Magnus Piirits - Simulation of progressivity of health care financing in Estonia – application of EUROMOD

  • Presenting author: Magnus Piirits (University of Tartu)

  • Authors: Andres Võrk, Magnus Piirits, Kelly Toim

  • Session: C03A - Dynamic / Long term [4] - Wednesday 14:00-15:30 - Ceremonial Hall

Background and objectives.

Compulsory and voluntary contributions to finance health care may redistribute disposable income. This redistribution may be intended or unintended and it results in changes in the distribution of the welfare. Estonian health system has been financed mainly by the health insurance part of the payroll tax, with additional contributions from other tax revenues and out-of-pocket payments. Since 2018 transfers to the Estonian Health Insurance Fund from other tax revenues increased considerably. The objective of this paper is to measure income-related inequality in health care financing in Estonia 2005-2023 and how proposed reforms may affect it.

Methods and data.

We identify the proportion of different taxes that are used to fund health care expenditure and calculate concentration indeces and Kakwani indeces for revenue sources. We use the results from the Estonian part of the Europe-wide tax-benefit model EUROMOD to calculate both past and future values of progressivity of taxes and Estonian Household Budget Survey to calculate progressivity of out-of-pocket payments. The overall effect of health care financing on redistribution is then calculated as weighted sum of individual effects.

Main findings and discussion.

The results show that the overall health care prefinancing is progressive, i.e., households with higher gross income pay relatively more for health care financing. The progressivity of prefinancing is due to the social tax, the main source of health care financing, being levied on labour income and not on social benefits. VAT and excise taxes are regressive on average and income tax is progressive. Their role has been small, but started to increase as the transfers from general budget increased since 2018, especially dyring the COVID-19 period. Out-of-pocket payments are regressive, the regressivity depends on economic situation of households. During economic crisis in 2010-2012 the regressivity declined, as poorer people reduced utilisation of services with high OOP. If additional transfers from the general tax revenues of the state budget to Estonian Health Insurance Fund increase also in the future and, at the same time, the role of regressive consumption taxes in the state budget increases, the overall contribution to health care funding becomes less progressive or even regressive.