No. 43




Inequality in Estonian Health Care Funding*

09 June 2021


RiTo No. 43, 2021

Health care is funded from a variety of taxes, and cost-sharing contributions from the beneficiaries themselves. Taxes and cost-sharing contributions have different impacts on individual incomes and opportunities for consumption.

This analysis calculates the cumulative result of the inequality that is inherent in health care financing. For this purpose, every tax and cost-sharing contribution towards health care financing is identified, and the EUROMOD micro simulation model as well as the household budget study data are used to calculate the Kakwani indexes of funding inequalities for 2005–2019.

The analysis shows that, in relative terms, higher income tax and social tax payments are made by higher income households, and higher consumer taxes’ payments by lower income households. Lower income households pay larger cost-sharing contributions in relative terms. During the observed period, transfers have increased from the state budget to the Health Insurance Fund, as has the role of cost-sharing contributions of households in financing health care. As a consequence, financing on the whole has become less progressive, i.e. the relative burden of health care financing has shifted from higher income earners more towards low income earners. As long as health care financing is based on social or income tax, the prefinancing of health care remains redistributable, i.e. progressive, meaning that larger income earners pay relatively more for health care. However, if additional transfers from the general tax revenue in the state budget to the Health Insurance Fund increase while the important role of regressive consumption taxes in the state budget is preserved or even increased, the contribution to health care financing also becomes less progressive, or outright regressive.

The redistributing effect of health care financing or fairness of financing might not be the main arguments in choosing between the different sources to cover the health care expenses. Using the methods presented in the article, it is possible to monitor the dynamics of the inequality entailed in health care financing, and use the collected data as an input in the long-term planning of health care financing.

* Peer-reviewed article.