Posted on Jul 27, 2012 by Sergio Ulloa
There is to be a vigorous shake up of the Slovak private health insurance industry. So vigorous in fact, that it's actually going to disappear altogether.
The Slovak government has reached a decision this week that it wants to bring all health insurance under a single state run system. A move the government feels will save the Slovak state some money by stopping the flow of precious state funds into private corporation's profits and channeling them back into the system instead.
Prime Minister Robert Fico has charged the Slovak health care ministry to work out a plan of action by the end of September. The process is currently set to be completed by 2014, although Slovak officials do not expect the current insurers to go without a fight.
Slovakia can force a buyout of the two private health insurers, a move Fico said would have to be very carefully planned and executed to prevent any chances of backlash in the courts.
Fico has stated that, ""It would be ideal if we could reach an agreement on the buy-back."
It appears that Fico is determined to see this measure implemented fully, regardless of opposition. "In case we will not reach an agreement, we will use the expropriation measure. This is a standard procedure written down in the constitution and known also elsewhere in Europe." He added later that, "This (expropriation) is in the public interest." However, the Prime Minister was not prepared to venture an estimate of the value of a buy-back or eventual nationalization, saying that the value would have to be determined by independent auditors.
The current health care system in Slovakia is a form of private-public partnership, where all Slovaks pay a healthcare tax of 14%, and can choose cover provided by one of the three providers, who provide cost-free treatment. The two private health insurers, Union, a unit of Dutch Achmea B.V., and Dovera, controlled by Slovak-Czech private equity group Penta Investments, provide cover for about 1.8 million of a total 5.4 million Slovakians. The state owned General Health Insurance Company, or VsZP, provides cover for the remaining 3.6 million citizens.
Katarina Kafkova, head of the Slovak Association of Health Insurers, said on Wednesday that, "We don't consider re-installation of a single health insurer is the best possible option," and made it clear that investors were not interested in ending their operations in Slovakia.
Martin Danke, a spokeman for Penta Investments, stated that, "We're taking the plan into consideration. We don't know any details of how the government wants to carry it out. It still holds that we want to be active in the sector of health insurance long term. There have been no talks with representatives of the government about its plans."
Achmea was very direct in its reply: "If necessary, Achmea will take all steps necessary to protect the business interests of Union," adding that it was not interested in selling Union or its portfolio to the state.
It is quite understandable that the private investors would fight this reform. Q1 profit for the entire health insurance sector in 2011 was almost EUR 13.5 million (USD 16.5 million), from a gross aggregated revenue during the quarter of EUR 871.1 million (USD 1.1 billion). Dovera's share of the profits was EUR 6.6 million (USD 8.1 million), down from EUR 10.9 million (USD 13.35 million) for the same period the year before, Union only posted a profit of EUR 400,000 (USD 490,000), for Q1 2011, compared to a small loss for Q1 2010. At the same time, EUR 7 million (USD 8.6 million) can go quite a long way when channeled back into the health service especially in light of the current state of EU finances.
This is not the first time Prime Minister Fico has taken on the private healthcare industry in an attempt to save his country money. He banned private insurers from making a profit during his previous stint as Prime Minister between 2006-2010. This was later overruled by the Slovak Constitutional Court.
While the Prime Minister obviously has noble intentions, the Slovak Health Care Ministry will have its work cut out for it. Firstly to successfully evict Union and Dovera without prolonged legal battles, and then to build the national health insurance service in such a way that it has the capacity to offer cover to all Slovaks, while remaining profitable. Public healthcare systems are notorious for effectively draining blood out of the healthiest economy, Slovakia's General Health Insurance Company is currently on the right track, let's hope it will stay that way. This is definitely a story that will not be over soon.