Work and pay taxes and the state will pay for your medical bills – that has been the prevailing principle in Estonia for the past two decades. Now, experts are suggesting we drop it and offer universal healthcare despite increased risk of tax evasion.
“The Estonian medical insurance system is based on the logic of people having a single employer; however, the number of people in whose case that is true keeps falling while the number of exceptions in the law keeps growing,” said Tarmo Jüristo, head of the Praxis Center for Policy Studies.
Trouble with an ageing society
While the problem has been addressed by adding exceptions to the law so far, the situation is bordering on absurd. “Those exceptions currently number 48, and the latest one gave health insurance to nuns who in Estonia number fewer than 100,” Jüristo said.
At the same time, every 11th person lacks health insurance, even though most of them go to work and pay taxes. A lot of people are not paid 12 months in a row but work seasonally instead. There are also people who pay taxes every month but whose income falls below the minimum wage level.
Praxis has been saying that Estonia’s social tax-based health insurance system does not work for an ageing society for the past 15 years. “The number of workers is falling, while healthcare expenses keep growing because of more expensive drugs and new treatment possibilities,” head of the center explained.
“One way to improve healthcare financing is to curb availability. Theoretically, we could simply raise cost-sharing to have people pay for everything that costs up to €5,000 and have the health insurance fund only pay for very expensive treatments. It would definitely solve funding problems but would herald great misery and high mortality rates for low-paid people,” Jüristo said.
Considering new labor relations and population ageing, Praxis recommends Estonia drop its recent health insurance principle that ties insurance to working. “For example, medical insurance is not funded using a specific tax in Denmark. Instead, a part of income tax is spent on health insurance, whereas it doesn’t matter whether income came from sale of real estate or salary.”
This would give around 120,000 people health insurance. The health insurance fund would need an additional €80 million to cover their medical bills at first. That sum would fall after a few years. “It is six percent of the fund’s budget and hardly anything that would be politically impossible,” Jüristo said. The actual cost to the healthcare system of people without medical insurance would probably be less. “If a person has a health problem, they will find a way to have medical insurance in this day and age.”
Payment under the table
The head of Praxis admits that universal healthcare would not be without risks. One is the temptation to accept payment under the table. “That is a valid argument, but because income from work is taxed more highly, it is subject to more schemes, whether in the form of payment under the table or using companies to offer services in place of employment contracts,” Jüristo said. According to him, schemes would be less effective if taxation would not depend on type of income.
A study carried out by the center found that the fund’s budget would take a hit of 1.2 percent if everyone making minimum wage would stop paying social tax today. The effect would be 4.8 percent if people making up to 20 percent more than the minimum wage would also stop paying the tax.
Jüristo admits that while the proposal might seem peculiar at first, things are put into perspective when it is compared to education. “Medical insurance could be a public benefit just like education as workers do not pay a separate tax for their kids to be able to attend school that is in turn complemented by a host of exceptions for children of parents who are not currently working,” Jüristo said. Only allowing children of taxpayers to attend school would no doubt boost tax discipline, while it is another question how sensible something like that would be.
Jüristo emphasized that the recommendation to change the system does not mean it is something that needs to be pressed into law before spring elections. Should the state find the solution reasonable, its execution would take years. “To take that path, we would first have to gauge people’s tax discipline, health behavior and effect on migration,” he added.