3.3. Overview of the statutory financing system

3.3.1. Coverage

Breadth: who is covered?

Entitlement to SHI coverage is based on permanent residence, not on SHI contributions themselves. All people residing in Czechia are subject to compulsory SHI enrolment, including Czech citizens and permanent residents. Individuals who are not permanent residents are also covered if they are working for a Czech-based employer. EU nationals who do not fulfil these conditions and who stay for longer than 90 days in Czechia have the option of participating in the Czech SHI system; if they choose not to participate, they must be insured through their country’s insurance system or be privately insured. As health insurance is compulsory, non-EU nationals without permanent residence and not working for a Czech-based employer must purchase PHI if they wish to remain in the country (see section 3.5). These provisions result in virtually 100% population coverage. Czech nationals living abroad who do not wish to contribute to SHI must explicitly deregister from their Czech HIF, and EU regulations on coverage apply for Czechs located in other EU countries.

For permanent residents and those working for Czech-based employers, opting out of the SHI system is not possible. Similarly, HIFs must accept all applicants who have a legal basis for entitlement; risk selection is not permitted. Individuals may choose freely among HIFs.

Scope: what is covered?

The range of benefits covered by SHI in Czechia is very broad and includes inpatient and outpatient care (including home care), prescription pharmaceuticals, some dental procedures, rehabilitation, spa treatments and over-the-counter pharmaceuticals (the last three if prescribed by a physician). This is in accordance with Czech law, which stipulates that insured individuals are entitled to any medical treatment delivered with the aim of maintaining or improving their health status. In practice, however, benefits are rationed by a combination of means, including legislation, formularies, an annual negotiation process between HIFs and providers aimed at defining specific conditions of reimbursement and the LHS.

The first mechanism by which benefits are rationed is the Health Insurance Act, which excludes procedures and services either implicitly or explicitly. Examples of implicitly excluded services are voluntary abortions, examinations requested by employers and various medical certificates, as these do not meet the requirements of maintaining or improving health status. Examples of explicitly excluded services are cosmetic surgery, acupuncture and some dental treatments, which are specified in a negative list contained within the first Annex of the Health Insurance Act. This also defines exceptional cases in which items on the negative list may be covered by SHI. Other annexes contain: a list of substances for which at least one pharmaceutical should always be fully covered (the second Annex); the categorization of MDA, including prescription, indication and volume reimbursement limits (the third Annex); dental aids and procedures that may be reimbursed under the SHI system (the fourth Annex); and an indication list for spa treatment covered by SHI (the fifth Annex) (Health Insurance Act, 1997).

Formularies are the second mechanism by which benefits are rationed. In essence, these are positive lists of approved pharmaceuticals that may be reimbursed under SHI. The list of pharmaceuticals covered by SHI and the depth of coverage are set by SÚKL (see section 2.7.4). Previously, formularies were also used for medical and dental aids, but legislative changes in 2019 revised the definitions of content in the annexes of the Health Insurance Act. An item not included in the formularies or in the positive lists in the above law’s annexes may still be reimbursed if it is the only remaining potentially effective treatment for a specific patient. This decision is made by the respective HIF; since January 2022, the decision procedure is newly set in an amendment (see section 6.1).

The third means by which benefits are rationed is an annual negotiation process between HIFs and providers (see section 3.3.4). In the negotiation process, the reimbursement conditions and prices for health care should be set in a consensual way. MZČR moderates the negotiation process and in the end issues the so-called Reimbursement Directive, which serves as a guideline for annual amendments to the purchaser–provider contracts on specific conditions of reimbursement. From the patient perspective, this can result in limitations of volume of services provided by specific providers.

Finally, the fourth mechanism by which benefits are rationed is the LHS (see section 2.7.3). Although the LHS functions in everyday practice as a positive list of benefits, services that are not specified in it may still be reimbursed depending on the needs of individual patients. In 2022, the LHS contained more than 3995 items (MZČR, 1998, 2021a).

The following details the most important services that are fully or partially covered by SHI:

• preventive services (such as examinations, screening, vaccinations)
• diagnostic procedures
• curative ambulatory and hospital care, including rehabilitation and care of the chronically ill
• some dental treatments
• pharmaceuticals and medical aids
• psychotherapy
• IVF under certain conditions
• medical transportation services
• spa treatments (if prescribed by a physician)
• emergency health services.

Several treatments, such as spa therapy and some types of dental and cosmetic procedures, necessitate patients obtaining permission via prior authorization from their HIF to be covered. Above the statutory benefits package, additional benefits may be offered by HIFs only in the field of extra prevention (for instance, for reimbursements for voluntary vaccinations not covered by SHI like tick-borne encephalitis, extra screenings, mammography for younger women, safety helmets for children, vitamins and health promotion activities).

Sick pay, maternity benefits and social care allowances are not covered by SHI, but are part of the state social security system, which is also responsible for pensions, unemployment compensation and other social benefits. This system is financed through social security contributions and general taxation.

Depth: how much of benefit cost is covered?

Most health services covered by SHI are provided free of charge at the point of use (see Box3.1). Except for pharmaceuticals and MDA, partial coverage is not permitted – that is, patients cannot top up their statutory coverage by choosing a treatment that is more expensive than one normally covered and paying for the difference. Patient co-payments are only permitted for above-standard hotel-like services in hospitals and for accommodation during spa treatments. This applies also to dental care, for which only some treatments are covered by the HIFs; treatments not covered are paid in full directly by the patients based on prices set by the dentists.

Box3.1

There have been almost no user fees applied since 2015, though one remaining user fee (CZK 90) is for accessing out-of-hours outpatient care. A wider range of small user fees introduced in 2008 proved politically divisive and were gradually removed and fully abandoned. An annual ceiling for pharmaceutical co-payments, also introduced in 2008, continues to be applied; exemptions from the out-of-hours outpatient care fee apply for people living below the poverty line.

3.3.2. Collection

The vast majority of health care expenditure is financed through the SHI system, which is financed primarily from earmarked payroll taxes (wage-based contributions) and, to a lesser degree, from the state budget’s general tax revenue transfers on behalf of the state-insured parts of the population. General tax revenue is also responsible for additional public expenditure in the health care sector, such as state or regional investment subsidies to providers, while private expenditure is mainly tied to OOP spending.

General government budget

The state budget transfers monthly SHI contributions (set per capita payments) on behalf of defined state-insured people. These transfers represented 27% of SHI revenues in 2020 (Table3.3). The general tax revenue of the entire state budget consists of value-added tax (21%), income taxes from individuals and corporations (21%), social security contributions (39%; not including SHI contributions) and consumption taxes (11%), though none of these are earmarked specifically for health (MFČR, 2020b).

Table3.3

State-insured individuals and groups are defined by law and include: children, students, women or men on parental leave, pensioners, unemployed individuals, people living below the poverty line, prisoners and asylum seekers (see Box3.2). During the response to the COVID-19 pandemic, the monthly state SHI contribution per person rose from CZK 1067 (January 2020) to an unprecedented CZK 1567 per person in June 2020. Further increases in 2021 (CZK 1767) and 2022 (CZK 1967 per person) resulted in a state per capita payment increase of 84%, greatly contributing to the jump in current health expenditure’s share of Czech GDP (Bryndová & Šlegerová, 2021). In September 2022, the per person transfers decreased to CZK 1487 (Act no. 260/2022 Coll.). While the state budget contribution for per capita payments had been set by governmental decree, many adjustments over the past decade led to legislation to link it automatically to economic performance beginning in 2024 (see section 6.1).

Box3.2

Statutory health insurance contributions

Each HIF collects SHI contributions, apart from the state payments described above, independently. These SHI contributions are collected monthly from employers and employees (employers are tasked with collecting contributions), the self-employed, and individuals without taxable income who do not qualify for any of the state-insured groups. Self-employed individuals make advanced payments, which are accounted annually.

SHI contributions are legally set at 13.5% of pre-tax monthly wages for employees, with the employees paying a 4.5% share and employers a 9.0% share, while the self-employed pay 13.5% of their contribution base, defined as 50% of their profits (Act no. 592/1992 Coll.). There has been no annual ceiling on contributions since 2013, though there is a legally defined minimum contribution base for employees and employers, equal to the monthly minimum wage. For individuals without taxable income who do not qualify for any of the state-insured groups, 13.5% of the monthly minimum wage applies. The minimum monthly contribution base for self-employed persons is 50% of the average monthly wage in Czechia from two years prior, multiplied by a conversion factor set by the government.

3.3.3. Pooling and allocation of funds

Allocation from collectors to pooling agencies

All SHI contributions are managed by HIFs, including state budget transfers on behalf of state-insured people. The state budget transfer is defined by the number of people in the legally defined groups. Wage- and income-based contributions are also set in law. SHI revenues are fully subject to redistribution among HIFs according to a risk-adjustment scheme.

The reallocation process of resources among HIFs is calculated by MZČR through a special central account of VZP, which serves as a clearing centre. Monthly payments are transferred from the state budget to this account, where it is then used to clear the net surpluses and deficits among HIFs, who retain collected premiums from the rest of the population. If HIFs have net surpluses above the sum of their collected premiums (that is, collected premiums are higher than risk-adjusted allocations), then they refer surpluses to the central account to be reallocated.

The reallocation process takes place monthly and is conducted one month after the respective collection of premiums. HIFs provide information on their premium collection, together with information on the statistical and health risks of their insured members, to MZČR, which supervises the risk-adjustment process and the redistribution mechanism, and runs the necessary calculations.

Allocating resources to purchases

VZP is the largest HIF with a market share of 56% in 2020; the second and the third largest HIFs have similar market shares of around 12% (MZČR, 2020b). Individuals may choose freely among HIFs and may switch no more than once every 12 months, provided they have applied at least three months before the swap dates, which are 1 January and 1 July (before 2015, there was only one swap date per year). The percentage of individuals who switch is very low, slightly above 1% in recent years, as there is little true competition between the funds.

Risk adjustment and redistribution of SHI revenues among HIFs have been in place since the 1990s, with significant change in scope and definition of the redistribution formula having taken place in 2004–2006 (see Box3.3). The last change occurred in 2018 and added an adjustment to the redistribution mechanism for clients with chronic diseases identified by their pharmaceutical consumption, using PCGs (see section 6.1). The reform also redefined the reinsurance tool by changing the rules for retrospective compensation and the definition of very high-cost patients. (Reinsurance here refers to the “insurance-of-the-insurers” mechanism used to cover HIFs’ costs for exceptionally expensive patients. This takes the form of retrospective compensation for HIFs from an explicitly reserved share of pooled funds as part of the overall redistribution scheme.)

Box3.3

The risk-adjustment mechanism aims to maintain solidarity in both revenue and the expenditure within defined age–sex risk groups, and to take account of specific chronic conditions that are either very common or expensive (or both). Its second component, the retrospective partial compensation, aims at solidarity in the context of excessive health risks and reinsures HIFs against above-average numbers of very high-cost patients, which could lead to financial issues. The Czech redistribution scheme is zero-sum; though HIFs do not purchase reinsurance, they pay an implicit premium for it. The reinsurance set share is defined by MZČR, which has the discretion to adjust the share of the pooled funds used based on a defined formula. Two attachment points are defined: an 80% reimbursement rate for excessive patient costs above a certain cost level and a 95% reimbursement rate above a higher patient cost level (Bryndová, Hroboň, & Tulejová, 2019).

The Czech PCG model is based on the 2012 Dutch classification of PCGs. It allows for patients to be categorized into more than one PCG, based on consumption of a given pharmaceutical over the previous 12 months. Twenty-five PCGs were introduced in 2018 and include diabetes, depression, transplantation, renal failure and HIV. In addition to PCGs, 38 age–sex interacted risk groups are used. Risk indices are calculated based on individual-level claims data of the insured population. For more information on the prospective risk indices calculation and the reinsurance setting, see Bryndová, Hroboň & Tulejová (2019).

Further adjustments to the definition of PCGs were made in 2021 and 2022, resulting in 30 PCGs in 2022 (four new groups added, two groups split in two, and one PCG dropped for not meeting the statistical thresholds) and revisions to the ATC classification requirements to reflect the current trends in pharmacology.

3.3.4. Purchasing and purchaser–provider relations

HIFs serve as the main purchasers of health services in Czechia. The purchasing process is regulated by the state, as is the relationship between HIFs and providers, though HIFs are allowed to contract selectively (namely, they are not required to have contracts with any specific provider). In practice, all HIFs have contracts with virtually all inpatient facilities; networks of contracted outpatient providers may differ according to geographic scope. They are obliged to ensure the provision of SHI-covered services to their members, including local and timely availability of health services (see Box4.2 and section 5.4.1). This obligation is fulfilled by HIFs through their contracted providers, though HIFs’ oversight and monitoring of health care availability are limited.

Box4.2

There is no true competition between providers for contracts from purchasers. Generally, it is not a common practice to cancel existing contracts from the HIFs’ side. Such cases are also rare for political reasons.

Both the state and regional authorities play an important role in the process of arranging new contracts. Whenever an inpatient care provider requests a contract with HIFs or vice versa, MZČR is responsible for assembling a committee consisting of HIF representatives, care providers, professional medical associations and other interested groups (such as the Czech Medical Chamber). The committee makes non-binding recommendations as to whether a provider should or should not be contracted by a respective HIF – among the main criteria are density and availability of existing contracted providers. The same procedure is initiated by regional authorities whenever a new contract with an outpatient care provider is requested. Here, too, the recommendation of the committee is non-binding in terms of requiring HIFs to sign a contract. However, no contract can be signed between HIFs and providers without this (sometimes lengthy) selection process (výběrové řízení) and unless its recommendation is in favour of closing the contract.

HIFs sign long-term contracts with individual providers for a period of either five or eight years, depending on the type of provider, often with automatic extensions enshrined directly in the contract. The default binding contract for each type of provider is specified in the Directive on Framework Contracts issued by MZČR and includes necessary conditions for providing health care, such as the staffing and technical equipment, general payment mechanisms, conditions for ending the contract, and other rights and obligations of purchasers and providers (MZČR, 2006). The framework contracts do not, however, include the specific conditions of reimbursement, which are subject to annual amendments to the contracts either based on individual agreements between providers and HIFs, or on the annually issued Reimbursement Directive.

MZČR acts as a mediator and final arbiter in the reimbursement setting process; it hosts and supervises annual negotiations between HIFs and specific groups representing providers (such as acute care hospitals, physicians and outpatient care specialists) to determine the conditions of reimbursement, including payment mechanisms. Agreements between stakeholders must be reached by June and published by October for the upcoming year. If an agreement is reached (though MZČR has the right to alter agreements), MZČR publishes the result in the Reimbursement Directive (expanded upon during the COVID-19 pandemic; see Box3.4). If an agreement is not reached for certain types of providers, MZČR determines the specific conditions of reimbursement for that group of providers, including the payment mechanisms and volume limitations, in the Reimbursement Directive itself.

Box3.4

Using the Reimbursement Directive as a guideline, individual HIFs and individual providers then draw up amendments to the long-term contracts previously described. If no agreement is reached between an individual HIF and an individual provider, the Reimbursement Directive’s specific reimbursement conditions become binding for both parties for that particular year.