Perspective Chapter: Creating and Dismantling Social Health Insurance in Hungary – Causes and Consequences

Abstract

In the early 1990s, as part of the political transition, a comprehensive reform of the Hungarian health system was launched, including the transformation of tax-based financing into a social health insurance (SHI) system. The SHI was financed by contributions paid by employers and employees and operated by a newly created institution, the National Health Insurance Fund Administration (NHIFA), which enjoyed considerable independence. In 2008, there was a short-lived attempt to replace the single-payer, public institution model of the SHI with a system of competing private health insurers: the parliament passed the relevant law, only to repeal it a few months later. In the 2010s, the health system underwent radical changes as part of the overcentralisation of the entire public administration. All the basic elements of the SHI system were abolished, and the essential powers of the NHIFA were taken over by the government. This chapter describes these radical changes in the health financing system and reveals the political and economic reasons behind them, as well as their impact on the performance of the Hungarian health care system.

1. Introduction

In the early 1990s, as part of the political transition, Hungary also faced the challenge of the long-lasting crisis of the state-socialist health system. The fundamental problems, which together led to the poor performance of the sector were: decades of serious underfinancing; the exclusive role of the State (as the owner, financier and service provider), overcentralised, rigid institutional system, command-and-control governance and lack of choice and voice for the general population within the formal system. As the other side of the coin, chronic shortages led to a widespread informal economy.¹ The reforms were expected to dismantle these old institutions and create new ones, including a well-functioning health financing system.

Over the decades, three radical changes took place in the Hungarian health financing system. In the early 1990s, as part of the political transition, a comprehensive reform of the health system was launched, including the transformation of tax-based financing into a social health insurance system (SHI). However, the reform process halted in the mid-1990s and eroded afterwards. In 2008, there was a short-lived attempt to replace the single-payer, public institution model of the SHI with a system of competing private health insurers. In the 2010s, the health system underwent radical changes as part of the overcentralisation of the entire public administration. All the basic elements of the SHI system were abolished; the current financing system can only be considered social health insurance in name, but not in substance.

Due to the failure of reforms, Hungarian health care system is struggling with alarming problems in access to and quality of care. This is reflected in the everyday experience and concern of the population: according to the regular Eurobarometer surveys, between 2016 and 2020, the situation of health care was the most important problem for the Hungarian population out of 15 areas. From 2021, it was overtaken by increasing inflation and the economic situation but still ranked 3rd in the spring of 2023 [1].

The study consists of five sections. The second one that follows the introduction describes the characteristics as well as the economic and political drivers of the aforementioned three radical changes in the health financing system. The third section outlines key characteristics of the Hungarian SHI system and their impacts on the performance of the health system. Section four seeks the answer to the question of what factors led to the failure of establishing workable SHI system. The closing section highlights some of the most important consequences of this failure.

2. Establishing and dismantling the independent institutional system of SHI

2.1 The launch of reforms

One of the pillars of the health system reform that started in 1989 was the transition from tax-based funding of the state-socialist health system to compulsory SHI. Intense work was launched in the mid-1980s to develop comprehensive reforms in the areas of the economy, public finance, public administration and welfare systems in response to the serious economic and social crises of the state-socialist system. The emphasis was on economic reforms and a transformation of the role of the state, reducing state intervention and redistribution. As part of this process, i.e. as a result of external factors, a Reform Secretariat was established in the Ministry of Health, which elaborated a comprehensive concept for the reform of the health care system. After the 1989 regime change, essentially the implementation of this concept started.

The ideas for the transformation of health care system were based on the concept of “managed markets” (“quasi-markets”), drawing primarily from the UK reform concept [2]. Its major elements included transition to compulsory SHI (“purchaser-provider split”), replacing the former input-financing of providers with performance-based payment methods (providing incentives for competition of providers), enabling the operation of private providers and institutionalising patients’ rights [3]. The implementation of SHI system meant not only a change in the method of funding but also, along with the other changes, a new way of health system governance: an institutional framework for dividing power (decision-making) and responsibility amongst the players² of health system instead of management that was based on centralised government instructions. The reform concepts envisaged a new health care system, where the government (Ministry of Health) primarily had a regulatory role and was not involved in the financing and provision of health services directly. Decisions were made at the level where the information mostly available. Government decisions were based on the coordination of various interests, with regulated institutional frameworks and mechanisms.

As for SHI system, the main steps were as follows (Table 1). On 1 January 1990, health care financing was integrated into the Social Insurance Fund, and the operation of health insurance became the responsibility of the National General Directorate for Social Insurance.³ In 1991, a law was voted on the self-governance system of social insurance (pension insurance and health insurance). In 1992, social insurance contributions were divided into pension insurance and health insurance contributions. In 1993, the Health Insurance Self-Government (HISG)⁴ and the National Health Insurance Fund Administration (NHIFA) (a “purchasing agent” with considerable autonomy) were established. This meant that Hungarian SHI was created with a single-payer, centralised institutional system. Additionally, various forms of voluntary health insurance were also initiated (voluntary insurance funds and policies offered by commercial insurers).

1990:	Tax-based funding switched by social health insurance.
	Ownership of health facilities transferred to local governments.
1992:	Social Insurance Fund divided into Pension Fund and Health Insurance Fund.
	Parliament eliminated universal entitlement to health care and defined conditions for eligibility.
	Family Physician Service created and capitation-based payment introduced.
1993:	Health Insurance Self-Government and National Health Insurance Fund
	Administration set up.
	Output-based provider payment methods introduced.
	Voluntary Health Insurance authorised.
1997:	Act on Health Care passed. (The act also provides for patient rights.)
	Act on Services of Social Health Insurance passed.
1998:	Health Insurance Self-Government abolished.
2004:	Individual provider-level cap on performance volume introduced for Outpatient- and inpatient care.
2007.01:	Health Insurance Supervisory Authority set up.
2007.02:	The legislation on the visit fee and hospital daily fee came into force.
2007.10:	The government submitted the bill on Sickness Funds to the Parliament.
2008.02:	The Parliament adopted the law on Sickness Funds.
2008.02:	Referendum on the user charges.
2008.05:	The Parliament repealed the act on Sickness Funds.
2010:	Health Insurance Supervisory Authority abolished.
2011:	The regional units of NHIFA were taken away and integrated into the newly created county government offices.
2012:	Employers’ pension and health insurance contributions replaced by social contribution tax.
	The ownership of hospitals owned by local governments transferred to the central government.
2017:	The NHIFA abolished. A significant part of its powers transferred to the Ministry. The National Institute of Health Insurance Fund
	Management with limited authority became the legal successor.

Table 1.

A chronology of key measures in the Hungarian health financing system (1990–2019).

The powers of the Health Insurance Self-Government were contradictory. On the one hand, it had a great deal of autonomy, only the law could impose tasks on it, and it had the right of consent for government decrees on SHI. Additionally, the Social Insurance (pension and health insurance) Funds formed an independent part of public finance, separate from the state budget, and were submitted to the Parliament as a separate law by the Minister of Finance and the presidents of the social insurance self-governments. The Director General of the NHIFA was nominated by the Self-Government. On the other hand, however, the law did not allocate any direct means to the task of the Self-Government and the NHIFA in relation to the management of health insurance, the decision on all the substantive issues remained within the powers of the Parliament or the government (e.g. the contributions rate, spending on individual service areas, monetary values of the payment methods’ performance units etc.). The Self-Government only had the power to make recommendations, give opinions and, in certain issues, give its consent.

Important changes were made in the sphere of service provision also. General practitioners became self-employed, outpatient clinics, hospitals were transferred to the possession of local governments. (Previously, they had been owned centrally by the state.) Private businesses have entered the health sector. New performance-based payment methods aimed at competition between providers were introduced.⁵ Additionally, the institutionalisation of patients’ rights was also launched. Overall, the changes that took place in the early 1990s responded to the problems of the health care system adequately, marking the start of the actual reform process. Furthermore, the new macro-level institutional framework (the principles and direction of changes) was also in line with the general characteristics of the Western European health care systems and reform efforts [4].

However, the development of the new institutions started in a confrontational and contradictory manner; by the time the Health Insurance Self-Government was established in 1993, the revaluation of management by self-government had already started and the efforts aimed at the weakening and liquidation of the new institutions had also emerged within the government. The powers of the Ministry of Finance, the Ministry of Public Welfare and the Health Insurance Self-Government (and the NHIFA) were not defined properly, a conflict-ridden relationship evolved between them. The actual processes were characterised by mutual recriminations instead of a joint search for the solution of problems. Consolidation of the new governance model would have required strong commitment from the government (political leadership and ministerial bureaucracy) as well as specific, feasible plans for organisational development and proper administration capacities for the implementation. However, these conditions were missing significantly.

Changes in the macrostructure obviously could not bring about a quick solution for the basic problems of the operation of the health care system: problems with the accessibility, quality and efficiency of care, doctor-patient relationships, informal payments and meeting consumer needs. This would have required the increasing of public spending and the establishment of professional structures (e.g. adequate economic and quality regulation), as well as the transformation of the microstructure⁶, which would have taken time.

2.2 Halt in the reform process

However, in the second half of the 1990s, the reform process halted, and instead of improving the functioning of the new institutions and continuing the reforms, the focus shifted to “putting out fires”. It had several reasons, both within and outside the health care sector. The short-term side effects, tensions of the transformation of the financing system were felt more than the expected long-term advantages. The most important side effects were: widespread avoidance of the payment of health insurance contributions, extensive DRG-manipulation and the fast growth in pharmaceutical expenses of NHIFA, regularly exceeding amounts planned in the budget, which resulted in the deficit of the Health Insurance Fund (HIF). However, the main reason for the halt of the reform was of economic nature. The transformation crisis unfolding in the economy in the early 1990s and the large budgetary deficit resulting from the fall of GDP pushed government policy to focus on the restoration of balance and the decrease of public spending. Consequently, the health care reform was subjected to economic stabilisation: the real value of public expenditure on health fell drastically (by 15%) in 1995–1996. (From 1997, it actually remained at the same level until 2001.) The actual measures were limited to “putting out fires” instead of developing new institutions and financing methods: reducing hospital capacities, managing the deficit of the HIF, mitigating tensions derived from the indebtedness of hospitals. Additionally, the government considered the idea of the early 1990s about the self-government and autonomy of SHI as mistaken and considered it necessary to increase the role of the government. The laws initiated by the MSZP-SZDSZ⁷ government in 1997 narrowed down the powers of self-governments. Then the FIDESZ-KDNP⁸ government that came into power in 1998 abolished health (and pension) insurance self-governments and social insurance became a chapter in the state budget, and the supervision of the NHIFA was transferred under the Ministry of Health. This institutional structure remained in place until 2010. Changes in certain characteristics of health insurance (e.g. contribution system) will be discussed later.

2.3 Attempt to involve commercial insurers in the operation of compulsory health insurance

Since the creation of the centralised (single-insurer) institutional system of SHI (the NHIFA) in 1993, various concepts emerged regarding its transformation, basically along the line of two strategies—regional decentralisation and privatisation. The concepts recommending regional decentralisation would have kept the institutional system of health insurance within the broadly interpreted public sphere but instead of the only insurer, the establishment of 5–7 independent, regional insurers were proposed. The advantages of regional insurers were considered to be derived from the regional, need-based distribution of resources, the better consideration of regional/local needs and service provider characteristics, and regional coordination. This model considered the role of competition important in the service provision and voluntary health insurance.

The debate of the supporters and opponents of the other model, i.e. the “system of multiple health insurers” or “competing insurers”, has accompanied and divided governments and political parties from the early 1990s.⁹ The model of competing insurers was far more than an institutional model: the basic difference between the single-insurer system and the system of multiple health insurers was the role of market players, i.e. private insurers. The supporters of the concept considered the involvement of commercial insurers in the operation of compulsory health insurance as a decisive issue of the health care reform. Their concept was based on the assumption that the state and the government are not able to modernise health care, only market players can do that. The basic conditions for efficient operation are competition and profit-orientation. The central effort of this strategy was for commercial insurers to take over the operation of compulsory health insurance from the centralised state organisation.¹⁰

The main driving force behind the implementation of competing insurers was the smaller party (SZDSZ) of the MSZP-SZDSZ coalition that had been governing the country since 2002 and won a new election in 2006; it was the main topic of difference from other parties (including the coalition partner) in the party’s election programme. The Ministry of Health controlled by the SZDSZ disclosed its radical proposal about competing insurers in January 2007: only commercial insurers would have been allowed to participate in the operation of the compulsory health insurance, and the NHIFA would have been abolished. In addition, the concept also foresaw that competition between insurers had to be created in the medium term concerning the service package and the contributions rate [7]. The Ministry of Health published the proposal whilst there was still no agreement in the government. The majority of the MSZP’s health politicians and MPs opposed it.

The disclosure and future fate of the proposal about competing insurers was fundamentally affected by the fact that after the 2006 elections, health care became the field of a double political conflict. One of the conflicts was between the two parties of the governing coalition, the other between the government and FIDESZ, which was again in opposition. After losing the elections, FIDESZ immediately launched a “political war” and chose health care as one of its battlefields. It also opposed the insurance reform, but the major point of attack was the co-payment for health services. (This will be discussed later.)

As a result of intense arguments and extensive technical work and consultations, the two governing parties reached a political compromise by the end of May 2007 [6]. The main elements of the bill on sickness funds were as follows:

• The NHIFA would have been transformed into an institution managing the Health Insurance Fund and only the financing of some high-cost, priority care would have been left for it.

• Health insurance basically would have been operated by sickness funds organised on a county basis with mixed ownership. The state would have acquired a minimum 51% ownership, consequently, business players could have obtained a maximum 49% share in a sickness fund.

• National risk pooling would have been ensured by the identical contribution rate and the compulsory territorial population coverage.

• At the same time, sickness funds could have accepted applicants from anywhere in the country.

It is obvious that the accepted organisational structure was a compromise between the two major approaches (regional and competing insurers): it included the elements of both regional organisation and the possibility of competition.

The Parliament passed the law in February 2008. However, the fate of the sickness funds was fundamentally affected by the referendum held on 9 March 2008 (and initiated by FIDESZ) regarding user charges (co-payment for outpatient services, hospital per diem fee and tuition fees in higher education).

2.4 Introduction and cancellation of user charges for health services

The government economic programme aimed at managing the budgetary deficit that had reached a critical level by 2006 implemented several austerity measures in the health care system. One of its elements was the introduction of user charges (co-payment for outpatient services and hospital per diem fee) in February 2007. The amount was actually minimal: patients who were not included in the exempted groups had to pay HUF 300 for a visit to the GP or a specialist and HUF 600 for a day spent in a hospital.¹¹ Approximately, 40% of the population was exempted. It is important to see that it was not the new user charges that represented the largest item in the increase of the burden on the population. To put the proportions into perspective, in 2007, the rise in the total cost-sharing on pharmaceuticals was four times the amount of the new user charges and it did not cause any political tension.

At the same time, FIDESZ understood that the user charges could be made a symbol of the growing general discontent of society and they initiated a referendum to cancel them. With simple political messages, they managed to present user charges as a symbol of the “anti-society” nature of government reform. Due to the deteriorating economic situation, tension had increased in society and new user charges became an easy, tangible target and focus of it. By the time the referendum took place, support for the government had hit rock bottom. Support for the cancellation of co-payments was overwhelming in the referendum held on 9 March 2008. This huge political loss predicted the unavoidable fall of the government in 2010. After the shock of the referendum, the SZDSZ left the government and the minority socialist government, partly because of fearing a new referendum initiative, submitted a bill to the Parliament in May 2008, repealing the law on sickness funds. Thus, the issues of co-payments and competing insurers were taken off the agenda for a long time.

2.5 Dismantling social health insurance

In 2010, FIDESZ-KDNP had a significant electoral victory: they won two-thirds of the parliamentary seats. There was widespread positive expectation for the government, including that it could start to overhaul the health care system. The matching concept was also in place: the State Secretariat for Health had developed a detailed reform programme with the involvement of a wide range of experts. One of its elements was the strengthening of the purchasing function of the NHIFA and the increasing of the transparency of SHI. However, this concept did not make impact on the real processes. During 2010, the concept for the transformation of public administration, which basically affected the institutional system of health administration, was being developed at the Prime Minister’s Office parallel to developing the health care reform concept but without any coordination. Out of the conflict between the two concepts, and between the leaders of the Prime Minister’s Office and the State Secretariat for Health, the concept of the Prime Minister’s Office emerged as the winner.

The transformation of the macrostructure of the health care system was subordinated to the strong centralisation of the public administration, one element of which (as of 1 January 2011) was the creation of county government offices with general competence (regional administrative bodies of the government). In the case of health care system, this affected the National Public Health Service (NPHS)¹² and the NHIFA. In 2011, their regional units were taken away and forced under county government offices. This meant the abolition of the national-level institutional system of health care administration (NPHS, NHIFA) that was separate from other areas of public administration. In 2017, the central office of the NHIFA, which was in operation until then, was also eliminated and its essential functions were merged into the Ministry of Human Resources. The legal successor of the NHIFA, the National Institute of Health Insurance Fund Management (NHIFM) has only narrow functions, basically the day-to-day management of payments to the providers. The government has eliminated not only the institutional system but also the legal and financial bases of SHI. The Constitution was replaced with the so-called Fundamental Law which does not include the notion or institution of social insurance at all. Even the phrase itself was left out of the Fundamental Law, indicating that social insurance was eliminated from the basic institutions of Hungarian society. In 2012, the employer contribution system was abolished and replaced with the social contribution tax. The transparent distribution of employer payments between pension insurance and health insurance has ended. This also meant that the essential characteristic of health insurance, that its financial fund is created by transparent rules, was eliminated. The extent of the health insurance fund is not defined by the regulated contribution revenues any longer but by the government decisions made during the development of the state budget. As a result of all this, the health financing system operating in Hungary remained health insurance only in name.

The other radical change covering the entire public administration was taking away the property and a significant portion of the powers of the local governments. In the area of health care, it covered hospitals. In 2012, the hospitals owned by local governments were transferred to central state ownership and the management of the more than 100 hospitals was transferred to a single national central institution.¹³ The power of the hospitals’ directors was reduced to a minimum. This irrational centralisation is in contrast with the specificities of health care, and also meant that the element of the 1990s reform that the relationship of the insurer and the service providers was based on a contract between them was also eliminated.

Changing the ministerial structure of the government was also part of the overcentralisation of public administration. Several, formerly independent ministries were merged into the newly created Ministry of Human Resources¹⁴, contributing to the weakening budgetary position of these areas. The Ministry of Human Resources was dismantled in 2022 and the management of health care was transferred to the Ministry of Interior Affairs.

2.6 Ending the autonomy of patients’ rights institutions

There was a radical reversal in the development of the system of independent patients’ rights institutions; it fell victim to the overcentralisation measures of the government. Prior to 2010, the Health Insurance Supervisory Authority and the Public Foundation for the Rights of Patients, Receivers of Health Care Services and Children performed tasks related to patients’ rights, both were independent of the Ministry of Health and the NHIFA. The FIDESZ government dismantled both institutions in 2010. The representation of patients’ rights was first transferred to a governmental back office which was abolished in 2017, and then they created the Integrated Rights Protection Service (IRPS) as an organisational unit of the Ministry of Human Resources. The patients’ rights advocacy organisation now operates as a sub-unit of a ministry. This is obviously dysfunctional since it is not independent of the operator of the health care institutions.

3. Key issues of the main components of social health insurance

As we saw in Section 2, out of the components of the SHI system, the transformation of the institutional system was at the forefront. However, it does not mean that there were no important changes in the other components of SHI. This section outlines key characteristics of the Hungarian SHI system and their impacts on the performance of the health care system.

SHI is a complex system with the following basic components: population coverage (entitlement to the SHI’s services); service-basket and cost coverage; funding (revenue-raising and pooling of funds); purchasing (purchaser-provider relationships) and the institutional arrangement. SHI system performs well if it ensures the population’s financial protection and contributes to access to care of good quality. Furthermore, it also ensures efficiency in the utilisation of financial resources and sustainable financing, as well as equity in both financing and access to care [8].

3.1 Population coverage

In terms of access to care, the regulation of entitlement to health insurance benefits is a fundamental issue. In the Hungarian SHI system, individuals can be divided into four major groups from the perspective of entitlement:

1. Insured persons who are entitled to the full range of social insurance benefits (health insurance benefits in kind and in cash, and pension insurance). The basis of this (until 2012): employer and employee contribution payment.

2. Those who are entitled to health insurance benefits in kind (health services) only but do not have to pay any contributions. This includes retirees, minors and those who receive regular income support in cash, either due to their health condition or social situation.

3. Those who are entitled to health insurance benefits in kind based on their own payments (flat-rate health service contribution). This group includes all those who do not belong to the previous two groups.

4. Those who do not have a valid insurance. This group includes those who were not entitled to health services based on the aforementioned legal grounds in the given period because of failing to pay the health insurance contribution or health service contribution.

Data show that the number of those not entitled to health services increased considerably between 2010 and 2020 (Table 2). In 2020, it meant approximately 700 thousand people, 7% of the population.

	Number of persons (thousands)		Proportion of persons
	2010	2020	2010 (%)	2020 (%)
Number of insurees	3844	4096	38.5	41.9
Persons entitled to health care services only	5728	4970	57.4	50.9
Persons without entitlement for health insurance	414	704	4.1	7.2
Population	9986	9770	100.0	100.0

Table 2.

Number and proportion of persons with and without entitlement for health insurance.

Source: Statistical Yearbooks of National Institute of Health Insurance Fund Management.

Individuals can lose their entitlement status for various reasons. Amongst those who emigrate, some do not de-register from health insurance for several years but do not pay contributions. There are many people living in permanent poverty who do not have any legal income (because they have dropped out of social benefits but have not been able to enter the labour market) and cannot pay the health service contribution. As a result of the above regulation of SHI entitlement, the radical curtailment of social benefit entitlement after 2010 may make it more difficult or impossible for the most vulnerable to access health care. However, we do not know how many of the 700 thousand uninsured people can be like that. After 2010, governmental measures outside health care made a controversial impact on this group of society. Reduction of the unemployment benefits to 3 months and the termination of regular social assistance could have increased their number substantially. However, this may have been partially compensated by the considerable expansion of the public labour programme between 2014 and 2018. However, the government has significantly narrowed down the public labour programme since 2019.

3.2 Service and cost coverage

Only a few services are explicitly excluded from the Hungarian SHI service package: treatments for aesthetic and recreational purposes and occupational health services. (Employers are responsible for financing occupational health services.) Cost-sharing is required for pharmaceuticals, therapeutic appliances, balneotherapy, tooth-preserving dental services for adults, treatment in sanatoria, long-term chronic care and some hotel services in hospitals.

In Hungary, the share of out-of-pocket payments (OOP) in total health spending is rather high, primarily due to the cost-sharing on medicines, the significant proportion of OTC medicine and the rise in outpatient care purchased in the private sector. A significant portion of the latter services could be used by individuals free of charge within the SHI system but due to the long waiting times, a significant portion of patients turn to providers in the private sector. These factors limit access to care by low-income groups of society significantly. Until 2020, informal payment was also a significant component of the OOP payment.¹⁵ In 2019, OOP payment amounted to 27.8% of total current health expenditure; 48.3% of the OOP payment was made up by pharmaceuticals (cost-sharing and OTC medicine together) and 32.3% by outpatient care.¹⁶

Indicators of out-of-pocket expenditure as a share of final household consumption and the share of households with catastrophic health spending (by consumption quantile) are used to assess financial protection and (barriers to) access to care [8]. OOP expenditure as a share of final household consumption was 3.8% in 2019 (the fifth highest in the EU). The share of households with catastrophic health spending was the fifth highest in the EU in the mid-2010s. Poor financial protection limits access to necessary health care on time in the case of disadvantaged social groups, which may gravely affect their health condition, increase inequality in health status as well as poverty and social inequalities.

The scheme of individual equity that the SHI primarily applies for certain very expensive, innovative medicines is an additional critical issue of access. Due to the constraint of financial resources, the inclusion of innovative, already registered medicines in the SHI system is often delayed. These include mostly drugs used for the treatment of cancer and inflammatory diseases, or the off-label application of medicines. In such cases, patients can try to get these medications based on an individual equity application. The weight of the problem is shown by the fact that these drugs accounted for only 1.5% of the SHI’s drug expenditure in 2010, which increased to 6.9% in 2019. Another group of individual equity, paid from hospital budgets, is composed of drugs used for the treatment of rare diseases. The scheme of individual equity can limit access in several ways: it may prevent access to adequate care, especially for patients from disadvantaged social groups who need it the most. Additionally, due to the prolonged authorisation procedure, access may be delayed for the patients concerned, which may reduce the chances of effective treatment.

3.3 Revenue-raising

From the mid-1990s, the changes and problems of the contribution system have been affected by economic and political factors from outside health system. At the end of the 1980s, when the goal was to replace the state health system financed from tax revenues with compulsory health insurance funded from contributions, the idea was that, assuming stable economic growth, the Health Insurance Fund would represent an increasing and predictable source for funding health care benefits (contrary to the previous annual budgetary negotiations). Additionally, the self-governance system of SHI would represent strong advocacy to ensure the funds. In the spirit of this concept, in 1993, 82% of revenues came from contributions (Table 3).

		1993 (%)	2000 (%)	2010 (%)	2015 (%)	2019 (%)
1	Revenues from employers and insurees	86	89	49	64	75
1.1	Employer’s insurance contributions; From 2012: social contribution tax	67	75	15	27	31
1.2	Insuree’s contribution	15	11	31	34	41
1.3	Other revenues from employers*	4	3	3	3	3
2	Transfers from government’s general revenues	13	10	45	29	18
3	Other revenues	1	1	6	7	7
	Total revenues of HIF	100	100	100	100	100

Table 3.

The share of the revenues from employers, insurees and government transfers in funding SHI.

^*

Primarily related to sick-leaves benefits.

Source: Statistical Yearbooks of National Institute of Health Insurance Fund Management.

The idea of stable revenues from contributions, however, proved to be an illusion. Since the introduction of the SHI, avoidance and evasion of contribution payment, including payment arrears, non-payment and underreporting of income have been widespread. Economic downturn, the relatively high level of contributions and the problems of contribution collection all contributed to these phenomena. From the establishment of the social insurance system, it was the employers’ fundamental demand to decrease the contributions rate. This process had started in the 1990s, but the basic change took place in the 2000s. In 1993, employers’ contribution constituted 19.5% of salaries and only 2.6% in 2010. Employee contributions totalled 6%. Health insurance contribution (employer and employee together) fell from 23.5 to 8.6% between 1994 and 2010. As a result of all this, the revenue structure of the Health Insurance Fund (HIF) changed radically: transfers from the state budget increased from 13% of the HIF revenues in 1993 to 45% in 2010 (Table 3). The amount of the transfers from the state budget was defined by the government in a discretionary manner.¹⁷ As presented previously, the changes after 2010 radically modified, essentially abolished, the SHI system. The employer contribution system of pension and health insurance was terminated in 2012 and replaced by a tax-type payment (the social contribution tax); as well as the transparent split of employer contribution rate between pension insurance and health insurance also ended. After 2012, the other important change was the fall of the share of transfers from general tax revenues in funding the HIF: from 45% in 2010 to 18% by 2019.

Since the drastic fall in the employer contribution revenues of the HIF was only partially compensated by the transfers from the state budget, the rise in the real value of the SHI expenditure was very low, it was below GDP growth. The spending of HIF made up 4.4% of GDP in 2010 and only 3.8% in 2019. As a result, in the past decades, the SHI system has had serious disturbances in the areas of financial sustainability¹⁸: the indebtedness of hospitals to suppliers (drug wholesalers and suppliers of health technology mainly) and the deficit of the Health Insurance Fund.

3.4 Purchaser- provider relationship

The NHIFA’s purchasing role was rather limited from its inception. In the case of the basic parameters of the financing system, the NHIFA only had a proposal-making role, the decisions were defined by government decrees or laws. The NHIFA’s room for manoeuvre was limited by the fact that there was no way for selective contracting, but it was obliged to conclude a contract with all service providers that the relevant legal regulations on health care capacities applied to.

The introduction of performance-based financing methods received the main emphasis in the reform process as the main means for the more efficient allocation of resources and the creation of a regulated competition. In 1993, as already mentioned, output-related payment methods were introduced for providers. However, three aspects were conflicted in the transformation of the provider-payment system. On the one hand, the efficiency approach: normative financing providing identical fees for the same performance. Political security was the other aspect, i.e. to go through the inevitable changes with as little conflict as possible. The third was cost-containment. The closed budget of HIF was maintained: “closed sub-budgets” were specified in the major service areas (e.g. specialised outpatient care, dental care, acute inpatient care etc.) and the total amounts of payments for health care services should have not exceeded them. To this end, several “brakes” were incorporated into the output-based provider-payment methods. In 2004, the implementation of the provider-level performance volume limit (PVL), which was introduced as a result of external economic pressures, further eroded the incentives of the payment methods (the “money follows the patient” principle). Originally, the PVL was meant to be temporary, but it is still a basic means for limiting expenses of HIF. As a result of all this, the positive effects of the performance financing were considerably weaker, whilst its side effects were stronger than expected based on international experiences. As mentioned before, in 2012, the government took hospitals away from local governments and centralised them under a single institution. This eliminated both the concept and the possibility of contractual relationships between financing agent and providers. The basic goal was to maintain the operability of the system and to mitigate disruptions, whilst public spending was kept extremely low. The reproduction of the indebtedness of hospitals showed that this expectation was not met, either.

The above shows that financial protection, equal access and ensuring good quality of services received little attention in the operation of the SHI system. The dominant aspects were cost containment and deficit management. A player whose basic interest would be ensuring financial protection, access and quality is missing from the Hungarian health financing system.

4. What factors led to the failure to establish a well-functioning SHI system?

A number of interlinked and mutually reinforcing factors from outside and inside the health sector have led to the failure of the health reform concept of the regime change, including the establishment of a well-functioning SHI system. First, the factors outside health care, then those within the health care system are discussed.

4.1 Lack of commitment by governments to comprehensive, longer-term reforms of the health system

Owing to the exceptional historical context of the regime change, the early 1990s meant a rare exception in the history of health system after the regime change: the basic conditions of the reform were present simultaneously to a sufficient extent for 2 to 3 years: the governments’ willingness, financial resources, professional concept, sufficient professional capacity for the implementation and, last but not least, sufficient support for / acceptance of the changes by medical professionals and opposition parties. However, from the middle of the 1990s, the lack of commitment to health care reform was dominant, which was part of the more general characteristics of governance (affecting education, environmental protection etc.): in setting government priorities, short-term political interests (the keeping of power) squeezed out aspects of longer-term societal interests and pushed them to the background [10]. In the rare cases, when government commitment was in place for decisions on health system (e.g. self-governing administration of health insurance), it was soon eroded either by short-term economic pressures or due to the “political war” between the political parties. The priorities of other sub-systems (public finance, public administration) superseded the professional aspects of health care.

In addition to the opportunistic behaviour of governments and the fights in the political arena, the following also contributed to the lack of priorities: the erroneous and outdated views of the political and economic elites on the role of health system; the weak position of the health care administration within the government; the low level of professional capacity of the health care administration; and the lack of a political agent capable of effectively manifesting the society’s dissatisfaction with the state of health system.

The Hungarian economic and political elite maintained their view, which was typical of state socialism, that health care (and education) were “non-productive sectors”. This is partly due to the fact that the neoliberal view dominant in the international arena in the 1980s and the 1990s primarily saw these sectors as a fiscal burden and, consequently, it considered the main task of governments to limit welfare (health) expenditure. The thinking of the Hungarian elite got stuck here and resisted the significant turnaround that took place internationally in the early 2000s: interpreting public spending on education and health as an investment in human resources came to the forefront again; it was recognised that their role is fundamental in long-term economic development [11].

4.2 Unfavourable economic policy context

The financial resources available to the health sector were shaped by international economic conditions (e.g. the 2008 crisis), Hungarian economic policy and the previously discussed political priorities. In the past three decades, Hungarian economic policy was characterised by the so-called stop-go cycles: the state overspent in election years, the obvious reason being the “buying of votes”. Consequently, a fiscal imbalance developed, which forced out austerity measures after the elections. Health care was one of the main losers of the stop-go budgetary cycles: it did not profit from electoral spending but was one of the main victims of austerity. When economic conditions were favourable and would have enabled the correction of the financial situation of health system (e.g. after 2012), the political intention was missing. Due to all these, public spending on health increased much more slowly than GDP¹⁹, apart from a few corrections forced by growing tensions²⁰ (Figure 1).

Figure 1.

The trends in GDP, public spending on health, OOP spending and total health expenditure (2005 = 100).

Figure 1 shows the gap between GDP and the growth of public spending on health that opened after 2005. In 2019, the GDP exceeded the 2005 level by 30%, whilst public expenditure on health—after a dramatic decrease—only returned to the 2005 level. In 2019, OOP spending was 11% higher and, in turn, total health expenditure was 3% higher than in 2005.

The trends of Hungarian health expenditure deviated from that of the EU14²¹ countries. This is reflected in that the ratio of public expenditure on health to GDP decreased: in 2005, it was 5.6% and only 4.3% in 2019; whilst the EU14 average increased from 6.4% in 2005 to 7.2% in 2019. Hungarian public expenditure on health per capita reached 50% of that of the EU14 in 1992, then 45% in 2005, and only 39% in 2019. Hungary is lagging behind not only the EU14 countries, but even the countries which had similar level of development and historical legacy in the early 1990s. Hungarian public expenditure on health per capita amounted to 90% of that of the Czech Republic in 1993, then 78% in 2005, and only 52% in 2019.

4.3 “Political trenches” between government and opposition

The political competition between government and opposition that was typical of the period of the regime change was replaced by “political trenches” by the early 2000s. The parties’ political wars and the dominance of short-time political interests in the operation of governments reinforced each other and rendered the development of strategies overarching governmental cycles and organisational innovations impossible in health system. The wars in party politics made the situation of sectors, where the timeframe for changes extends beyond governmental cycles difficult. The uncertainty and potential temporary tensions or negative side effects that necessarily accompany the changes can be easily used to trigger dissatisfaction with the government or to “materialise” the existing diffuse discontent. The most memorable example for the latter was the referendum against the user charges in 2008.

4.4 Fights within the government

When new governments took power, generally there was no mature concept to remedy the basic problems of health care. At the beginning of several governmental cycles, there was a struggle within the government between the heads of the health sector and other governmental units, and their various concepts regarding what measures and changes to make in health care system. An example is the attempt to introduce competing insurers and the collision of health and public administration reform concepts in the early 2010s.

4.5 Weak governmental position and inadequate capacity of health administration

The factors outlined above significantly limited the health administration’s space for manoeuvre. Apart from a few periods, the main expectation of government heads from health ministers was to “maintain peace” within the health care system (and not the comprehensive, fund-requiring transformation of health care). Health administration strived or was forced to adjust professional concepts to these expectations. The activity of health administration was dominated by austerity measures forming part of the budgetary consolidations, and the (also “fire-fighting”) measures aiming to mitigate the evolving tension (settling hospital debt, salary raise etc.). The low quality of the professional capacities of health administration also contributed to its weak position within the government (e.g. in the competition for budgetary sources). The government and the Ministry of Health were not able to meet the challenge of having to perform the everyday tasks related to the operation of the health care system and to manage the transformation of the health care system simultaneously. The successful transformation of the financing and delivery system would have required a longer period, systematic, continuous professional work and corrections. For example, in order to develop the efficient purchasing function of the NHIFA, the regular review of the parameters of DRG payment method and the build-up of the quality assurance system would have been necessary.

4.6 Spontaneous processes

In addition to governmental intervention, the spontaneous market processes (i.e. the efforts of market players, the grey economy and corruption etc.) also made an impact on the actual processes and the behaviour of health sector players. In the public sector, the patients’ informal (so-called “under-the-table”) payments and now the continuously and significantly expanding private sector were able to mitigate the tensions of the publicly funded system (thus it could work against the reforms). The growth of waiting lists that developed due to the drastic limitation of public spending and the deterioration of the quality and circumstances of care channelled patients who were able to pay towards the private sector. It has been accepted by some in society that they increasingly used private services for which they would have been entitled to within the SHI system. For a significant portion of doctors and nurses, simultaneous work in the public and private sectors provided sufficient income. Between 1991 and 2019 (at real value), the direct health spending of households rose 4.4-fold²², whilst in 2019, public spending was only 42% higher than in 1991 (whilst total health spending by 83%).

The governments failed (or did not make a strong effort) to develop a realistic concept regarding the role of the public and private sectors and the regulation of their relationship, taking into account both general health policy goals and Hungarian conditions. As for the regulation of private sector, governments were lagging behind market developments.

Upon the regime change, there were not any efforts made to eliminate under-the-table payments in health care. Several factors may have contributed to this. Some expected that the new financing methods would generate a competition between providers for patients, which may squeeze out informal payments. Many have thought that health care was somewhat still functional because of the informal payments and they were afraid that determined action against informal payments would endanger support for reforms. As already mentioned, it is not yet possible to see whether due to the significant increase of doctors’ salaries in 2021 and the enacting of strict sanctions, the under-the-table payments have forced out of Hungarian health care system.

5. Final remarks

It is visible from the history of the past decades that the early 1990s, owing to the exceptional historical context and the available reform concepts elaborated in the previous period meant a rare moment: the basic conditions for the reform of health system were in place and a comprehensive reform process started in the macrostructure. The introduction of SHI system meant not only a change in the funding, but also, along with the other changes, a new way of health system governance: distribution of power and responsibility over the resources of the health sector amongst the players of health system. The consolidation of this and successful transformation of other elements of the health system would have required continuation of reform steps: changes—mutually presupposing and reinforcing each other—in the macro-professional and microstructure. In general, changes in the macrostructure can provide conditions, incentives for a new professional- and microstructure to evolve, whilst these, in turn, are necessary for the macrostructure to function in a new way. In a longer-run, the appropriate macrostructure and professional structures can stimulate changes in the relationships between the key actors of health system (i.e. in the microstructure), which in turn, are necessary for the new macrostructure to become embedded in society. However, due to the factors analysed in the third section of the study, these processes did not materialise in the Hungarian health system. In the mid-1990s, the reform process came to a standstill and later, there was no intention/capability/opportunity to restart comprehensive reforms. After 2010, the governance and incentive system of the health sector has, in many aspects, reverted to a structure similar to the one before the regime change. The current health financing system can only be considered social health insurance in name, but not in substance. However, it would be a mistake to claim that the situation of the late 1980s has returned, due to two important differences. On the one hand, there were important developments in health care technology in Hungary, and on the other hand, an extensive private health care sector emerged.

The direct consequence of the combined effect of chronic underfinancing, the structural problems of health financing and service provision, the lack of incentives for the efficient operation of the health system, and the inadequate, overcentralised health governance are the human resource crisis (to which the new opportunities created by the EU accession and the local private sector also contributed) and the grave problems of access to health services and the quality of care. The broader societal consequence is that the health status of the Hungarian population is lagging behind not only the EU14 but also the neighbouring post-socialist countries. Our relative position is particularly grave in terms of avoidable (preventable or treatable) mortality which is an overall indicator of the health system performance. In Hungary, the avoidable mortality rate (per 100 thousand people younger than 75 years) was 2.4 times of the EU14 average, 1.6 times than it was in the Czech Republic and 1.4 times than in Poland in 2019. The social cost of the bad performance of the health system and, as part of it, the financing system, can be measured in human lives. In the 5-year period, between 2015 and 2019, 234 thousand Hungarians younger than 75 years died due to avoidable (preventable or treatable) causes. If we had reached the level of the Czech Republic (our avoidable mortality rate would have been the same), 86,000 (37%) fewer people younger than 75 years would have died in this period, and if we had reached the average of the three best-off countries (Spain, Italy and Sweden), approx. 149,000 (64%) fewer people younger than 75 years would have died (in this five-year period).