Billions in social and health care funding are allocated to wellbeing services counties based on the population’s service needs – the aim is equal services across the country

The state allocates approximately 27 billion euros annually to wellbeing services counties. The amount is enormous: it accounts for roughly one third of the central government’s total annual budget. For comparison, expenditure on basic education is around 6 billion per year.

“The total amount of social and health care funding has grown rapidly in recent years and is expected to continue increasing in the coming years. The primary reason is population ageing,” says Tuukka Holster, Senior Researcher at the Finnish Institute for Health and Welfare (THL).

The 21 wellbeing services counties, the City of Helsinki and the HUS Group are responsible for organising social and health care services. This includes a wide range of public services: health centres, hospitals, mental health and substance abuse services, disability services, maternity and child health clinics, and elderly care, among others.

A wellbeing services county may either provide services or procure them from private service providers.

The level of funding increases every year

Ultimately, the Parliament decides on the level of funding for the social and health care system. In practice, however, funding is determined according to a specific mechanism based on calculated criteria.

The most significant factor affecting the amount of funding is the population’s need for services. Currently, funding increases annually by approximately one per cent, or about 250 million euros, due to growing service needs.

“Changes in the population’s health status and thus in service needs may of course occur for reasons other than ageing. In practice, however, projected demographic development – that is, ageing – is the key driver of funding growth,” Holster says.

The calculation of social and health care funding also takes into account increases in cost levels in accordance with the wellbeing services county index, as well as any changes in the responsibilities of the wellbeing services counties.

Another significant factor is the so-called ex-post adjustment mechanism. Under this mechanism, actual costs are compared with the funding allocated two years earlier, and any difference is compensated for the counties.

For example, in 2025 the ex-post adjustment brought nearly 1.5 billion euros in additional funding to the wellbeing services counties.

“The funding model aims to ensure that all wellbeing services counties have equal opportunities to meet the service needs of their residents.”

Service needs are assessed based on the prevalence of certain diseases

The total amount of social and health care funding is allocated to wellbeing services counties according to so-called need factors.

Most of the funding, i.e. 80 per cent, is allocated based on the service needs of the population. Thirteen per cent is determined according to population size, and the remainder is based on so-called circumstances factors, such as the proportion of residents with a foreign language background. Different circumstances factors may make the organisation of services more challenging, which is why they are taken into account in the funding.

In addition, funding for a region is influenced by the health and wellbeing promotion (HYTE) coefficient by approximately one per cent. It rewards regions for preventive work and encourages more efficient operations.

In assessing service needs, not all morbidity is examined; instead, the prevalence of certain diseases, such as diabetes and hypertension, is considered. In addition, various background factors are considered, such as the age of residents and socio-economic factors, including income levels and the number of unemployed people in the area.

“The funding model aims to ensure that all wellbeing services counties have equal opportunities to meet the service needs of their residents,” Holster describes the core idea behind the allocation of funding.

The funding model has both strengths and weaknesses

According to Holster, the current funding model has been designed to ensure strong central government control over social and health care costs.

Previously, the organisation and financing of services largely depended on decisions made by individual municipalities and their tax revenues.

Consistently allocating national funding based on service needs also aligns with the principle that people in Finland should have equal access to services regardless of where they live.

The model also has its weaknesses.

“In recent years, it has become evident that a strictly formula-based model is inflexible. There may be, for example, high inflation or a pandemic, and the calculation framework cannot keep up. This is precisely why the ex-post adjustment has taken on a surprisingly large role,” Holster says.

Many experts have also argued that the model does not optimally incentivise wellbeing services counties to prevent diseases or improve efficiency and thereby contain costs. The threshold for regions to request additional funding from the state may become too low.

“It remains to be seen how significant a problem this so-called soft budget constraint may become,” Holster says.

He notes that funding models always involve balancing equity and incentives.

“In the future, for example, greater emphasis could be placed on prevention. Granting taxation rights could also encourage wellbeing services counties to improve cost-efficiency. If the counties had partial responsibility for social and health care funding, the state could maintain tighter control over its own funding.”