THL: The health and social services financing model requires further development - incentives and regional taxation rights should be examined
The financing model for wellbeing services counties requires further development, and the work should examine, among other things, the incentives in the current model, the demographic model and the counties’ taxation rights, according to THL. The institute has published its own proposal for the further development of the financing model in the coming years.
THL states that developing the financing model requires clarifying the objectives pursued with the model. After this, different financing models and the objectives they serve, as well as the problems they solve, should be examined.
“There is no single health and social services financing model that fulfils all expectations. Different models emphasise different aspects, and some objectives are contradictory. For example, emphasising service need means that the model does not encourage wellbeing services counties to prevent diseases,” says Piia Aarnisalo, Director at THL.
THL believes that the weighting of the different objectives of the financing model should be reassessed during the next government term. This involves political choices.
“A balance must be found between different objectives, and this requires political consideration,” Aarnisalo says.
According to THL, a good starting point for the financing model continues to be the assessment of service need based on morbidity. In light of current knowledge, this is the most accurate way to allocate social and health care funding to different wellbeing services counties according to service needs.
“There is no need to completely overhaul the current financing model; reforms can also be made within the existing framework. We propose, for example, that a moderate increase in the weight of the health and wellbeing promotion coefficient should be examined.”
Comparative information is needed on the current model and the demographic model
According to THL, comparisons between the current financing model and the so-called demographic model should continue.
In the demographic model, the service need of residents in wellbeing services counties are determined on the basis of demographic data such as age and gender, as well as socioeconomic data such as education and employment. Morbidity data are not used.
An advantage of the model would be that it would prevent diagnoses from being recorded solely to maximise funding.
“Research-based information would help assess how accurately demographic factors can determine service need compared with morbidity data, and how extensively demographic factors could be utilised in the current model,” says Senior Researcher Tuukka Holster.
Taxation rights would be the simplest incentive
Developing the financing model for wellbeing services counties is one of the most significant issues in the entire social and health care system. The issue concerns how approximately EUR 27 billion in tax revenue is allocated to the counties. The topic is also on the agenda of the recently established parliamentary group considering the reform of health and social services.
“Not all incentive problems in the current financing model can be solved by abandoning morbidity data or increasing the weight of incentive factors. The problem of a soft budget constraint is always present in state funding,” Holster says.
THL points out that the simplest and probably most effective way to improve the incentives in the financing model would be to grant taxation rights to wellbeing services counties.
“In recent years, we have seen evidence that fixed central government funding does not ensure cost control of health and social services expenditure, which was originally one of the objectives. For this reason, we believe that the taxation rights of the counties should be examined,” Aarnisalo says.
Taxation rights would also make it possible to reduce the steering of the counties and simplify the highly complex financing model. This would support, for example, the easing or removal of the ex-post adjustment mechanism, the deadline for covering accumulated deficits and permanent transitional equalisation items.
“Taxation rights are linked to the broader question of the direction in which Finland’s health and social services system should be developed overall. For example, if the aim is to strengthen regional self-government instead of a state-centred health and social services system, taxation rights would be a natural step,” Aarnisalo says.
“THL is prepared to continue the development work on the financing model for wellbeing services counties within the scope of its duties.”
Proposals for future work on the financing model
THL proposes that future work on the financing model should:
- examine different financing models in order to determine what problems the different models would solve
- examine a moderate increase in the weight of the health and wellbeing promotion (HYTE) coefficient in the current model
- consider increasing the predictability of funding so that funding would always be determined for the following two or three years
- examine the impacts of taxation rights for wellbeing services counties
- commit to research-driven development of the financing model.
Further information
Memorandum (in Finnish): THL:n ehdotuksia sote-rahoitusmallin kehittämiseksi
Piia Aarnisalo
Director
THL
tel. +358 29 524 7048
Tuukka Holster
Senior Researcher
THL
tel. +358 29 524 7937