As reported by Kaija Kasekamp at the platform of European Observatory on Health Systems and Policies, multiple analyses have indicated that the social tax-based health financing system in Estonia is not sustainable. Estonia’s working-age population is decreasing and therefore the number of non-contributing persons exceeds the number of contributing people. The situation is being rendered even more complicated by the increasing use of flexible forms of work. The number and share of employees working flexibly has doubled over the last ten years. As a result, the number of people who do not regularly contribute to the health insurance system is increasing and they do not have stable health insurance coverage. This has resulted in a situation where, since 2013, the Estonian Health Insurance Fund (EHIF) has needed additional state budget transfers to keep its solvency. The EHIF budget for 2021 is 725 million euros.
The Ministry of Social Affairs (MoSA) has submitted to the Government four possible solutions to increase funding of EHIF:
- Continue allocations from the state budget to cover the budget deficit of the EHIF. This option has been used during the COVID-19 pandemic to compensate for the loss in revenues due to declining social tax contributions. The amount of state transfers would be negotiable and applied from the state budget competing with other sectors.
- Introduce a regulated formula-based state allocations to the EHIF for persons under 19 years of age. So far, the state contributes for certain vulnerable population groups and starting from 2018, due to the EHIF longstanding deficit, on behalf of non-working pensioners. If the state would contribute on behalf of under 19-year-olds based on a social tax calculated against the minimum wage, the EHIF annual budget would increase by 250 million euros.
- Broaden the social tax base to all declared income, such as rent, dividends etc., which are currently not subject to social tax in Estonia. The ministry proposes that this change may increase funding by about 200 million euros annually. This regulation would guarantee funding without annual negotiations.
- Excluding the sickness benefits from the EHIF’s budget and assigning it to the Estonian Unemployment Insurance Fund. This would free up about 85 million euros every year, but would need to be combined with other solutions to increase sustainability of funding.
The MoSA also proposed two policy scenarios to expand insurance coverage for the 5-6% of population not covered yet:
- Expand insurance coverage to the total population, delinking contributions from entitlements;
- Expand insurance coverage to the population who pays income tax in the country, keeping the link between contributions and entitlement. This would expand insurance coverage for approximately 45 thousand persons.
The Government has not made any decisions on next steps. Nevertheless, the MoSA proposal triggered public debate on the general tax system in Estonia.