World Healthcare
Healthcare reform in Hungary facing serious challenges
Mar 17, 2008 - 7:54:29 AM

Budapest, March 17 - Hungary's plans to overhaul its ailing healthcare system by allowing private capital into the health insurance market are on the rocks as political pressure mounts following a referendum in which voters have rejected other welfare-state cuts.

Voters turned out in droves Sunday to reject fees for medical treatment and higher education - a result seen as a stinging defeat for the government and its economic reforms.

Analysts say the rejection of the fees - which were part of efforts to reduce the budget deficit and, ultimately, get Hungary ready to adopt the euro - dents the government's ability to continue with reforms.

The next casualty is looking increasingly likely to be a move to introduce private capital into the health insurance system as the political uncertainty frightens off investors.

'As an investment, the risk is quite high. Also, given the elections in 2010 any investor should price in the probability of a significant change,' Gyorgy Barcza, chief economist at Hungary's K&H Bank, told DPA.

Pollsters give the government between 15-20 percent of the vote at the moment. Barring a miracle, main opposition party Fidesz is set to gain power in 2010.

Fidesz has vowed to scrap the private insurance system when it gains power and make the investors pay the costs of winding up the system. However, it does not seem content to wait until then.

The government is already facing a likely referendum challenge to the plan this autumn and Fidesz, which called the previous referendum, this week said it would do everything it could to block the new system.

Neighbouring Slovakia has already seen a rebellion against private insurers in the healthcare system, with Prime Minister Robert Fico last year forcing through legislation preventing them from making a profit.

In Hungary the private capital plan faces more opposition than did the fees for visiting the doctor and hospital stays.

Opponents - who come from across the social and political spectrum and include the chamber of doctors - say private firms will either refuse to insure the elderly and chronically ill or do so at a premium.

Nonetheless the government, which says universal healthcare will still be guaranteed under the new system, is sticking to its guns.

The socialist-model healthcare system has been a black hole for government funding since the change of system in 1990. Drug subsidies have been slashed and beds cut, but the government says more pressure needs to be taken off the central budget.

Health Minister Agnes Horvath, whose position may now be in doubt after the referendum loss, believes a capital injection can be used to upgrade crumbling infrastructure and competition will dramatically improve services at a reduced cost to the government.

However, without investors the system will not get off the ground.

Adding to the mix, the return on investment is not very high for any investor brave enough to take the risk - something Horvath herself has admitted.

According to a senior source, who has represented major international insurance firms in Hungary for over ten years, the investment does not come up to scratch.

'I would not recommend investing in this business,' he told DPA. 'The business cases just work after 10 to 15 years and some scenarios will be negative forever.'

'For 25 to 50 million euros - you can buy smaller-to-medium-sized insurance companies and pension funds all over the region. ... These business cases have a higher probability of positive figures than the health reform in Hungary,' he added.

The new model is based on the Dutch health insurance system, which allows private insurance companies to compete within a strictly regulated framework.

Hungary employed former Dutch health minister Hans Hoogervorst to advise them on how to structure the new system.

Under the new model, the current central fund will be replaced with 22 regional funds into which private companies can invest up to a level of 49 percent. The tender is to be called this summer and funds are expected to begin operating by early 2009.

Profits for each fund will be capped at two percent of capitation income - a per capita figure paid to each fund by a central body responsible for collecting contributions.

Each fund is allowed to insure between 500,000 and two million people, and according to ministry figures, the most an operator of a small fund could hope to make per year would be around 500,000 forints -. The maximum profit would be roughly four times that.

Investors must stump up six to 24 billion forints to buy into the funds, depending on how many people are insured.

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