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Yet to come: health policy response to the crisis

Country: 
Austria
Partner Institute: 
Institute for Advanced Studies (IHS), Vienna
Survey no: 
(13) 2009
Author(s): 
Maria M. Hofmarcher
Health Policy Issues: 
Political Context, Funding / Pooling
Current Process Stages
Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no yes yes yes no no

Abstract

The government phases in a series of measures to safeguard revenues of sick funds which likely plunge further owing to the expected economic downturn. These measures will help, but a balanced budget will also require sick funds to cut costs. A new structural fund endowed with tax money will be established aiming at giving the central government more leverage to realize this. So far the government is silent about health reform which appears overdue. Stern leadership is necessary and in demand.

Purpose of health policy or idea

In light of current sickness fund deficits the government is phasing in a series of legislative amendments coming into effect in 2009 and in 2010. In 2008 social health insurers in Austria reported an accumulated deficit of approximately 1,2 billion Euro. Further, recent figures from the Federation of Social Health Insurance Associations (Federation) indicate a current expenditure surplus in the order of about 200 mio. Euro for 2008 (HVSV Gebarung Krankenversicherung May 2009).

Table 1 gives an overview about the development of the balance sheet of sickness funds. It also details measures to be phased in between 2009 and 2013:

Without measures the deficit is estimated to reach 600 million Euros in 2009. Measures as detailed in Table 1 will reduce the deficit to -0,07 percent of GDP coming down from -0,22 percent. This includes additional monies coming from a reduction of the value added tax on drugs from currently 20 to 10 percent. Taken together, all additonal funds for 2009 will lower the sickness funds' balance in percent of the overall financial balance of the general government ("Maastricht" deficit) by about 4 percentage points (see Memorandum Items in Table 1).


Table 1: Short-and medium term measures to safeguard revenues (at current prices) of sickness funds 

 

Social Health Insurance (SHI), billion €* 2008 2009 2010 2011 2012 2013
Revenues 13,30 13,51 13,59 13,93 14,43 15,05
Expenditure 13,52 14,13 14,49 14,82 15,06 15,55
Balance

-0,220

-0,620 -0,900 -0,890 -0,630 -0,500
             
Balance % GDP -0,08 -0,22 -0,32 -0,30 -0,21 -0,16
             
 Measures            
 Revenue side, approved, mill €**            
 short term            
 Liquidity safeguard    45        
 "SHI-Disaster fund" closure    9        
 Revenue surplus from VAT compensation    97        
 medium-term            
 Structural Fund for SHI      100 100 100  100 
 Funds mandated for "bail-out"***      150 150  150   
 VAT-reduction on drugs    270 289 309  331  354 
             
 Total   421  539  559  581  454 
             
 Expenditure with revenue measures, billion €    13,71 13,95 14,27  14,48  15,09 
 Balance with revenue measures   -0,200  -0,355  -0,330  -0,054  -0,043 
             
 Balance, with revenue measures % GDP    -0,07 -0,13  -0,11  -0,02  -0,01 
             
 Memorandum items            
 Financial balance according "Maastricht", billion €    -1,45 -1,10  -9,87  -13,37  -13,67 
 % GDP    -0,54 -0,39  -3,53  -4,71  -4,68 
 Balance SHI % Balance "Maastricht"    6,3 6,7  6,4  4,4  4,0 
 Balance SHI with revenue measures % Balance "Maastricht"    2,0 2,7  2,4  0,4  0,3 
             

* calculated on the basis of the forecast of General Government Finances NA basis, MoF and Statistik Austria, April 2009
** Bericht der Bundesregierung, Budgetbericht 2009/2010, April 2009
*** By law the government is authorized to forgive debts from sickness funds under certain conditions (see text)       

Sources: BMF, Statistik Austria, HVSV, IHS Prognose March 2009, own calculations May 2009

While revenue measures as approved for 2009 are not tied to any particular incentives for cost containment, additional tax monies for sickness funds in the years to come are linked to requirements for cutting cost:

First, by law the government is authorized to debts forgiveness of those sick funds who report negative net assets. This adds to 450 million Euro between 2010 and 2012. By this interest payments on sick fund debts are being swapped onto the general government budget entailing probably 18 million Euros. These monies are currently virtual as forgiving them requires the Federation and sickness funds to submit a plan for cost containment ("Sanierungskonzept"). This plan has to be endorsed by the government. The issuance of it is due by the end of June 2009. Currently there are no public discussions about the content of this plan.

Second, in 2010 the government agreed to establish a structural fund of 100 million Euros. Subsidies from this fund to sickness funds will be linked to efficiency. Guidelines for that are also subject to the cost containment plan due in June 2009. The draft legislation on the structural fund proposes the following:

  • The Ministry of Health establishes a "dependent administrative fund" without legal entity
  • The fund is expected to support balanced budgeting of sickness funds
  • The fund should aid efforts to contain costs but also aims at supporting integrated care, improved co-ordination across care sector and quality assurance
  • The Minister of Health in concert with the Ministry of Finance has to issue guidelines for granting subsidies
  • These guidelines will be developed on the basis of regular reports about areas of cost containment in sickness funds. The reports will be issued by the Federation
  • The preparation of the report is based on ongoing consulations between the Federation and individual sickness funds and implies the development of viable cost-benefit criteria evalutation measures
  • The management of the Federation presents these reports to the Ministry of Health and the Ministry of Finance at the end of a fiscal year (to be started in December 2009). If consultations and coordination is successful all funds will be transferred to the Federation but need to be administrated separately from other assets
  • The Federation will provide monitoring reports to the Ministry of Health and the Ministry of Finance on a quartely basis. The Minister of Health may also authorize outside evaluation of measures; sickness funds and the Federation will need to provide all relevant material   
  • The amount of allotments will be proposed by the Federation who may contain funds if stipulated goals are not met.
  • In 2010 the fund will be endowed with 100 mio. Euro per year and its assests will be managed separately

Table 1 assumes an annual endowment of the fund of 100 mio. Euros until 2013. This may be too low for future years as a negative balance will remain in spite of measures as approved. While estimates of the balance as a proportion of GDP assumes that the economy will sluggishly recover in 2010 and 2011, employment rates may further decrease with lag-time. Thus, additional (tax) monies for the structural funds may be needed in future years to further compensate for shortfalls in labor contribution revenues. 

Main points

Main objectives

The main objective of these measures and in particular of the new structural fund is to ensure financial viability of sickness funds. This is to be achieved by combining future allotments with efforts to contain cost on behalf of sick funds. 

Type of incentives

While with the bulk of additional funds which will be made available in 2009 no incentives have been linked to allocation, the government plans to connect future subsidies for health insurers to performance. Measures for the allotment have to be developed until the end of June 2009.

Groups affected

Sickness funds but also the Federation, Ministry of Health and Ministry of Finance, providers

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Characteristics of this policy

Degree of Innovation traditional rather innovative innovative
Degree of Controversy consensual neutral highly controversial
Structural or Systemic Impact marginal neutral fundamental
Public Visibility very low low very high
Transferability strongly system-dependent rather system-neutral system-neutral

The degree of innovation of the new structural fund will largely depend on the capacity of the government to stipulate allocation rules for allotments. This will become increasingly important if the fund will be endowed with more monies. While there seems broad consensus about this policy it is too early to estimate the structural or systemic impact. But once the fund is in operation and actors cooperate closely and transparently the impact may be high. Creating a fund to pool monies for improving governance and efficiency is rather system-neutral as examples from Germany and the Netherlands have already demonstrated.

Political and economic background

The landscape of social health insurance in Austria consists of nine regional funds for wage and salary earners ("Gebietskrankenkassen" according to the nine Länder), four national occupational funds (civil servants, railway and mining, self-employed, and farmers), and six employer funds. In addition, there are about 17 health welfare institutions that provide health insurance to civil servants at regional and municipal level. They cover about 2,5 percent of the population. Legally, these are not considered social security institutions, and they are not members of the Federation (Hofmarcher, Rack 2006) .

The nine regional sickness funds cover by far the largest part of the Austrian population. In 2007, these funds covered almost 4.8 million contributing insurees. This number does not include dependents who are co-insured free of charge. Out of a total of 6.2 million contributing insurees, 77 percent are therefore covered by a regional sickness fund (Statistisches Handbuch 2008). Among the regional sickness funds, Burgenland is the smallest with 137,000 contributing insurees, and Vienna is the largest with 1.1 million. Social health insurers cannot reject or compete for insurees, nor can insurees choose which fund to join.

Currently a risk-equalization fund on the level of the Federation is being used to balance sickness fund´s risk-structure resulting from the diverse socio-economic structure of insurees in individual funds. For example, unemployment rates have been traditionally higher in Vienna than in other federal states, like Upper Austria. Also, an "east-west divide" in the prevalence of diseases prevails, both with respect to mortality rates but also regarding self-reported health states (BMG 2007). Reasons for this are poorly understood und thus not systematically used in the practice of risk-equalization. But these differences have largely contributed to the diverse financial burdens for individual sickness funds which, as a consequence, "compete" for means coming from this fund. However, mechanisms for deploying these monies which are brought into it via fixed shares of contribution revenues are currently not well developed nor are they very transparent.

Chasing sickness funds debts is ongoing

Dealing with sickness fund´s deficits and in particular with deficits in regional funds has been on the policy agenda for years, see e.g. survey 11(2008). So far many financial measures taken were short-lived because structural deficits have accumulated in light of intensified efforts in recent years to achieve a balanced budget on the level of the general government. For example, between 2000 and 2006 revenues for the unemployed were capped. Also, compensations for value-added-tax outlays were only partly recovered. On the other hand many measures taken in recent years aimed at compensating sickness funds for these revenue shortfalls. For example, contribution rates for white and blue collar workers were matched in 2004 which essentially raised the revenue base through an increase of the rate for blue collar workers. Also, the contribution rate for pensioneers was increased in installments (see survey 1(2003)). Furthermore, at 7,65 percent of the gross salary  the contribution rate was unified for all salary earners in 2008 which essentially increased the rate for insurees in regional sickness funds by 0,15 percent while it was lowered in the sickness fund of civil servants. On balance, expenditure surpluses prevailed.

While in April 2008 attempts failed to relief accumulated debts, measures as proposed by this draft legislation may not be sufficient to respond to the expected shortfall of revenues for sickness funds.

Approved revenue measures will help but more needs to be done

According to recent estimates GDP growth is expected to drop drastically in 2009 (-2,7%) with hesitant recovery in 2010 (0,4%). As everywhere there is a high degree of uncertainty with respect to the future economic development. IHS (2009) forecasts expect a remarkable drop in employment which will lead to a further shortfall of contribution revenues for sickness funds. Own estimates show that the current sickness funds balance could peak at -900 million Euro in 2010 and 2011 corresponding to about - 0,3% of GDP. Figure 1 below plots the estimated development of social health insurers revenues and expenditure until 2013. The redish expenditure bars reflect this development without measures, the greenish bars with measures. With revenue measures to be phased in the expenditure surplus likely comes down to 330 million in 2011, or -0,11% of GDP. In the same year the financial balance according "Maastricht" will reach -3,53% of GDP. Thus, about 2,4% of this balance is caused by the estimated expenditure surplus of social health insurers. 

The balance of social health insurance may only shrink visibly if cost-containment measures were also phased in possibly bringing it down to -0,09% of GDP in 2011 (see figure 2 below). For example, recent estimates show that sickness funds may be able to economize up to about 300 million Euros between 2009 and 2013 if expenditure growth in the area ambulatory care, drugs and administration converges to "benchmarks". These benchmarks were defined on the basis of age-adjusted per capita expenses across regional sickness funds (Hofmarcher, Köttl 2009). If hospital expenses are also included, the negative balance would shrink further and likely turns around in 2012 and 2013 (not shown in the figure). However, these estimated cost containment measures are currently purely virtual because there is no health reform discussion beyond safe-guarding revenues. Thus, a substantial expenditure surplus likely prevails asking for additional funds in the near future, in particular as the future development of employment is uncertain.

More policy attention to investments in health and social care is needed

While the current government budget 2009/10 presented in April 2009 appears reflationary with respect to a variety of measures to stimulate demand including substantial income tax reductions, it hardly addresses health and social policy in an offensive way. Even though VAT reductions on drugs but also the increase of the long-term care allowance may count as investments in health and social care these areas including additional investment in research and development (life science) appear marginal compared to the stimulus packages for the export industry. At the same time job creation in these sectors has been strong in recent years and as everywhere this trend is expected to continue (WHO 2009).

In addition, conventional economic thinking suggests that new medical technology for improving health in particular for the elderly often increases cost and absorbs savings. This is not necessarily true because technical advances increasingly replace costly clinical interventions with genetically engineered drugs and treatments, targeting the molecular basis of disease. Modern stroke therapy gives an example here (Pardes et al 1999). And investment in biomedical technology in itself is an important engine of growth possibly compensating for increased resources needed in the social and health care sector. In this context the current budget 2009/10 does not seem to be overly progressive.

With fiscal deficits ahead the government sooner or later will need to address the financial balance according to "Maastricht" which is estimated to reach -4,68 percent of GDP in 2013 violating current deficit criteria as issued by the European Commission. In this context some parts of the center-left coalition partner began to discuss "wealth taxes".  "Wealth taxes" appear low in Austria when compared to other countries (OECD 2008) and there are claims and media coverage that "the rich" have caused the crisis and thus they also will need to contribute to recovery. However, there are no detailed plans as of yet. In addition, there is yet hardly any connection made on the level of the government with the financial situation of social health insurance. 

Change of government

A new centre-left government came into power in fall 2008. The failed health reform 2008 has to some degree also contributed to increasing animosity between party members in the old government, yet also centre-left.

Change based on an overall national health policy statement

Government Programm 2008-2013

Purpose and process analysis

Current Process Stages

Idea Pilot Policy Paper Legislation Implementation Evaluation Change
Implemented in this survey? no no yes yes yes no no

Origins of health policy idea

While the initiative for debt forgiveness of those sickness funds who report negative net assests dates back to 2008, the establishment of the new structural fund for social health insurance  was agreed upon during a government retreat in February 2009. There are no indications on how the amount of 100 million Euro initial endowment has been calculated and if this amount relates at all to information in balance sheets of social health insurers.

Initiators of idea/main actors

  • Government
  • Providers
  • Payers

Approach of idea

The approach of the idea is described as:
new: While the endowment of the structural fund appears currently low, its creation is a bold signal that the central government is ready to interfere with sickness fund matters.

Stakeholder positions

The failure of the 2008 health reform debate has prevented new government members from being too pushy on the issue. Rather, there has been broad consensus that "something short-term" needs to be done as some sickness funds where prepared to file for "bankruptcy". Leadership in this context basically came from the Ministry of Finance as it has been increasingly concerned with claims for "bail-outs" of sickness funds.

Actors and positions

Description of actors and their positions
Government
Ministry of Healthvery supportivevery supportive strongly opposed
Ministry of Financevery supportivesupportive strongly opposed
Providers
Providersvery supportiveneutral strongly opposed
Payers
Health insurersvery supportivesupportive strongly opposed

Actors and influence

Description of actors and their influence

Government
Ministry of Healthvery strongweak none
Ministry of Financevery strongvery strong none
Providers
Providersvery strongvery strong none
Payers
Health insurersvery strongvery strong none
Ministry of HealthMinistry of Finance, Health insurersProviders

Positions and Influences at a glance

Graphical actors vs. influence map representing the above actors vs. influences table.

Expected outcome

While the failed 2008 reform approach had its focus on bringing back social partners on the health policy agenda (see survey 11(2008)) and on envisioning strengthening sickness funds as purchasers, the current "safeguard approaches" will bring back the central government. Therefore the measures as taken may be read as a continuation of the 2005 health reform (see survey 4(2004)) where the government aimed at getting a bigger stake in health policy matters on both the level of federal states and sickness funds (Hofmarcher 2006).

Apart from short-term measures taken to improve financial viability of sickness funds, the creation of a new structural fund may thus change governance in the health sector.
Although the current endowment is low (0,7% percent of current expenditure of social health insurers), the fund may become an important policy tool for the central government, in particular as estimates of the balance show additional monies will be needed in the years to come as it is not expected that benefit packages will shrink. In addition, there is currently no indication that the government plans to increase co-payments and the like. Needed revenues are unlikely to be generated by income-dependent contributions because formal employment is estimated to go down and because increases in contribution rates will likely be resisted across government parties to safeguard export-led growth. Thus, general tax revenues will likely be used to endow the fund in the future. By this we may expect seeing a changing "culture" of monitoring and governing of to date rather autonomous social health insurers: 

  • First, the creation of the fund may set the scene for more central government involvement in this area. This clearly  will have an impact on sickness funds' autonomy in the area of ambulatory care and pharmaceuticals.
  • Second, by this the government´s role in monitoring and authorizing funds may leverage efforts on behalf of sickness funds and their Federation to improve performance.
  • Third, in this context it will be vital that allotments to individual sickness funds are done on the basis of fair and transparent criteria. The risk-equalization fund currently in place is solely managed on the level of the Federation without any influence from the government. While it will remain in effect in the medium-term future, this risk-equalization may well benefit from rules and regulations stipulated in the "government-owned" fund, if the allocation rules are developed and monitored prudently.
  • Fourth, the practical involvement of the Ministry of Finance in sickness fund matters is also novel and reflects the rising share of "central tax money" used while signaling the will to govern health sector performance beyond supervision. While the tax share in financing of the Austrian health sector on the level of federal states has traditionally been high when compared with other similar systems, the emergence of the central government in resuming stewardship roles in autonomous sickness fund areas is new.
  • Finally, current and expected expenditure surpluses on behalf of sickness funds possibly leverage government efforts to venture a comprehensive health reform including re-structuring of the hospital sector. This is far from sure. But there are weak signals from various government party members to finally kick off adminstrative reforms. This would include the hospital sector whose financing is tied to the current agreement on fiscal equalization between the central government, federal states and social health insurance until 2013. The realisation of cost-containment in this area is overdue as is re-structuring of ambulatory care to prepare it for taking in patient flows once the hospital sector is re-sized and hospital activity comes down. Preparing for such a big reform will need leadership also coming from the Ministry of Finance and will at least last until the current agreement expires in 2013. Thus, the health reform response to the economic downturn is yet to come. Health policy in Austria always responded with lag-time to economic downturns. For example the downturn at the beginning of the 1990ies has accelerated efforts to implement a partial budget cap on hospital care in 1997 along with increased co-pays and more attention on measures to reduce cost growth for drugs (Hofmarcher, Rack 2006).

Impact of this policy

Quality of Health Care Services marginal neutral fundamental
Level of Equity system less equitable neutral system more equitable
Cost Efficiency very low neutral very high

No formal rating of the current policy seems yet appropriate. In the medium-term no impact on quality is expected as also the level of equity may remains unchanged. Cost efficiency likely increases once sickness funds have to adhere to measures and when these measures are well monitored. But it is too early to say if this really will translate into measurable cost-efficiency given the small size of the additonal funds currently available. 

References

Sources of Information

BMF. Bericht der Bundesregierung, Budgetbericht 2009/2010. Wien, 2009.

Bundesgesetz über einen Kassenstrukturfonds für die Gebietskrankenkassen, Entwurf April 2009.

Bundesgesetz betreffend den Verzicht auf Bundesforderungen gegenüber Gebietskrankenkassen, Entwurf April 2009.

BMG. Österreichische Gesundheitsbefragung 2006/2007. Wien 2007.

Hofmarcher, Maria M. and Herta M. Rack (2006). "Austria: Health System Review." Health Systems in Transition. Volume 8, Number 3.

Hofmarcher, Maria M. Gesundheitspolitik seit 2000: Konsolidierung gelungen - Umbau tot? in Talos, E. (Hg.) Schwarz-Blau, Eine Bilanz des "Neu-Regierens", LIT Verlag GmbH, Wien, 2006.

Hofmarcher M.M, Köttl, J, (2009), Kostendämpfungspotenziale bei den Gebietskrankenkassen, IHS Bericht, unveröffentlicht.

IHS. Prognose der Österreichischen Wirtschaft 2009-2010. Institut für Höhere Studien, Wien, 2009.

OECD. Länderbericht Österreich. Paris, 2008.

Pardes, H. et. al. Effects of Medical Research on Health Care and the Economy. Science, 1 Jannuary 1999: Vol 283 no 5398, pp. 36-37.

Hauptverband der österreichischen Sozialversicherungsträger. Statistisches Handbuch der österreichischen Sozialversicherungsträger 2008. Wien, 2008.

WHO. Health in times of global economic crisis: implications for the WHO European Region. Copenhagen, 2009. www.euro.who.int/healthsystems/econcrisis/20090316_1

Author/s and/or contributors to this survey

Maria M. Hofmarcher

The author is grateful for many valuable comments received by:

  • Clemens Auer, Director General, Ministry of Health
  • Richard Gauss, Head, Ministry of Finance
  • Helmut Hofer, Senior Researcher, Institute for Advanced Studies
  • Arno Melitopolus, Executive Director ÖBIG, Gesundheit Österreich GmbH

Suggested citation for this online article

Hofmarcher, Maria M.. "Yet to come: health policy response to the crisis". Health Policy Monitor, April 2009. Available at http://www.hpm.org/survey/at/b13/1