3.3. Overview of the statutory financing system

3.3.1. Coverage

Breadth

According to the 2007 Health Act, people resident in Denmark (i.e. people registered with the national registry) are entitled to health care services. Non-residents are entitled to acute treatment but not to elective treatment. Coverage is universal, independent of contributions and not tied to membership of any insurance scheme. Citizens cannot opt out of contributing to the statutory system through taxation (see section 3.2).

Scope

The scope of health care services provided is described in broad terms only in the 2007 Health Act, thereby putting pressure on the regions to take up new interventions without financial compensation from the national government. According to the Health Act, municipalities are responsible for preventive services aimed at the general population and for rehabilitation and home care for patients, while the regions are responsible for the medical care of each patient and preventive services aimed at patients.

On the one hand, the service level offered to patients is regulated by law, by specifying maximum waiting times before the region must offer access to an alternative provider. On the other hand, the scope of the health care services for which the region must provide this service level is not specified.

Three possible major reasons for the absence of a specified benefit package are:

• that the regions would use a positive list as a bargaining tool in the negotiations with the national government, asking for compensation for each new intervention;
• that the hospitals and their departments would use a positive list as a bargaining tool in the negotiations with the region on next year’s budget, asking for compensation for each new intervention; and
• fear that a positive list will slow down the introduction of new interventions and the abolition of antiquated practices.

In theory, the regions could provide different service levels, and until the 1990s local and regional variation in provision of services was viewed as appropriate, providing municipalities and regions with an opportunity to adjust services and service levels to people’s preferences and to experiment with provision of services. Since the 1990s, local and regional variation has come to be viewed as an indication of problematic quality, service or effectiveness, and the introduction of free choice of hospital in effect eliminated the regional administrative level’s opportunity to select a distinctive service level: if a region declines to provide a service provided by another region, the patient can choose treatment in the other region, which then bills the home region. Furthermore, if a region should want to decline provision of certain interventions, the national government would be highly critical of this decision and the already limited popular support for the regional level would be further eroded. Therefore, even if there is no explicit benefits package, there is a strong pressure on the regions to provide medical care with documented effect.

Cosmetic surgery is not included in the benefit package, unless the inconvenience from the underlying condition is considered by the doctor to be so severe that treatment is indicated.

The process behind the decision on whether a new intervention should be included in the implicit benefits package is opaque. In general, clinicians are free to introduce new techniques if they can stay within their budget and if the intervention is not covered by the national specialty planning. HTA is not used systematically to evaluate all new technologies but has won a greater role in the evaluation of new and expensive drugs, where HTA is used routinely by the regions and the National Health Board for evaluation of the benefits of new drugs (see section 2.7.2).

As indicated above, the introduction of new interventions is often decided by clinicians and then spread to other departments. If new interventions are more costly than interventions already in use, it is likely that the hospital management and the region’s administrative and political levels will be involved. If the technology is complicated, it is likely that it will be introduced at highly specialized hospital departments first, whereupon the National Health Board will influence the speed with which the technology is distributed to lower levels of specialization.

Depth

Traditionally, hospital care, including pharmaceutical treatment, has been provided free of charge at the point of delivery, while some services provided outside hospital are paid for by the patient, in part or in full, and other services are paid for by the region or the municipality, in part or in full; a majority in parliament decides which services are subsidized and to what degree. No national policy on out-of-pocket charges has been defined, and there is no logical pattern determining whether a specific health care service is paid for by the patient or the region/municipality: costs for life-saving interventions may be paid by the patients, while non-life-saving services may be paid by the region/municipality; the size of many user charges and subsidies are independent of the patients’ income; and there is no clear relation between when an intervention was introduced and whether they are paid for by the patient or by the region/municipality.

Patients are particularly likely to pay out-of-pocket for dental care out of hospital, and for glasses and drugs obtained out of hospital. Patients also pay for a number of services provided outside the hospital, such as physiotherapy or psychological treatment, but these charges make up a smaller part of total out-of-pocket payments than the three areas mentioned above.

In 2005, the Danish Welfare Commission proposed the introduction of user charges to reduce the demand for health care services and to raise revenue by means other than taxation on income (Danish Welfare Commission, 2005). The proposal included charges on visits to the GP, the GP out of hours, casualty departments, medical specialists, outpatient treatment and inpatient treatment (a per diem charge). These charges would be limited to 1% of the individual patient’s yearly income. The proposals were immediately rejected by the former centre-right government, which had set up the Welfare Commission. In the spring of 2011, a similar initiative was proposed by independent health economists, who referred to the Welfare Commission’s arguments (Pedersen, Bech & Vrangbæk, 2011), but only the Conservative People’s Party (a member of the former coalition government) expressed support for financing a larger share of the health care sector by the use of general user charges (see section 3.4.2 concerning the introduction of user charges for specific services).

3.3.2. Collection

General government budget

The national government derives its income from:

• personal income tax, payable on wages and almost all other forms of income, including profits from personally owned businesses;
• an income tax on all personal income (nominally a health contribution);
• labour market contributions on all personal income;
• property tax;
• corporate income tax;
• VAT;
• taxes on specific goods; and
• energy and excise duties, including duties on pollution and consumption of scarce goods.

The “health contribution” is not a hypothecated tax, as health expenditures are determined independently of the revenue derived from the health contribution, and the revenue from the contribution is not allocated specifically to health care.

Tax rates are set by a majority in the parliament and in the municipal councils. All taxes and duties are collected by the state.

Personal income tax accounts for almost half of the state’s total tax revenue. It is calculated according to a two-step progressive scale, with a basic rate of 3.64% and a top rate of 15% on earned and capital income. The health contribution of 8% and labour market contributions of 8% constitute proportional taxes. A tax ceiling ensures that income taxes collected at state and municipal levels cannot exceed 51.5% of income.

Several existing taxes are partly motivated by health concerns (e.g. excise duty on motor vehicles, spirits, tobacco products, chocolate products, ice cream and soft drinks), and a duty on fatty foods will be introduced in 2011. None of these taxes or duties are earmarked for health care.

Taxes or contributions pooled by a separate entity

The municipalities derive their income from a proportional income tax and block grants from the state. Formally, the municipalities set the tax rates themselves, but in reality, the municipal councils set rates within limits negotiated with the national government. If municipalities exceed the limit on their tax rate, the national government may punish the municipalities individually or collectively, for example by reducing the block grants. In 2011, the average municipal tax rate was 25.0% of citizens’ personal income (the tax base is similar to that of the health contribution).

3.3.3. Pooling of funds

Allocation from collection agencies to pooling agencies

Each year in May and June, the national government negotiates limits to municipal taxation and expenditure, the total size of the block grants and the service level next year with Local Government Denmark – an association of Danish municipal councils – and the regional service level and financial resources with Danish Regions – an association of regional councils (see section 2.3).

Changes in the amount of money distributed from the national government through block grants to the municipalities and regions depend on whether they take on new tasks, whether responsibility for one or more tasks is moved from one administrative level to another, and whether the regions and municipalities increase their service level in agreement with the national government.

The block grants to the municipalities are distributed to the municipalities in proportion to each municipality’s tax revenue, but in order to take differences in the inhabitants’ taxable income and needs into account, funds are redistributed between the municipalities afterwards in order to ensure that the tax rate in each municipality ideally reflects the municipality’s service level and effectiveness, rather than the population’s composition and income. The redistribution between municipalities is performed according to a quite complicated formula, which includes a number of objective criteria, including the population’s age distribution; the number of psychiatric patients, people with low income, people with basic or no education and immigrants from non-EU countries; the number of people living in socially deprived areas; the rate of unemployment; and the proportion of older people living alone. During the summer and autumn, the municipality councils negotiate next year’s budget, including budgets for health care. This process includes a negotiation between the municipality and the region on how much money the municipality and the region expect that the municipality must pay to the region.

The regions derive their income for health care from four sources (Ministry of Interior and Health, 2010c) (see section 3.2):

• a block grant from the national government (79% of the regions’ income in 2011);
• activity-based financing from the national government (3% of the regions’ income in 2011);
• a contribution from each municipality in the region paid in proportion to the number of inhabitants in the municipality (7% of the regions’ income in 2011); and
• activity-based financing from each municipality in the region (11% of the regions’ income in 2011).

By 2011, the size of the state’s block grants to each region for health care depends on the following sociodemographic criteria (Ministry of Interior and Health, 2010c): [3]

• the number of elderly people (65+ years) living alone (25%);
• the number of families receiving social security (17.5%);
• the number of children of single parents (15%);
• the number of people living in rented housing (15%);
• the number of lost living years, calculated by comparing with the region with the highest average life expectancy (10%);
• the number of psychiatric patients who have been in contact with a psychiatric hospital department within the latest 10 years (5%);
• the number of patients with a diagnosis of schizophrenia who have been in contact with a psychiatric hospital department within the latest 10 years (5%);
• the average travel time to area with 18 000 inhabitants multiplied by the number of inhabitants (5%); and
• the number of citizens living on islands without a fixed connection to the mainland (2.5%).

The size of the activity-based contribution from the national government to each region depends on whether the region produces a specified amount of health care services. There is an upper limit to the amount of money each region can earn through activity-based financing from the national government. The size of the activity-based contribution paid by the municipality in each region depends on the number and kind of health care services provided to citizens in the municipality.

Allocating resources to purchasers

The pooling and purchasing (payment) functions are integrated, although it is basically the patient or the GP (regarding services provided by hospitals) who chooses the provider (see sections 2.9.2 and 3.3.3).

3.3.4. Purchasing and purchaser–provider relations

The relations between independent private hospitals/clinics and the regions, which are expected to enter into agreement with private hospitals/clinics to enable patients to choose providers with short waiting times, are highly dynamic. Since the introduction of waiting time guarantees of one month in 2007, the relations have been governed by negotiations at the national level between Danish Regions and the private hospitals; by centralized price setting by the national government when negotiation breaks down; and by invitations to tender by individual regions for a specified number of specific examinations or treatments. The national government has played and still plays a major role in the formalized relationship between private hospitals and clinics. So far there is limited experience with contracting out interventions to private hospitals/clinics and on following up on deviations from the contracts.

Public hospitals owned and managed by the regions work within detailed targets for clinical production, service level and financial resources. If managers at hospital or departmental level deviate from the budgets, they may be fired by the region. If GPs, medical specialists or other providers working independently diverge from the official targets, their representatives may enter into negotiations with the region about the divergences and the reasons behind the divergences.