Government reforms financing of sickness insurance

A plan for the reform of sickness insurance contributions was announced by the Finnish government in August 2004. From 2006, the financing of sickness insurance will be amended so that receiving benefits and paying for them will be more directly linked. Furthermore, the contributions of both employers and workers will be increased. The social partners are satisfied with the basic structure of the plan, but have raised concerns over how the costs should be shared.

Following the failure of a tripartite working group to reach an agreement over reforming sickness insurance contributions, the government resolved the matter unilaterally as part of its state budget proposal issued in August 2004. The reform will come into effect at the beginning of 2006. Sickness insurance will then be divided into medical care insurance and 'earned income' insurance. The former will cover reimbursements of costs for medicines and doctors’ fees and will be jointly funded by the state (50%) and employees, employers and pensioners (50% in total). The latter will include pay-related sickness and maternity benefits and the provision of occupational health services. It will be mainly financed by employers (73%) and to a lesser degree by the insured people (27%).

The reform of the sickness insurance funding should establish a more transparent and direct link between receiving benefits and paying for them. Furthermore, financing will increasingly be the responsibility of those parties that are in a position to cut costs. Thus, insured people and the state will have a direct interest in reducing spending on medical care while employers, and to a lesser extent workers, should see the benefits of reducing sickness absence, for example. The government hopes that these measures will slow the rise of sickness insurance expenditure, which has more than doubled in the last 10 years. As a consequence of the changes, the insurance contributions of employers and workers will rise somewhat, but the government has committed itself to offsetting the increases by lowering income taxes and employers’ state pension contributions, and by making the sickness insurance contributions tax deductible. The government has also indicated that if the social partners feel that the respective shares paid by employers or employees are unjustly high, they can negotiate over them between each other. The government, however, is not prepared to change the share or the allocation of state funding.

Both employers’ organisations and trade unions have expressed some reservations concerning the government's model for the reform, although they are satisfied with its basic structure. According to the Employers’ Confederation of Service Industries (Palvelutyönantajat, PT), the state share of medical care costs is currently over 60% while after the reform it will be only 50%, which PT sees as being unacceptably low. The Finnish Confederation of Salaried Employees (Toimihenkilökeskusjärjestö, STTK), on the other hand, insists that the contribution of employers will not be sufficient, and that they should also contribute to the financing of medical care insurance, which under the government's plan will become the exclusive task of the state and the insured. The position of the Central Organisation of Finnish Trade Unions (Suomen Ammattiliittojen Keskusjärjestö, SAK) is that, despite the tax cuts promised to workers to offset the rising sickness insurance contributions, the burden on employees may rise regardless. This is because tax cuts are promised only for the first year after the reform comes into force, while sickness insurance costs are likely to keep on rising after that.