was perhaps the loudest: “Doctors will block the law wherever they can’ – he declared. By Hungarian standards, these efforts brought visible results, even if the few thousand protestors do not represent a large number in absolute terms. In a similar way, in a country with the lowest strike rate for decades, the few doctor strikes in few hospitals were important enough to reach the attention of the media. On 15 October 2007, the bill was the subject of consultation at the National Interest Reconciliation Council9. Trade union confederations unanimously rejected the reform proposal, employer organizations, on the other hand, supported it. The most radical trade union, the Democratic League of Independent Trade Unions (LIGA)10 warned the government that a nationwide protest would be organized for 21 November if it failed to withdraw the bill. LIGA had called a one-day protest for 21 November as early as 28 September, protesting against various government measures, including the reform of early retirement regulations and, consequently, an alleged increase in social inequality. On 12 October, LIGA announced that the bill on healthcare management funds was the main reason for the

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planned protest day. Among the national trade union confederations, only the National Federation of Workers’ Councils (MOSZ)11 joined LIGA’s protest initiative. However, on 9 November, the President of FIDESZ, Viktor ORBÁN, met with the President of LIGA, István GASKÓ, and expressed full support for the protest against the government’s measures. Despite LIGA’s unilateral call for protest action, the four other trade union confederations – the National Association of Hungarian Trade Unions (MSZOSZ)12, the Trade Unions’ Cooperation Forum (SZEF)13, the Confederation of Unions of Professionals14 and the Alliance of Autonomous Trade Unions15 – did not join in the initiative. Instead, these unions called for a separate demonstration against the bill, involving the participation of MOSZ, in front of Prime Minister Gyurcsány’s office on 10 November. About 1,000 people participated in this demonstration. In the meantime, LIGA cleverly added a number of other issues to its protest day agenda, namely, the closure of 38 secondary railway lines and changes to the early retirement scheme affecting bus drivers. As a result, key trade unions belonging to other confederations – most notably, the Trade Union of Hungarian Railway Workers (VSZ), affiliated to MSZOSZ – joined the strike action on 21 November. The protest day mobilized 10-20 thousand workers. However, the impact of the strike action was greater than these figures suggest, as railway services stopped nationwide, while partial strikes took place at Budapest Airport and at a number of public bus transport companies. Only one hospital took part in the strike on 21 November. The strike, nevertheless attracted nationwide attention and extensive media coverage. On the same day, LIGA organized a rally in front of the Parliament building in Budapest, expecting tens of thousands of people to participate, but only about 5,000 people took part. Following the official demonstration, a few hundred rightwing radicals seized the opportunity to generate street turmoil in a section of the city. Following the protest day, LIGA called for another demonstration in Budapest for 15 December 2007, along with a nationwide general strike for 17 December – the same day that parliamentary voting on the healthcare reform was scheduled to take place. Furthermore, LIGA threatened to continue the strike should the National Assembly pass the bill. In order to reduce the impact of the planned national strike, the government rapidly withdrew its plans to close the secondary railway lines and agreed on early retirement measures with the bus drivers’ trade unions. Thus, the Free Trade Union of Railway Workers (VDSZSZ), affiliated to LIGA, refused to join the agreement signed by the other three rail unions. The government had also managed to ensure that VSZ and the bus transport unions

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not belonging to LIGA did not join the national general strike. Moreover, in relation to the pending dispute at the Budapest Transport Company, a lastminute agreement on staff reduction measures also attempted to avert the strike action planned for 17 December. On the other side of the barricade, FIDESZ once again expressed its support for the protest and organized automated phonecalls to mobilize people for the demonstration. On 15 December, a peaceful demonstration took place, which, according to police estimates, only involved 7-800 participants. On the 17 December round of the strike, LIGA had managed to secure the support of two new allies, which in this instance did come from the healthcare sector: the Federation of Hungarian Physicians which exists only on paper16 and the Democratic Union of Healthcare Employees17, a truly functioning trade union of nurses. A rightwing farmers’ group also took part in the demonstration and organized partial roadblocks at 32 locations throughout the country in support of the strike. Although only one of the rail unions, namely the LIGA-affiliated VDSZSZ, went on strike, railway services were virtually paralyzed on the day. Work stoppages also took place at a number of hospitals, elementary and secondary schools, as well as at Budapest Airport and a dozen other workplaces. LIGA estimated that about 32,000 employees in total participated in the strike action. Just a little help from the President… It is no wonder that in this political environment the parliamentary sessions were equally heated. A few important Socialist MPs were reluctant to accept the bill, despite concessions made by SZDSZ. At this point, SZDSZ made it clear that their continued participation in the government was dependent on the fate of the bill. Finally, the coalition government reached agreement on 5 December 2007, allowing for the possibility to vote during the last parliamentary session on 17 December. Only a few days before the voting, the Speaker of the Parliament, Ms. Katalin SZILI, a Socialist MP, suggested postponing the voting. A petition issued by the Social Policy Section of MSZP also put forward the same idea. However, during the last days prior to the voting, certain external factors helped to unify the socialist MPs’ position in favor of the reform. As part of an alleged propaganda offensive LIGA and its President, Mr. Gaskó offered to pay fines amounting up to HUF 100,000 (about 385), using strike fund resources, to those socialist MPs who were ready to vote against the government sponsored bill. This move generated uproar among leading Socialist MPs and in the media as well. In another devel-

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opment, the houses of four Socialist MPs were attacked with Molotov bombs, which also urged unity. Thus, at the end Parliament passed the new legislation in two steps with a comfortable majority during the first half of December. The final vote took place on 17 December, amidst protest marches in front of the Parliament building and a partial railway strike. Ten days later – just after Christmas, during the Winter recess – the President of the Republic refused to sign the bill. In an unusual ceremonial way, President SÓLYOM expressed his reservations in two documents: in a long letter addressed to the Speaker of Parliament, and in a shorter televised statement (reproduced in the present volume in APPENDIX 1.) The decision of the President was actually favorable to the government, in spite of the harsh words written in the above mentioned two documents. By sending back the bill for reconsideration, the President slowed down the reform merely by a calculable amount of time. He could have done something worse, too. According to the Hungarian constitution, the President has basically two options, if and when he disagrees with a particular bill passed by Parliament. The quick and the calculable move was to send back the bill, because the Parliament’s repeated decision cannot be questioned anymore, and he has to sign the bill. However, the President’s other option, namely to send the bill to the Constitutional Court for an opinion is a more powerful and painful weapon against the Government. First, this is a matter of prestige and communication. If the President decides not to involve the Constitutional Court, it means that he personally doesn’t have any constitutional objection against.18 Second, the Constitutional Court has no time limits for its deliberations, therefore a bill submitted to them may have to wait months before the Court expresses its view. From the perspective of the Government, time was crucial. The calculation was that after the Winter holidays, Parliament would vote on the bill once again in mid-February, thus there will be enough time to start organizing to new health insurance management funds and privatize them. In this way, the new system can take a head start in January 2009, which is enough to bring tangible political results by the time of the scheduled elections (European elections in June 2009, General elections in April 2010). If, however, the Constitutional Court is involved in the process, the time delay might go up to 6-12 months easily. So much time the Government simply didn’t have. In other words, the President’s decision was favorable for the Government. Mr. Sólyom’s veto was overruled by the Parliamentary majority on 11 February. As a lastminute effort Fidesz initiated a vote on a ref-

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erendum to ‘reconfirm’ the bill, but this motion was also voted down by 203-167. After this, President had no further excuse to sign it and he did duly sign it a week later. The fall. Using a medical metaphor, the health insurance reform was killed by the Sudden Infant Death Syndrome. Having passed so many hurdles, the Ministry of Health and the Liberal Party had good reasons to be optimistic in February 2008. After all, the law was passed, the coalition survived and there were reassuring signals from the business sector that in spite of all the reservations, there would be a real rivalry among the investors to participate in the new multiplayer scheme. And then came the strike from the blue sky. At the nationwide referendum on 9 March, more than 80% voted for the abolition of the HUF 300 vizitdíj.19 The participation rate was 50,51%. This was a result much-much worse than expected in both dimensions. Although the referendum was on its way since October 2006, and the Government didn’t harbor any illusions about winning this test, Prime Minister Gyurcsány and his advisors were confident that the turnout would be low, and there will be a sizeable amount of “No” votes from the core-supporters of the two parties. But this calculation was wrong. For all sorts of reasons, voters wanted to punish the Government, the two coalition parties and – last but not least – Prime Minister Gyurcsány himself. The high turn out and the large majority of the opponents completely paralyzed the Socialist Party and the Government. And this was only the beginning of the end. Following the strike actions in December 2007, LIGA joined an already existing referendum initiative against privatization of the universal healthcare system in February 2008. This motion was initiated by an earlier unknown married couple, Mr. and Mrs. Albert back in April 2007. After a long legal battle, the Alberts managed to get permission to collect supporting signatures to the following question: ‘Do you agree that in Hungary the mandatory, forprofit, multiplayer health insurance system should not be introduced?’ To support the initiative, an extensive coalition of non-governmental organizations (NGOs) has been formed, in which LIGA has emerged as a key organization. The initiative has also received the full support of FIDESZ. By the end of February 2008, civil groups had collected some 359,000 signatures – well over the 200,000 number required to initiate a referendum. Thus, the Government faced the risk of a second sweeping referendum-defeat. What came after this was nothing else but unconditional surrender. In a few days Parliament abolished the HUF 300 co-payment as required

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by the referendum. On 29 March, the Prime Minister announced the dismissal of Mrs. Horváth, and speculated about the with-drawal of recently passed Act. ‘We must acknowledge that a significant part of the country currently doubts that this law serves its interests,’ he told around 3,000 delegates. While the first decision was co-coordinated with the Liberals, the second and the third moves were not part of any negotiated deal. These two gestures combined were an open declaration of the rupture. Politically, the Social-Liberal coalition was already dead on the very same day, when Prime Minister and Party President Gyurcsány publicly announced in front of a large Socialist party gathering that he would sack dr. Horváth irrespective to what the Liberals might say to this. For a few weeks, Socialist healthcare specialists made frequent statements promising merely watering down the brand new Act, then later a quick redrafting of the passed Act. But nothing of this kind happened. On 26 May, 2008, the National Assembly simply repealed the Health Insurance Act by a majority of 348:19.20 Only the Liberal Party voted against it. Could it have worked? We shall never know for sure. The multi-payer insurance model, first proposed by Mihályi (2000a) and then sponsored politically by the Liberal Party was scrapped in 3 months after the Hungarian Parliament passed the law which specified its details. While the Bill was under legal, financial and political scrutiny in Parliament during the second half of 2007, the concept itself was criticized from many angles. For some people even the mixed model was still the harbinger of a US-type for-profit insurance model, which leaves 46 million American uninsured. These people simply didn’t let themselves convinced that nobody want to emulate the US model. The legal guarantees of mandatory membership and the prohibition for insurers to discriminate among clients could work week under the Hungarian conditions. Others claimed, quite correctly, that the administration of a multiplayer scheme is more costly and Hungary is too poor for spending healthcare money on bureaucracy. The counterargument, however, namely that the lack of competition is even more costly on the long run, met dead ears in these circle. At the end of October Prof. János KORNAI, the eminent Hungarian economist who was an active participant of the healthcare reform discussions since 1997 (!), published a fulminate essay in the largest nontabloid daily newspaper. The title of the essay was ‘Coffe and Tea’, meaning that both drinks are great in themselves, but they make a horrible breakfast drink if they are served mixed in one cup.21

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OECD REMAINED SKEPTICAL As we showed earlier (Ch. 1. in Vol. I.), the health experts of OECD were rather critical towards the entire concept of multiplayer insurance from the very beginning. This point of view was presented once again in the healthcare chapter of their 2008 extraordinary country report in which they analyzed – inter alia – the new health insurance act. In a kind of simplified SWOT analysis the list of good points was considerably shorter than the list of weaknesses: “Main potential advantages of the new insurance system compared to the current one are: • The possibility to choose one’s insurance fund may increase satisfaction of some consumer groups. • Insurance funds may put greater emphasis on consumer preferences, in particular those elements that are easy to judge for the patients (waiting time, amenities, etc.). • The new system may provide incentives for insurance companies to also offer voluntary health insurance policies, which can contribute to the elimination of the under-the-table payments. • The decentralization may increase innovation in the way service delivery is organized. The main potential risks to the new system are: • In the absence of a perfect capitation formula, insurance funds may have incentives for competing for favorable risks (“cherry picking”), instead of competing on the ground of quality. • A key interest of the insurance funds (shaped by the minority owner commercial insurance companies supplying the CEO) will be to reduce the costs of services. Obvious ways to achieve this would be to require preauthorization for certain services, managed care programs, or selectively contracting with chosen suppliers. If these tools are chosen solely on the grounds of cost, quality of care and even technical efficiency could be threatened. • Even if quality of care is included in the contracts, choice may be restricted for patients enrolled in particular insurance funds. Under the specific Hungarian circumstances further potential problems and risks may arise, in particular: • Administrative costs of the insurance system will increase due to both decentralization and competition (e.g. advertising, sales personal, etc.). The National Audit Office pointed out in its report: “It is highly uncertain that the restructuring and reduction of the delivery capacity will bring about savings that can compensate for the increase in administrative costs and the profit of the invertors, and it is probable that access to, and quality of, care may decline”. • It is unclear what kind of cost-containment methods the new insurance funds will be able to apply. The current key method for cost-containment is a volume-limit on services set by National Health Insurance Fund Administration for each hospital and outpatient multispecialty centre. If the government wants to encourage competition among providers, this mechanism cannot be sustained. • A highly complex system will be introduced in an environment with lack of adequate information on quality of services, serious shortcomings in economic and quality regulation, and a weak capacity of lawenforcement. Most of the details of the regulation of the new system are still under preparation.”22

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Kornai’s main problem was – in his words – that in the mixed system ‘everybody would start, willy-nilly, by being assigned to the 51:49 publicprivate body’. In the name of common sense, he proposed a straightforward solution. ‘There is an obvious, well-known solution to the coffee/tea debate. Let both beverages be available and the guests decide which to have. This is called the principle of consumer sovereignty. Not all purchasing decisions can be governed by this principle. Most of the thousands of decision-making problems in healthcare cannot be so governed at all, or only to a very limited extent. But choosing an insurer can, under appropriate conditions, be placed in the category where consumer sovereignty applies.’ As Kornai himself underscored, he wanted to steer back the discussion to the original SZDSZ proposition, the socalled ‘gradual model’23. The timing of Kornai’s article couldn’t be worse. Kornai returned to a position which was simply not on the table anymore. Telling the coalition partners to go back to Square One was a hopeless move. Moreover, this gesture and the fact that the essay was published in a daily close to the Socialist Party provided additional ammunition to the antireform forces within the Socialist Party. ‘Even Kornai is dissatisfied with the Bill’ – said many of these MPs in various public forums. Of course, Kornai was right. But the political compromise was made on the assumption that passing the Bill as it was is not the end of the road. The Liberal Party and the MoH hoped that once this mixed model was up and running, a more sensible ownership-structure could be created after a year or two. E.g. it was realistic to assume that in the process of the general privatization drive, 10-25 per cent of the stateowned 51% shares in the 5-8 sickness funds could be sold on the Budapest Stock Exchange, and this would guarantee that the forprofit investors can achieve the necessary quorum in the General Assembly of the Health Insurance Management Fund. Conclusions and lessons. Looking back from a distance of two years, it can be clearly seen that the debate between the coalition parties on reform of health insurance – and what is more, on reform of healthcare in general – was essentially an internal debate within the MSzP. The leaders of this party – Party Chairman and Prime Minister Gyurcsány, Parliamentary Fraction Leader Ms. Lendvai and few others – made enormous efforts, with admirable patience, to persuade their four own experts on health policy – Ms. Szófia HAVAS MD24, Mr. Mihály KÖKÉNY MD25, Mr. Tibor SCHVARCZ MD26 and Ms. Mária VOJNIK MD27 – to see rea-

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son. But as time went by, it became increasingly obvious that this was a battle Gyurcsány and his co-workers could not win. In the party’s parliamentary group, at professional conferences, in the media and in public, the same 3-5 reservations were mentioned by these people over and over again. At the end, this continuous repetition served nothing, but to merge or confuse the viewpoints of FIDESZ and the MSzP in the minds of the general public. As we argued in this Chapter, by the spring of 2007 it was already obvious that many members of the MSzP wanted to get rid of dr. Lajos MOLNÁR as minister of health, and, if possible, to cancel the reform process itself and break the coalition with the Liberals. The replacement of dr. Molnár with dr. Horváth merely postponed this crisis by a year. As this book goes to the Press, the Socialists try to rule with a minority government. The chair of Prime Minister Gyurcsány wobbles. With hindsight, two major lessons seem to emerge. First, that such a major reform requires not only the full support of the Prime Minister, but the unconditional support of the ruling party elite, as well. As the former German Chancellor, Gerhard SCHRÖDER noted during his visit to Hungary, ‘there is nothing worse than the questioning of the reform process by fellow party members’.28 And this is exactly what had happened to Gyurcsány. He supported the reform concept from the very beginning, but he was not strong enough to suppress opposition within his own party. The second lesson is that a controversial reform like this needs direct and vocal support from the business sector in order to counterbalance the voice of other stakeholders (e.g. opposition parties, physicians, nurses). In Hungary, however, all insurance companies are foreign-owned and therefore their local CEOs and managers behaved like very-very shy, risk-avoiding employees. Throughout the two-year political conflict, these managers were practically invisible for the media and therefore the people at large could not get any first-hand information from the insurance experts.

Notes: * Editor of this book. Chairman of the Healthcare Working Group within the Public Finance Reform Committee of the Prime Minister's Office in Hungary in 2006/2007. Managing Director of EUROPE Ltd. His previous positions in the Hungarian government include Deputy State Secretary of the Ministry of Finance in 1997-1998.

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In Hungarian: Szabad Demokraták Szövetsége, SZDSZ In Hungarian: Fiatal Demokraták Szövetsége – Magyar Polgári Szövetség, FIDESZ–MPSZ. In Hungarian: Kereszténydemokrata Néppárt, KDNP It is important to note that this was the second time, when Hungarians were asked to vote in a referendum on healthcare. On 5 December, 2005 two very different questions were on stake: (1) Granting citizenship to ethnic Hungarians living outside Hungary; and (2) Whether hospitals and other health service institutions should be privatized. This referendum was held on the initiative of the Workers’ Party (Munkáspárt), the Communist Party and the World Federation of Hungarians (Magyarok Világszövetsége) – an organization for ethnic Hungarians living abroad. Although FIDESZ was not the initiator, it supported it 100%. At the double referendum, only 37% of the eligible voters turned out. Of these, 52% approved the proposal on citizenship, but this represented only 18.9% of the electorate. In the referendum on privatization of healthcare institutions, 65% of the votes sup-ported a continued block on privatization, but since this represented only 23.89% of the eligible voters that vote was also invalid, too. After long discussion, this price was set at HUF 12,000/client (~ ~ $70). If the privatization were successful, it would have generated about HUF 120 bn (~ ~ $700mn) in revenue for the state. In 2007, 29 insurance companies operated on the Hungarian market, but the law didn’t allow them to sell global health insurance coverage. Out of these companies 8 had some minimum activities in the healthcare business (e.g. supplementary coverage). Head of the Parliamentary fraction of the Socialist Party The Chairman’s name is Dr. István ÉGER. He is a full-time President in Budapest and a practicing GP in the coutry-side, simultaneously. In Hungarian: Országos Érdekegyeztetõ Tanács, OÉT In Hungarian: Független Szakszervezetek Demokratikus Ligája, LIGA In Hungarian: Munkástanácsok Országos Szövetsége, MOSZ In Hungarian: Magyar Szakszervezetek Országos Szövetsége, MSZOSZ In Hungarian: Szakszervezetek Együttmûködési Fóruma, SZEF In Hungarian: Értelmiségi Szakszervezeti Tömörülés, ÉSZT In Hungarian: Autonóm Szakszervezetek Szövetsége, ASZSZ In Hungarian: Magyar Orvosok Szövetsége. This organization was set up many years earlier by the Medical Chamber. As of 1 January, 2008 this organization had merely 40 members. At the time of writing, the organization still doesn’t have its own website. In Hungarian: Egészségügyi és Szociális Ágazatban Dolgozók Demokratikus Szakszervezete, EDDSZ In the case of President Sólyom, all these considerations are particularly valid, because President Sólyom was the founding father of the Constitutional Court and served as the Court’s President for two consecutive terms. The fees aimed to curb the use of state-sponsored medical facilities and subsidized medicine. Hungary has one of the highest rates of doctor’s visits in Europe. In 2005, the average adult in Hungary made 12.6 visits to the doctor a year, compared with 7.5 by Belgians and 5.4 by the Dutch, according to the latest available figures from the Organization for Economic Cooperation and Development. Act No. 24. of 2008 on the Revision of Act. No. 1. of 2008 on Health Insurance Management Funds. The Hungarian original was published in Népszabadság, 17 October, 2008. The full text, with additional foot-notes can be found in English in Acta Oeconomica, Vol. 58 (3) pp. 239-261 (2008) Reforms for Stability and Sustainable Growth: an OECD Perspective on Hungary, Paris: OECD, 2008. pp. 69-70. It is noteworthy, that the lead author of this report was Prof. Éva OROSZ, a respected Hungarian health economist. Prof. Orosz has been working for many years for the Health Department of the OECD as a consult-ant. But at the same time, she

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works in a similar capacity for the Hungarian Socialist Party. Prof. Orosz was also present at the often cited ‘Lovasberény meeting’, held on 6 May, 2007 (cf, Vol. 1. p. 20.) See Ch. 6. in Vol. I. pp. 96-97. She is one of the most influential health politicians of the Socialist Party in the Municipal Assembly of Budapest. She managed to ’catch’ a vacant Parliamentary MP seat in spite of the direct objection of Prime Minister Gyurcsány. Dr. Kökény had served as Health Minister in two previous governments. After the 2006 election he was the Chairman of the Health Committee in the National Assembly. Deputy Chairman of the Health Committee in the National Assembly. Dr. Vojnik served as Deputy Minister of Health before the 2006 elections. After the Socialist-Liberal coalition broke down, she got this position back. Népszabadság, 11 April, 2008.