Financing

Total expenditure by Kela amounted to EUR 16.4 billion in 2020. Benefits accounted for 97% and operating costs for about 3% of the total expenditure. Benefit expenditures are paid out of the following three funds: the National Pension Insurance Fund, the National Health Insurance Fund and the General Fund for Social Security.

National Pension Insurance Fund

The benefit and administrative expenditures of the National Pension Insurance Fund are paid entirely out of state funds to the extent that they cannot be met with the yield on investments.

National Health Insurance Fund

From the viewpoint of its financing, the National Health Insurance system is divided between an earned income insurance component and a medical care insurance component.

Earned income insurance comprises sickness allowances, maternity, paternity and parental allowances, rehabilitation allowances, family leave compensations, and compensations to employers for the provision of occupational health services. Earned income insurance is funded with a contribution from the state and with contributions paid by employers, wage and salary earners and the self-employed.

The following benefits are available under the medical care insurance scheme: reimbursements for medicine expenses, reimbursements for other medical expenses (physician services and dental care, reimbursements for travel costs and reimbursements for examination and treatment costs), and rehabilitation services. The medical care insurance scheme also provides reimbursement for part of the expenditure of the Finnish Student Health Service. The medical care insurance component is funded by the state, by wage and salary earners, by the self-employed, and by beneficiaries.

The changes to the funding of earned income insurance and medical care insurance required under the Competitiveness Pact are not shown in the individual shares of funding until 2020.

The 2020 contribution rates for earned income insurance have been calculated based on the assumption that 52% of the expenditure (not including compensations for family leaves, the additional contribution from self-employed persons and the state contribution) is financed with the National Health Insurance contribution levied on employers, while 42% is financed with the contribution towards daily allowances. Starting from 2021, the required changes to contribution rates are allocated equally between the contributions levied on employers and the contributions towards daily allowances. Persons earning less than EUR 14,574 per year (as of 2020) are exempt from paying the contribution towards daily allowances.

The state will begin to fund that part of the costs of minimum-rate daily allowances and rehabilitation allowances which exceeds the allowance calculated on the basis of annual income. Further, starting from 2020 the state will fund 5% of otherwise insurance-funded sickness allowances and allowances for parents and an equal share of rehabilitation allowances.

The financing of the National Health Insurance scheme is since 2020 shared between the state (67% of benefit and operating costs) and the insured population (33%). In practice, the new funding arrangement means that the state’s share of the benefit expenditure decreases and its share of operating costs increases. The contribution percentages are determined annually, the basic rule being that the percentage for beneficiaries must be 0.97 percentage points higher than that for employees and the self-employed.

Due to the COVID-19 epidemic, temporary assistance payments were paid out of the National Health Insurance fund. They were funded entirely by the state. Since 1 April 2020, COVID-19 tests have been reimbursable under the occupational healthcare system.

General Fund for Social Security

In the General Fund for Social Security, the bulk of the expenditure on basic allowances is financed by the Employment Fund, while the municipalities pay most of the expenditure on child care allowances as well as portion of the spending on labour market subsidies for the long-term unemployed. The Government of Åland finances certain benefits which are paid to recipients in the Åland Islands. All other expenditures which cannot be met with the yield on investments are funded by the state. Also the temporary assistance due to an epidemic outbreak paid in 2020 due to the COVID-19 epidemic was funded by the state. The municipalities are responsible for nearly half of the expenditure on social assistance payments, but the funds allocated to that purpose are remitted to Kela by the central government, with a corresponding reduction in the local government subsidies.

Click the link below to access Kela’s annual reports, which contain more detailed information on the benefit funds. Descriptions of the remaining two funds, the Service Fund (maintenance and development of the Kanta services) and the Pension Liability Fund can also be found in the annual reports.

 

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