OECD Economic Surveys: Slovenia 2020

Report

OECD Economic Surveys: Slovenia

20 July 2020

2. Public policy challenges of ageing

Abstract

Population ageing leads to a sharp increase in the old-age dependency ratio, inducing some of the highest ageing-related spending pressures in the OECD. Higher pension spending reflects that low retirement ages allow Slovenian pensioners to spend more time in retirement than almost everywhere else. New spending pressures arise from the recent increase in accruals. Measures are needed to prolong working lives and encourage people to remain active beyond the statutory retirement age. The health and long-care systems will be faced with ageing induced increases and changes in demand. Containing spending pressures in this area require a more efficient and effective delivery of health services, pointing to the need for strengthening the use of price signals and allow greater supply autonomy.

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Ageing entails larger spending pressures than elsewhere

Population ageing is rapidly changing the age composition of the population, mostly reflecting very low fertility rates in the 1990s and 2000s. This creates profound challenges to public service provision in terms of financing, quality and coverage (Figure 2.1) (OECD, 2017a). By 2070, the population is projected to decline by 5½ per cent compared with today and the old-age dependency ratio to increase by two-thirds (peaking in the mid-2050s) as the older population (+65) expands by a third and the working age population contracts by a fifth (Figure 2.2) (European Commission, 2017). This development creates multiple challenges for public policies, ranging from promoting longer working lives to adjusting housing and transport policies for an older population. The government’s Active Ageing Strategy aims to address many of these challenges through a broad-based strategy to promote longer and healthier working lives, among others (IMAD, 2018). This chapter focusses on the public policy challenges of ageing, including their fiscal effects.

The fiscal effects of ageing are materialising. Already by 2030, the deficit in the public pension system is projected to have increased by 1 percentage point to 2.5% of GDP and by another percentage point five years later before reaching 5.3% by 2060 (European Commission, 2017a). Thus, the window of opportunity for implementing smooth and forward-looking reform is closing fast. Addressing these problems today would allow better distribution of costs between generations as well as enhance the possibility of benefitting from new opportunities through consensus-based reform.

Figure 2.1. A smaller active population will have to support larger numbers of pensioners

As a percentage of total population by gender¹

Figure 2.2. The old-age dependency ratio will increase until 2055

Total spending on pension, health and long-term care is projected to increase by 6.4 % of GDP by 2060 – more than in most other EU countries – before falling gradually (Table 2.1) (European Commission, 2018a). In addition, ongoing urbanisation may lead to faster ageing in rural areas, further complicating the delivery of public services (Daniele, Honiden and Lembcke, 2019).

The sustainability of the pension system is challenged by ageing

Most pension benefits come from the public pay-as-you-go (PAYG) pension system, amounting to 11% of GDP (close to the EU 28 average) and a quarter of total public spending (Figure 2.3) (OECD, 2018a). From 2050 onwards, the projected 4½ percentage points increase in the share of GDP spent on pensions will leave it among the highest in the OECD (OECD, 2017; European Commission, 2018a).

Public pensions are financed through social security contributions (totalling nearly 25%). Looking ahead, this means that social security revenues will remain constant as a share of GDP (Table 2.1). The resulting financing gap is expected to increase from 1.6% of GDP in 2020 (covered by the state budget) to 6% of GDP in 2050 before declining (OECD, 2017b) (Table 2.1). This large increase in intergenerational transfers will raise the financing burden of (smaller) future generations. Moreover, the gap could be larger. For example, a positive demographic shock (longer life expectancy) and a negative one (lower fertility rates) would both lead to larger gaps (Figure 2.4).

% of GDP unless otherwise indicated.
	Average change 2016-70	2016	2020	2025	2030	2035	2040	2045	2050	2055	2060	2065	2070
Potential Real GDP (growth rate)	1.5	1.0	2.1	1.9	1.6	1.5	1.3	1.2	1.2	1.4	1.6	1.6	1.4
Average effective exit age	2.1	60.5	62.6	62.6	62.6	62.6	62.6	62.6	62.6	62.6	62.6	62.6	62.6
Public pensions, gross as % of GDP	3.9	10.9	11.0	11.1	12.0	13.1	14.2	15.1	15.6	15.6	15.2	14.9	14.9
Public pensions, contributions as % of GDP	0.1	9.5	9.4	9.4	9.5	9.5	9.6	9.6	9.6	9.6	9.6	9.6	9.6
Gross replacement rate at retirement %	1.0	34.7	36.3	36.5	36.4	36.3	36.2	36.1	36.0	35.9	35.9	35.8	35.7
Benefit ratio	-0.8	31.8	30.1	29.5	29.3	29.6	29.9	30.0	30.0	30.0	30.0	30.4	31.0
Health care spending 1	1.0	5.6	5.8	6.1	6.3	6.5	6.7	6.8	6.8	6.8	6.8	6.8	6.7
Long-term care spending 2	0.9	0.9	1.0	1.0	1.1	1.3	1.4	1.6	1.7	1.8	1.8	1.8	1.8
Scenarios that differ from the baseline (evolution of public pensions, gross as % of GDP)
High life expectancy (+2 years) unchanged retirement age	4.9	10.9	11.0	11.2	12.1	13.2	14.3	15.3	15.9	16.0	15.8	15.6	15.8
Lower fertility (-20%)	6.5	10.9	11.0	11.1	12.0	13.1	14.4	15.6	16.5	16.8	16.8	16.9	17.4
Policy scenario linking retirement age to increases in life expectancy	2.6	10.9	11.0	11.1	12.0	13.1	14.0	14.8	15.1	15.0	14.5	13.9	13.6

1. Exclude health part of long-term care.

2. Include health and social part of long-term care.

Source: European Union, Ageing Report 2018, cross-country tables, AWG database.

Figure 2.3. Public spending on pensions is projected to increase sharply

Public pensions, gross as % of GDP

Figure 2.4. Ageing costs could easily increase more than projected

As a percentage of GDP

Old-age poverty is relatively high (OECD, 2017a) (Figure 2.5). Women’s more frequent career interruptions have led to a relatively gap of 11 ½ per cent between the poverty rates of retired women and men (European Commission, 2018b; Majcen, 2018a). The impact of poverty on material deprivation is somewhat offset by the generally high share of home-ownership with no mortgages (although housing quality may be an issue) (Chapter 3).

Figure 2.5. Poverty among pensioners is high in Slovenia

Percentage of persons aged over 65 living with less than 50% of median equalised disposable income, in 2017 or latest available year

Nearly one third of male retirees and more than half of female retirees receive public pension benefits that are below the national at-risk-of-poverty threshold (Figure 2.6). This reflects that nearly two-thirds of all old-age state pensions are in the bracket of EUR 400-EUR 800, lower than the monthly minimum wage (Pension and Disability Insurance Institute of Slovenia, 2019).The low pensions arise mainly from incomplete contribution periods, although low income bases also play a factor.

Figure 2.6. Most pensioners receive low public pensions

Public pension income distribution across income intervals

The public pension system is complicated

The low pension income reflects relatively short contribution periods as many people retire early, and often also low income bases. In 2013, a pension reform focussed on prolonging working lives has contributed some increase in the retirement age, although it remains among the lowest in the OECD (Box 2.1; Figure 2.7; OECD, 2018a). The limited progress partly reflects a minimum age of 60 for workers with a full 40 years contribution period (OECD, 2017a and 2019a). In addition, many older workers are using unemployment, disability and long-term sickness as pathways to early retirement (Chapter 3; OECD, 2016; OECD, 2017b).

Shorter working lives and longer life expectancy means that by 2070 the already relatively long time spent in retirement will increase by 3 years and 3 months for women and 1 year and 5 months for men – leading to some of the longest retirements in the OECD (Figure 2.8) (Pension and Disability Insurance Institute of Slovenia, 2019).

Box 2.1. The main elements of the 2013 pension reform

The main measures in the reform include:

1. Increasing the statutory pension age to 65 for men and for women by 2020

2. Tightening early retirement conditions by increasing the minimum age to 60 and the contribution period to 40 years.

3. Reducing the gender difference in accrual rates by keeping the 15 years minimum contribution period during which men will accrue 1.73% annually and women 1.93% annually. Thereafter, the 1.38% rate for women will gradually be reduced and aligned with the male rate of 1.25% by 2023.

4. Introducing a bonus/malus system for workers eligible for full pension with a 4% bonus for each year they defer retirement (max 3 years) and a 3.6% malus for each year of retiring earlier (max 5 years).

5. Increasing the calculation base for determining pension benefits from the best 19 to the best 24 years of earnings.

6. Replacing wage indexation of pensions with a composite index of 60% wages and 40% prices.

7. Creating more opportunities for combining pensions and work for workers eligible to full pension by allowing:

Combining part-time work with a proportional pension (with a 5% bonus for workers less than 65 years);
Working full-time and receiving 20% of pension benefits;
Supplementing full pensions with temporary and occasional work contracts.

Figure 2.7. The effective retirement ages are among the lowest in the OECD

2018

Figure 2.8. Time spend in retirement is longer than elsewhere

The pension system is highly redistributive

OECD micro simulations of the 2013 pension system show a systematic lack of actuarial fairness, meaning that most workers contribute much less to the pension system than they receive as pensioners. This reduces work and saving incentives for nearly all enrolees (Table 2.2). Moreover, the resulting large and increasing deficits must be financed by future generations of contributors, implying very large intergenerational transfers. Most income groups (and particularly women due to their longer life expectancy at age 65) contribute much less than they are receiving in benefits (OECD, 2019b). Only high-income men contribute as much as they receive. An illustration of the implication of the required intergenerational transfers is that to remove it, all benefits would have to be lowered to the guaranteed (minimum) pension, increasing risks of old-age poverty, or the total contribution rate would have to be increased by 10 percentage points with large negative effects on growth.

To reduce old-age poverty or gender gaps, other countries have targeted elements of redistribution in their public pension system to secure minimum retirement incomes or to compensate for parental leave. However, work and savings incentives are preserved in countries, like Denmark, that rely on tax financing as opposed to cross-subsidies within the system.

	Current rules		Four and a half years longer work lives		Index pension benefits to prices		Increase the pension contribution rate by 6.25 percentage points
	Male	Female	Male	Female	Male	Female	Male	Female
Minimum wage	55%	47%	76%	64%	60%	52%	69%	59%
2/3x Average wage	72%	62%	100%	84%	79%	68%	91%	78%
Average wage	85%	72%	103%	86%	93%	80%	107%	91%
5/3x Average wage	88%	75%	108%	89%	96%	82%	111%	94%
2x Average wage	92%	78%	113%	93%	100%	85%	116%	97%
3x Average wage	96%	81%	135%	111%	104%	88%	121%	101%
4x Average wage	131%	110%	190%	155%	141%	119%	165%	138%
Total balance in the system	-26%		0%		-15%		0%

Note: Microsimulations of the Slovenian Public pension system for different types of workers with 40 years of contributions. The balance in the system refers to the balance relative to contributions for all workers in a cohort, including factors such variations in mortality. The calculations are based on a similar set of conservative assumptions for wages and price inflation as in the EU ageing report. A 2.5 per cent discount rate is assumed.

Source: OECD calculations.

Alternatively, the intergenerational transfer could be removed by increasing working lives by four and a half years, according to OECD microsimulations, as this would bolster contributions and reduce pension outlays. This can be achieved by increasing the statutory retirement age to 67, and thereafter, if needed, link it to gains in life expectancy, like in Denmark, the Netherlands, Portugal, Finland and Italy (European Commission, 2017; OECD, 2018b) (OECD, 2019a). This would have to be accompanied by similar increases in the contribution period and the minimum age of 60 for workers with 40 years of contributions. Longer work lives is also the best guarantee against old age poverty. Alternatively, the intergenerational transfer could be removed by increasing the total pension contribution by six and a quarter percentage points, although such an increase would have a large negative impact on growth. However, these measures would not improve actuarial fairness. This could be achieved by removing the effective limit on pension benefits, arising from the method of indexing past incomes (see below). This would lead to a small increase in the system’s deficit, reflecting the low number of high-income men, and thus in intergenerational transfers.

Recent reform has increased pension generosity

A 2016 White Book explored various reform options, including: a) increasing the statutory pension age by 2 years and contribution periods by 5 years; b) indexing pensions to 30% wage growth and 70% price increases instead of the current 60%-40% split; c) introducing a mandatory second-pillar with contribution rates of 4%. Each of these measures would reduce pension spending or raise revenues by about 1% of GDP, and together cover nearly three-quarter of the projected long-term increase in pension spending. The book formed the basis for a 2017 agreement among social partners that had a somewhat different emphasis. The partners agreed that pension reform should focus on gradually increasing pensions to reach a minimum replacement rate of 70% and secure fiscal sustainability (Majcen, 2018a and 2018b; Majcen, Stropnik and Rupel, 2018). To achieve these objectives simultaneously, OECD calculations suggest that contribution rates would have to be 10 percentage points higher.

In October 2019, the government adopted changes to the pension law that will gradually increase the replacement rates for men and women with 40 years contributions to 63.5%, removing previous gender differences. Additional measures include that recipients of parental benefits will receive an additional 1.36% for each child (up to three children) and workers who are eligible for full pensions, but who continue to work will be entitled to 40% of their pension in the initial three years and thereafter 20%. OECD microsimulations show that the higher replacement rates will increase intergenerational transfers by about 20% and reduce actuarial fairness by some 8% for men and 3% for women. Financing the increase in pension spending requires expanding work lives by one year or raising the average contribution rate by two percentage points. Alternatively, as the increase in replacement rates would counter old-age poverty problems, financing could be achieved by indexing pension benefits only to price inflation. Either way, securing the system’s financial sustainability requires financing mechanisms for the proposed changes as well as for the current financing gap.

The link between earnings and pension entitlements is relatively weak

The design of public pensions is based on a strong link between earnings and pension entitlements in the PAYG public pension system, which is supplemented with a minimum pension and targeted schemes (OECD, 2017b and 2019a). However, a number of design features are weakening the link, creating disincentives to prolong work lives.

The previous accrual rules gave retiring men with 40 years of contributions a replacement rate of 57.25% and women of 60.25%. The gender difference in benefits in terms of total pay-outs is boosted by the higher female life expectancy. Until now, the higher female accrual rate has helped to offset the effects of shorter female contribution periods to keep pension gaps low, but higher female labour participation is expected to reduce or even reverse this effect (Figure 2.9) (Bratuz Ferk, B., Celebic, T., Mervic, H., Pecar, J., Perko, M., Selan, A., Sodja, 2017). The different accrual rates between men and women and over the contribution periods reduced transparency, making it more difficult for workers to predict their future pension benefits, and actuarial fairness of the system (Box 2.1). The new accrual rate that is equal for men and women lead to a more predictable and fairer system.

Figure 2.9. The pension gender gap is relatively low

In per cent, 65+ year-olds, 2015 or latest available¹

The new accrual rules bolster accumulated accruals, increasing the relatively low gross replacement rate, but a favourable tax regime for pensioners (see below) leads to a higher net replacement rate that is close to the OECD (OECD, 201b and 2018b) (Figure 2.10, Panel A).

Transfers in the system are further increased by the redistributive method for indexing past incomes. For incomes below four times the minimum pension rate base, past earnings are indexed with the growth of nominal net wages. The minimum pension rate base is set at 76.5% of the average monthly salary (slightly below the minimum wage) implying that low-income workers have their previous income uprated by more than they earn (Majcen, 2018; OECD, 2017c and 2019a). On the other hand, incomes above this index are not uprated, constituting an upper limit on pension benefits. This translates into a cap on pension benefits at around EUR 2 000/month for men and EUR 2 200/month for women after 40 years of contributions.

Figure 2.10. Replacement rates are close to the OECD average

An additional element of redistribution is the use of the best 24 years of net wages for determining pension benefits. This means that for those qualifying for a full pension, less than 60 per cent of the contribution period is used for calculating their benefits. The 24 year period is among the shortest in the OECD. A more actuarially fair system should be achieved by using lifetime income, as is done in most OECD countries with similar pension systems (OECD, 2017a).

Redistribution in the system was increased by the 2017 introduction of a guaranteed (minimum) old-age pension of around EUR 500 per month (four-fifth of the net minimum wage) for pensioners eligible for full pensions. This is higher than what a worker receiving the minimum wage is entitled to after 40 years of contributions. The measure enhanced basic social security and benefited around 10% of all old-age pensioners (European Commission, 2018).

Two additional elements of redistribution are incorporated in the coverage of career interruptions for childcare and unemployment (OECD, 2017b and 2019a). For maternity, paternity and parental leave, the pension contribution is paid by the state and based on income 12 months prior to the leave, ensuring no loss of accruals (Majcen, 2018a). Similar systems are in place in other OECD countries, but more unusual is that parents to toddlers (less than 3 years) switching to part-time work are treated as if they worked full-time and that parental leave entitles to early retirement (up to 48 months earlier) (European Commission, 2018b). Similar rules are in place for military personnel.

In most OECD countries, earlier retirement is allowed for workers with physically difficult or hazardous employment, although this is increasingly being subjected to remaining work capacity assessments. Such arguments are absent in the case of parental leave and the associated special early retirement rights should be reconsidered.

In addition, the unemployed have their contributions paid from the general budget. Moreover, benefit duration increases with age, reinforcing intergenerational transfer issues (Chapter 3). The unemployed who have exhausted their benefit entitlements have their contribution paid by the state for up to a year (and two years for unemployed persons older than 56).The redistributive features create safety nets to ensure that workers with interrupted careers maintain pension levels (Figure 2.11). To strengthen work incentives, the age specific rules should be removed.

Figure 2.11. Unemployment leads to limited reductions in pension benefits

Gross pension entitlements as a percentage of full-career entitlements, mandatory pensions only

Workers with short or incomplete working careers, with non-standard work (seasonal work, temporary agency works, etc.) or with a low contribution density have low pension benefits as their low-income base steer them towards the guaranteed old-age pension. (European Commission, 2018b). The same is the case for self-employed, with nearly 70% of them paying social security contributions on the minimum base (Majcen, 2018a). Recently contributions have been increased for contract workers and students. This should be generalised to ensure that contributions are paid on all work income. In addition, the ceiling on social security contributions for self-employed should be abolished, as recommended in the OECD’s tax review of Slovenia (OECD, 2018a).

Spending on survivor pensions constitutes 1 ½ per cent of GDP – almost 50% more than the OECD average. Survivor pensions are at least 70% of the deceased’s pension (lower if the survivor is entitled to a pension), helping to smooth living standards after a partner’s death. However, there is no obvious justification why survivors in their working-age should be granted higher safety-net benefits than others in similar low-income situations (OECD, 2018). Instead, a temporary survivor pension should be available to help adapt to the new situation.

The take-up of the bonus/malus system and the new measures to combine retirement and work from the 2013 reform has been increasing, but remains low. In early 2017 only half a per cent of all old-age pensioners continued to work (Figure 2.12 and Figure 2.13) (Majcen, 2018b; European Commission, 2018b). The possibility for combining work and pension is probably restricted by the very low availability of part-time work in Slovenia (Chapter 3).

The bonus/malus system is not actuarially neutral as the same parameters are applied for the years between the minimum age of 60 and the statutory retirement age of 65 (OECD, 2017c). To achieve actuarial neutrality, the system should be applied at a fixed point, such as the statutory retirement age. This would also allow for higher bonuses. Symmetric parameters, i.e. same values for bonuses and maluses, and same lengths for possible deferment and earlier retirement would make it easier to evaluate the consequences of such decisions.

Figure 2.12. Pensioners seldom work after 65

In thousand persons, 2012¹

Figure 2.13. Few older workers combine work and pension

Percentage of population aged 55-69 retired and employed, 2012

Pension indexation is supplemented with occasional discretionary adjustments (OECD, 2017c). This counters the decline in benefit ratios (benefits relative to wages) and thus relative poverty among pensioners, but at a high budgetary cost. Linking pension indexation to price developments (as in a number OECD countries, including France and Hungary) preserves pensioners’ purchasing power, with savings of ½ percent of GDP in the short-term and 2 per cent of GDP in the long-term, and reduce intergenerational transfers by a quarter (Table 2.2) (IMF, 2015).

Pension benefits are taxable in line with other income sources (OECD, 2017c). However, the tax system grants a high general basic tax allowance and pensioners are entitled to a tax credit equal to 13.5% of benefits received (OECD, 2018). Consequently, the average effective tax rate for old-age pensioners is less than 1% (OECD, 2018c). The special tax credit for pensioners implies a lack of horizontal equity as other low income tax payers do not have the same entitlement and should be abolished. The associated savings could be as high as 1% of GDP (IMF, 2015). Pensioners pay no health contributions (which are paid by the public pension fund) while being covered by the compulsory health insurance. As argued earlier by the OECD, health contributions entitles contributors to health coverage the same year and therefore pensioners should be liable for such contributions (OECD, 2018a). A more targeted approach would be to only keep the pensions tax credit and health contribution exemption for low income pensioners.

Savings in the second pillar are low

Occupational pension plans have been in place for 30 years. They are mandatory in the public and banking sectors as well as for hazardous occupations (European Commission, 2018b). Elsewhere, employers can set up occupational schemes if two-thirds of employees agree to join. Nearly two-third of all employees are members of a second pillar scheme, which is relatively high in the EU (OECD, 2017a and 2019a; Majcen, Stropnik and Rupel, 2018; European Commission, 2018). However, accumulated funds are very low, reflecting low premiums with an average contribution rate of 4% for younger enrolees (less than 35 years) and lower for older workers with higher incomes (Figure 2.14) (OECD, 2018b; Majcen, Stropnik and Rupel, 2018). As a result, benefits are only about 10% of average benefits in the first pillar (Figure 2.15). If all workers were members of occupational plans with a contribution rate of 4% for all, benefits could eventually reach 17% of average benefits.

Figure 2.14. Private pension savings are very low

Total assets in funded and private pension arrangements, % of GDP, 2018 or latest available year

Figure 2.15. Public pension benefits are the main income source for retirees

2016 or latest available year

Automatic features, such as automatic enrolment and increasing contributions over time, can be used to bolster participation and accumulated savings. Automatic enrolment could preserve individual choice by allowing people to opt-out (OECD, 2018b). Likewise, default options or simplified decision-making processes, for elements like contribution rates, pension provider, investment strategy etc. would help people with such – often difficult – choices. Currently, pension plan information is difficult to compare as providers are allowed to use a mix of asset-based and contribution-based fees. Providers should be required to furnish standardised information.

Increasing transparency through improved information about future pension benefits could help contributors to make more informed pension decisions. In the public pension system, only information about the contribution period is easily available. An individual pension monitor is being developed to allow contributors to see their pension benefits upon retirement and another monitor to simulate the pension consequences of working longer. The two monitors should be combined and include information from the first and second pillar systems to enable a single entry point for all relevant information, as in other countries (Box 2.2).

Box 2.2. Pension information for future retirees

A number of OECD countries have dedicated pension monitors, including Australia, Denmark, Estonia, France, Latvia, Netherlands and Sweden, as part of the financial education for retirees. Almost all OECD countries provide on-line information about public pensions, and many also for private pensions (OECD, 2016b). In general, such websites include some sort of calculation and simulation tools, although they vary in scope in terms of user-specific parameters, with for example the Danish site covers public and private benefits sources, whereas in Sweden the focus is on public pensions. In both places, workers can access personal information, such as contribution period and accumulated savings/accruals. Calculations and simulators are also used to provide personalised information about expected retirement age and benefits, and can include both public and private schemes, as in the Netherlands.

Surveys in Italy, Sweden and the UK indicate that most users find calculators and monitors useful for improving their understanding of their pension systems, although relatively few actually act on the provided information. This suggests that identifying what is the relevant information for users is complicated land that the value of such information depends on the user-friendliness of the systems. This suggests that the success of such systems require constantly updating their information content and their user-friendliness (Holzmann et al, 2020).

Second pillar pension plans are subject to relatively generous taxation rules (Figure 2.16) (OECD, 2018b). In 2017, employers and employees had joint tax relief of 5.844% of the employee’s gross wage, up to a ceiling of EUR 2 820 per year (a bit more than 10% of average annual wage income) (OECD, 2018c) Up to this ceiling, contributions are tax-exempt, as are investment earnings, while benefits are subject to the generous tax treatment discussed above. Enrolment could be incentivised in a fiscally neutral manner by increasing the ceiling for tax exempt contributions and reducing the associated tax advantages. Participation incentives for lower income earners could be enhanced with government-provided and targeted matching contributions or, alternatively, non-tax incentives, such as fixed nominal subsidies for contributions (OECD, 2018b).

Employees in hazardous occupations often use their plans as bridging pensions before entering the public old-age pensions system (Majcen, Stropnik and Rupel, 2018). The list of hazardous occupations has hardly been revised in half a century, pointing to poor targeting that allows able-bodied workers a pathway to early retirement. Furthermore, no measures are in place for employees in hazardous occupation to prolong working lives and widen end-of-career options to other occupations (Majcen, 2016). Regularly updating the list of hazardous occupations improves targeting and workers requesting their plans before 65 should be subject to the same labour market assessment as applicants for disability pensions, but extended to include jobs in other sectors.

Figure 2.16. Tax advantages to occupational schemes are generous

Present value of taxes saved over a lifetime, as a percentage of the present value of contributions, individuals with average earnings

Prudent investment rules impose maximum limits for the portfolio’s asset allocation in terms of equity, bank deposits, real estate, unregistered securities, and cash. The effectiveness of this regulation is undermined by a minimum rate of return requirement that penalise under-performance. This has induced pension funds to follow low equity investment strategies with low rates of returns (Figure 2.17). Making savings in second-pillar plans more attractive requires the removal of the minimum rate of return requirement.

Figure 2.17. Pension funds have very cautious investment strategies

Share of equity in total pension assets, % of total investments, 2018 or latest available year

Benefits are as a rule paid out as life annuities. However, popular options are accelerated pay-out schemes and lump-sum payments. These options limit the income-supplementary aspect of the second-pillar system and erode the ability of the small pension funds to engage in long-term investment strategies, as portfolios have to be continuously adjusted to members’ choices (Majcen, Stropnik and Rupel, 2018). Thus, the options of accelerated and lump sum payments should be reduced. This could be achieved, for example, by introducing a minimum time period for accelerated payments and a cap on lump sum payments. Moreover, long-term investment strategies are easier to pursue if such options are decided when signing up.

The health and long-term care sectors are challenged by population ageing

Population ageing will boost and change the demand for health and long-term care services. In addition, treatment progress translates into higher demand for new (and often more expensive) health services. In long-term care, an additional demand factor is that ongoing urbanisation makes it increasingly difficult for family members to engage in regular care activities.

Health care spending is high compared with peers

The health care system addressed the coronavirus health crisis rapidly and effectively. As discussed below, the system compares favourably in terms of efficiency when compared with peers. Nonetheless, structural problems in the sector raise cost, quality and safety concerns. Moreover, health care spending as a share of GDP is relatively high compared with countries in the region and with similar income levels (Figure 2.18). This has helped to improve life expectancy at birth and at 65 over the past 30 years to just above the OECD average (Figure 2.19). However, at age 65 the number of years spent in good health is relatively low, implying that older people can expect to spend more than half of their remaining years in need of medical care and assistance. Thus, the main challenge for the health and long-term care systems is to provide high quality services while keeping spending under control. Hence, cost-efficiency measures are needed. Existing instruments can be better used to improve allocation of scarce resources.

Figure 2.19. Life expectancy is relatively high, but health is poor for the older population

In years, 2017

Health care spending is relatively efficient as spending is lower than in countries with similar outcomes and when measured in terms of the distance to best performers (Figure 2.20). This picture is confirmed by various macro-level efficiency analyses that point to a moderately to highly efficient health system. Nonetheless, better resource utilisation could improve outcomes. For example, public spending efficiency analysis shows that more efficient use of current resources could secure similar outcomes with savings of up to two percentage points of GDP (Dutu and Sicari, 2016). This would suffice to finance half of the projected cost increase associated with the higher life expectancy in the EU’s ageing report (European Commission, 2018a). Moreover, more detailed performance indicators show a health care system with strengths and weaknesses and relatively large regional disparities (National Institute for Public Health, 2019).

Figure 2.20. Better resource utilisation could boost life expectancy significantly

2018¹

The higher life expectancy partly reflects progress in lowering amenable mortality (an indicator for the effectiveness of public health and health care systems in reducing premature deaths) to just above the EU average (OECD/European Observatory on Health Systems and Policies, 2017). This reflects, among other things, steady increases in some cancer survival rates reflecting in some areas the implementation of targeted screening and treatment programmes particularly for colon-rectal cancer and continuous declines in 30-days mortality rates after hospital admissions (National Institute for Public Health, 2019_.Both developments are signs of improved quality of health service provisions. Nonetheless, overall cancer mortality remains among the highest in the OECD (Figure 2.21) (OECD, 2019c). OECD calculations indicate that an overall mortality rate in line with the best Western European levels would lead up to 2000 fewer deaths per year.

Figure 2.21. Cancer is a leading cause of death

Deaths caused by neoplasms per 100 000 population (standardised rates¹), 2017 or latest available year

Other performance indicators for healthcare systems show a similar picture of progress and room for improvement. The 30-days mortality rate after hospital admissions for heart attacks has come down while for strokes it remains relatively high. (Figure 2.22). Likewise, diabetes-related lower extremity amputations have declined, but remain relatively high. Death due to pollution is relatively high. The same applies for preventable deaths from alcohol abuse, such as from chronic liver diseases. In most cases, these performance indicators exhibit substantial regional differences (OECD, 2019b).

The health care sector has a highly centralised and complex organisation. Governance and regulation is the responsibility of the Ministry of Health, which is also engaged in providing health services by owning all public hospitals (occasionally covering accumulated debt) and national institutes. Municipalities are in charge of primary care, including investments in primary health centres and pharmacies (OECD/European Observatory on Health Systems and Policies, 2017). Health coverage is universal with compulsory membership of the health insurance system’s single fund (the Health Insurance Institute of Slovenia – HIIS). The institute shares the responsibility for budgeting and securing the efficient provision of health services with the ministry. The institute balances its budget every year, leading to adjustments of spending plans during the year and pro-cyclical spending as revenues come from social security contributions (with pensioners and socially vulnerable groups covered by public funds). Ex-poste, surpluses are added to a reserve fund with a maximum size of 2% of average annual revenues. A larger reserve fund could be used to stabilise spending over the cycle to better link the supply and demand for health services.

Almost all who are liable for co-payments purchase complementary health insurance with community rated premiums, and thus similar premiums across the three (one public and two private) insurers. The economically disadvantaged have their co-payment covered by the government, ensuring access for all. Thus, complementary health insurance covers a relatively large share of spending, while out-of-pocket payments are relatively low. This secures an internationally low share of households with financial difficulties in meeting their health spending (Thomson, Cylus and Evetovits, 2019) (Figure 2.23). Unmet needs, however, is twice the EU average, reflecting long waiting times (see below) (OECD, 2019b).

Figure 2.22. In some areas, health care performance is poor

Age-sex standardised rate per 100 000 population

Figure 2.23. Out-of-pocket spending is low as most have complementary health insurance

Co-payments are seldom used to pursue health efficiency objectives. Each medical service has a coverage rate that determines the co-payment, but a lack of clear criteria for changing co-payment levels leads to ad-hoc changes that are driven by budgetary constraints (Panteli et al., 2015). The extensive use of complementary insurance, which cover all co-payments, means that all price signals embodied in co-payments are removed and thus play no role in restraining demand for health services. An additional driver of public spending is that the mandatory and complementary health insurance funds cover a very wide range of services.

Cost containment could be pursued by establishing explicit positive lists (as for pharmaceuticals) for covered services that exclude non-core health services (such as spa treatments) and out-of-date procedures. This could also allow smaller co-payments for services on the positive lists. Such positive lists are used elsewhere, including Australia, New Zealand, the Netherlands and Germany. Other countries with less explicit benefit packages (like the United Kingdom, Norway and Sweden) have a strong reliance on central guidance to effective and cost-efficient services.

The previous government’s coalition agreement includes the abolishment of the complementary health insurance. This would remove a potentially powerful cost-containment instrument to secure fiscal sustainability, particularly as this also implies abolishing all co-payments. Moreover, relying only on public health insurance would require substantially higher social security contributions with large negative growth impacts. This can only be avoided by substantially narrowing the public benefit basket, with negative consequences for health outcomes. Rather, the complementary health insurance funds could contribute to cost containment by allowing them to compete and offer insurance packages that correspond to individual needs. This should be complemented with an improved risk equalisation mechanism (Thomas, Thomson and Evetovits, 2015).

The primary care system could have a strong gatekeeper function

The primary care system includes 57 public health centres and nearly 1000 private providers, mostly general practitioners (GP) (Panteli et al., 2015). Primary care providers act as gatekeepers to steer and guide patients. The effectiveness of the gatekeeper function is hampered by insufficient communication between providers of primary and inpatient care (GPs and hospitals) with providers of outpatient/ambulatory care (public hospitals, private clinics and independent specialists). This has led to weak continuity and comprehensiveness of care, reducing its quality (Kringos et al., 2013).

The GP density is relatively low and unevenly distributed across the country, raising concerns of uneven access. Registration with a GP is becoming more difficult (Figure 2.24) (Buzeti et al., 2011; OECD, 2019b). The physician density is also relatively low, but the ratio of specialists to GPs is high. Combined with GPs’ high work-burden, this leads to an over-referral to specialist care, weakening the gatekeeper and patient guidance functions and increasing waiting times. Notably, more than 40% of visits to hospital emergency departments reflects a lack of available GPs – a much higher share than the EU average (National Institute for Public Health, 2019). The same pattern can be observed for registered nurses.

The government is developing a network of model practices, which employ graduate (registered) nurses to carry out some treatment and management of chronic patients (OECD, 2019b). This has improved care coordination and management of chronic diseases, reduced fragmentation of service organisation and enhanced coordination between providers across different care levels (Nolte et al., 2016; OECD/European Observatory on Health Systems and Policies, 2017). The model practices are also better at meeting increasingly complex health care needs of patients, particularly in terms of improved care integration and patient pathways that better respond to the expectations of better-informed patients (Kringos and Martins, 2016). Nonetheless, GPs still carry out tasks that are performed by nurses in other European countries, pointing to additional scope for transferring tasks (European Commission, 2019). Moreover, the role of nurses could be broadened in preventive care by expanding reimbursement rules from acute problems and interventions to include advising and counselling patients (Nolte et al., 2016)

Tackling the overreliance on specialists and hospital care requires financial incentives to expand the number of GPs (see below) and focus their activities on gatekeeping and patient guidance. This requires better information about quality of processes and procedures along the patients’ care pathways, requiring better quality indicators (OECD/EU, 2018). Moreover, patient pathways are not always well established. However, care pathways are used for less than half of all admitted patients and only few pathways are agreed at the national level (Albreht et al., 2016). Common pathways established centrally would further the efficient provision of services.

Figure 2.24. The few health practitioners are unequally distributed

Density per 1000 inhabitants, 2018 or latest year available

Preventive care could be strengthened

GPs could play a bigger role in preventive care. This is in many ways well developed, such as high participation in cancer screening programme (National Institute for Public Health, 2019). Good prevention and treatment management has led to relatively low rates of hospital admission for a number of chronic diseases. Compulsory vaccination programmes have been successful in securing high immunisation levels for most diseases with the exception of measles and hepatitis B. (OECD/EU, 2018). Also, influenza vaccination coverage for older people has fallen to just 12% in 2017 – among the lowest in the OECD and well below WHO’s recommended target of 75% (OECD/European Observatory on Health Systems and Policies, 2017; OECD, 2019b). Higher GP fees for such vaccine would give GPs’ stronger incentives to expand coverage.

Preventive care could further reduce the influence of lifestyle factors. Indeed, more than one-third of all deaths is related to behavioural risk factors (OECD, 2019b). Alcohol consumption and obesity rates are relatively high, particularly among younger people and those from weak socio-economic backgrounds (Figure 2.25) (IMAD, 2018). A positive development is a declining obesity rate among children (IMAD, 2019). Taxes could play a bigger role in this area. For example, there are high excise duties on beer and pure alcohol, but none on the more popular wine. As a result, average alcohol prices are a quarter lower than in neighbouring Austria (EuroStat, 2018). Extending excise duty to wine could counter the relatively high prevalence and death rate of alcoholic liver cirrhosis (National Institute for Public Health, 2019).

Stricter sanctions combined with counselling and rehabilitation measures have significantly reduced traffic accidents involving alcohol. Likewise, regulatory restrictions on smoking in public space, packaging and promotion combined with smoking cessation programmes have contributed to a decline in smoking, despite relatively low tobacco prices. Again, increasing tobacco taxes to those prevailing in other OECD European countries could further reduce smoking (www.statista.com, 2018).

The hospital sector has scope to become more efficient

The hospital sector has hardly changed over the past three decades, reflecting strong local resistance to close under-preforming services in smaller regional hospitals, implying limited adjustment to changes in health demand and population. The small general hospitals are offering a wide range of services, creating a risk of too infrequent interventions to secure efficiency, care quality and patient safety, contributing to regional disparities in outcomes (Panteli et al., 2015). For example, the hospital with the highest thirty-day mortality rate for heart attacks has the fewest admissions, and the rate is five times higher than the best performer (OECD, 2017). Such problems are compounded by a lack of uniform and structured information and quality assessment systems.

Hospital overcapacity is reflected in a high number of beds per capita, leading to low occupancy rates (Figure 2.26) (OECD/European Observatory on Health Systems and Policies, 2017). Hospital stays have declined to around the European average, while remaining relatively long for some common interventions, such as deliveries and heart attacks (OECD/EU, 2018). Also, a relatively high number of hospital discharges (number of patients leaving hospitals after more than one night’s stay) indicate an overuse of hospital-based inpatient care. Overcapacity can be addressed by establishing national guidelines for the required minimum number of interventions to maintain a service. Local access concerns should be addressed by allowing local authorities to finance continued service provision. Increasing the reliance on diagnosis related groups (DRGs – an output measure used for reimbursement purposes) could also be used to address overcapacity (see below). More generally, there is a need for creating a nation-wide monitoring system of quality, safety and efficiency.

Efficiency improvements are stalling. The share of day case surgeries increased until the early 2010s, before plateauing at a level that is less than a third of the EU average and with large differences in use for various interventions (European Commission, 2019 ;National Institute for Public Health, 2019; (OECD, 2019b). Further progress in developing ambulatory care could be achieved through better monitoring of hospital activities and adjusting payment models to make ambulatory care economically more favourable for hospitals (see below).

Figure 2.25. Lifestyle-related health risks are high

2018 or nearest year available¹

Figure 2.26. Health care provision is hospital-centred

The take-up of new technologies varies. Usage of MRI (magnetic resonance imaging) and CT (computed tomography) scans remain relatively low when compared with Europe. This reflects relatively few MRI and CT scanners. Moreover, the use of other imaging equipment, such as lithotiptors (machines for shattering kidney- and gall-stones) and PET scans (that use radioactive tracers) is among the lowest in Europe (EUROSTAT, 2018). In contrast, radiation therapy equipment is at comparable levels as elsewhere in Europe. This points to an uneven strategy for investing in and using hospital equipment. Modern hospital care improves cost-efficiency and quality of health service provision. It also attracts doctors. Larger investment autonomy (including multi-year budgets) would allow hospitals to better align investment needs with health demands.

The remuneration of doctors is not competitive

The supply of doctors has increased, reflecting the 2003 opening of a second medical faculty (contributing to a relatively high number of medical graduates) and immigration from neighbouring countries that has been attracted by higher wages (with foreign doctors accounting for nearly a fifth of all doctors) (Figure 2.27) (OECD, 2019c). However, wages are half those prevailing in Western Europe, leading to emigration of around 10% of all doctors and nurses (OECD, 2017d)

Figure 2.27. Remuneration of health workers remains relatively low

Hospital doctors are public employees, and paid accordingly to the civil servant pay scale. Agreements with hospitals allow doctors to complement their salaries with performance-related pay, including for extra hours, supplements for an intensive work schedule, stand-by duty and shift work. In addition, there are allowances for seniority, outdoor work, scientific titles, and bilingualism (Panteli et al., 2015). The most important source of additional income is extra hours, which often are “equivalent hours”, where specialists complete their weekly work norm in fewer hours.

These agreements reflect that the civil servant pay scale is considered inadequate for physicians in terms of pay and performance incentives (Panteli et al., 2015). However, the agreements lack transparency and lead to different pay for similar performance. Rather, it should be ensured that doctors have competitive salaries to retain and attract personnel and which incorporate performance incentives. The option of individual negotiations, like in Sweden, Switzerland, and the United States, could be included to secure management flexibility to use remuneration to address local problems.

The number of doctors could be expanded by extending their work lives as relatively few doctors work after 65 (Figure 2.28). Inducing older doctors to continue to work could boost the doctor density by, for example, offering stay-on bonuses.

Figure 2.28. Doctors retire early

Percentage of doctors by age group, 2018 or latest available year

Better planning, budgeting and payment systems could improve resource use

Health planning should be complemented with effective economic instruments. Health planning is centred on the National Health Plans. The previous version mostly presented a financial planning strategy rather than focusing on actionable areas, such as population needs, roles and responsibilities and quality targets. In 2016, the current version for 2016-2025 was adopted.

A more strategic planning approach would improve quality and cost-efficiency of health service provision by ensuring that health plans stipulate clear governance arrangements and include needs assessments with descriptions of roles and responsibilities for meeting concrete priorities and targets. This would make the HIIS a more effective purchaser, particularly if allowed to use selective contracting based on performance-oriented contracts with clear efficiency and quality objectives.

The annual health budget is defined by the HIIS in cooperation with the ministries of Health and Finance, determining a national budget cap and expected revenues (European Commission, 2019). Thereafter, annual General Agreements are negotiated among stakeholders to reach agreements on volumes of services to be provided, prices, etc. (Panteli et al., 2015).

The HIIS uses the General Agreements for issuing public tenders. The HIIS cannot selectively contract individual providers and all public providers and all private practices with public concessions receive a contract, removing competition incentives to secure lower prices and better quality. The public tender contracts contain mostly financial details, such as contract value, input elements, the volume and prices of services, and monitoring rules. However, these stipulations are not linked to evidence-based clinical pathways and treatment and are thus not promoting quality (Panteli et al., 2015). The budgets cap reimbursements, which removes incentives for altering the composition of service provision to demand changes. Agreements are normally finalised relatively late in the budget year, further reducing their effectiveness as steering instruments.

In the primary care system, half of providers’ remuneration comes from capitation (payment for patients registered with the provider) and the other half from fee-for-service payments (European Commission, 2019). Capitation is based on the population characteristics of the registered patients. Compared with other countries, the weights for the most work-intensive groups (older people, infants and young children) are relatively low. Better alignment of capitation with utilisation or cost data would improve incentives for GPs to settle in underserved areas (Panteli et al., 2015)

Most GPs reach their budget cap easily, limiting incentives for expanding service provision (Panteli et al., 2015). Increasing the share of fee income would make the payment system more output focussed. Basing some fees on public objectives could promote public screening and preventive programmes, such as flu vaccination of older people and keeping practices open outside normal working hours, like in the United Kingdom. Payments could also be used to reduce referral incentives by offering higher fees for minor interventions.

Linking payment to performance (as in France and the United Kingdom) requires better measurement of outcomes, requiring better reporting and information systems as well as a national programme for common clinical pathways and external inspection (Panteli et al., 2015; Ministry of Health, 2015). Alternatively, the introduction of integrated care payments (as in Belgium, Denmark, Germany and the Netherlands) could align the payment system with the objectives of moving to the family-based integrated primary care system, while strengthening the relatively weak continuity and comprehensiveness of primary care (Kringos and Martins, 2016; Kringos et al., 2013).

Payment for hospitals’ in-patient treatment is based on diagnostic-related-groups (DRGs – where payments cover average treatment costs) and fixed allocations. Budgets are planned according to available resources and past volumes. Hospitals receive 1/12 of the annual budget per month and they normally continue treating patients after the DRG-based budget cap has been reached (Panteli et al., 2015). Budget constraints are softened by revenues from complementary insurance and periodical coverage of accumulated debt by the government, leading to weak incentives for hospital management to adjust supply to changes in demand, pursue cost-efficiency and their budget ceilings.

The budget-centred financing of hospitals contributes to rationing in the form of persistent waiting lists and queues (Figure 2.29) (OECD, 2019). In 2016 and 2017, more than 100 000 people were on waiting lists for 48 selected services and a quarter of those had been waiting longer than allowed. The waiting problem is typically addressed through the ad-hoc allocation of additional funds, contributing to uneven health outcomes and development of supply (Majcen, Stropnik and Rupel, 2018). The 2003 DRGs were based on Australian data and have not been systematically updated. The resulting lack of cost reflectiveness in the DRGs, together with weak control of reported cases and medical documentation, removes their effectiveness as steering instruments (OECD/European Observatory on Health Systems and Policies, 2017; Panteli et al., 2015). DRGs are being updated by the National Health Institute as a one-off exercise. Regular updates of DRGs and documentation systems should be combined with budget targets to allow hospitals to respond to the output and efficiency incentives in the DRGs (OECD/EU, 2018). However, hospitals also need greater autonomy in their supply and investment decisions to enable them to adjust their health service supply and allow for more specialisation. Budget concerns could be addressed by introducing a national budget cap with a retrospective adjustment of each hospital’s budget target and reimbursements.

Figure 2.29. Waiting times for treatment are long

Payments for hospitals and health centres’ outpatient (specialised ambulatory) services are based on fee-for-services and negotiated budgets, which are the same for all specialist teams within a given speciality. The supply incentives in the fee-for-service payments are rendered ineffective by budget caps (Panteli et al., 2015). Moreover, the billing catalogue is rarely updated; leading to fees that are based on outdated cost estimates and which for similar services in different specialties can vary by a factor 10. Thus, the billing catalogue for the fees-for-services should be updated and fees should become cost reflective. Tendering and selection of providers would be additional steps forward. As in-patient budgets, budget caps should be replaced by budget targets.

Better public procurement and information systems can lower costs

Pharmaceutical spending as a share of GDP is around the EU average (Figure 2.30) (European Commission, 2019). Prices are regulated with an external price referencing mechanism that sets maximum prices at 92% of the lowest prices in Austria, Germany and France (OECD/EU, 2018). There is also an internal price referencing system, which identifies the lowest prices among mutually interchangeable pharmaceuticals, providing incentives for switching to generics.

Figure 2.30. Spending on pharmaceuticals is about average

Total pharmaceutical, % of GDP, 2018 or latest year available

The use of generics remains below the OECD average, held back by pharmaceuticals being fully covered by the complementary insurances (Figure 2.31). (OECD/EU, 2018). Additional factors holding back greater use of generics include the effects of Slovenia being a small market. Nonetheless, incentives to use generics could be enhanced further by making guidelines for generic substitution more binding, and imposing quotas on GPs, as in Belgium and France. Other cost containment measures would include accelerating approval procedures for generics that are authorised at the European level, implementing centralised public procurement and focus the external price mechanism on countries with high shares and low prices of generics (Majcen, Stropnik and Rupel, 2018). Centralised public procurement could counter cartel activities among pharmaceutical wholesalers rather than rely on the competition authority (OECD, 2018d). In Italy, such centralisation has led to savings in the order of nearly 15% (Gutgeld, 2018). The successful implementation of these measures may require changes in other parts of the health system, such as the complementary health insurance.

A related issue is how to enhance the use of biosimilars. Compared with generics, these have more complex molecules and are not exact copies of more expensive existing drugs while having similar therapeutic and clinical results. Their use can be promoted by making guidelines for substitution more binding and allowing pharmacies to at least propose substitution, while focusing reference pricing and reimbursement rates on the cheapest alternative. Financial rewards to doctors for prescribing the cheapest alternative could also be considered (Brill, 2016).

An additional obstacle to lower medicine prices is weak competition (Figure 2.32). Compared with other OECD countries, there is scope to reduce pharmacy location regulation that leads to local monopolies, which would allow for more price competition. Such a measure may entail using public service obligation regulation to secure continued service provision in less densely populated areas (Vogler, 2014). The removal of location restrictions should be complemented by limiting ownership restrictions to expand investment possibilities for non-pharmacists and by liberalising advertising rules.

Figure 2.31. The use of generics remains below average

Per cent of the total pharmaceutical market, 2017

Figure 2.32. Regulation is holding back competition in medicine sales

Product market regulation of retail sales of medicines indicator from 1 (least restrictive) to 6 (most restrictive), 2018

The 2008 National eHealth project aimed at creating a common electronic health information system to overcome fragmentation, poor connections and information flows (Stanimirović, 2015; Nolte et al., 2016). In 2015, the management responsibility was moved to the National Institute of Public Health (Kokol, 2018). Since then, considerable progress has been made in terms of the interface between providers and patients with more than 90% coverage of ePresciptions and eReferrals (Rant, 2018). In addition, the Health Insurance Card has been rolled out by the Health Insurance Institute across the country. Progress has also been made in terms of electronic gathering and exchange of administrative, cost and medical data between providers and national institutes.

Better data gathering and exchange is needed to improve planning and management, to enable IT-supported treatment decisions and develop a nation-wide monitoring system of quality, safety and efficiency. The data is needed to develop Health Technology Assessments (HTAs) for evaluating clinical effectiveness, safety, and cost-effectiveness of existing and new procedures and technologies as well as for cost-benefit analysis to support the envisaged HTA agency (Ministry of Health, 2010) (Offerman, 2016; Iljaž, Meglič and Švab, 2011; European Commission, 2019). In addition, HTAs could be used to adjust co-payments to promote cost efficiency. By 2018, there was still no common eHealth platform for providers, and many private health care providers remain poorly integrated (Kokol, 2018; Rant, 2018). Another issue is the lack eHealth competencies and skills among health care workers, requiring a substantial expansion of the few programmes in place.

Long-term care is facing a demand surge

Demand for long-term care (LTC) will increase with population ageing, a doubling of the share of very old people (+80) in the population by 2050, and higher numbers of patients with chronic conditions and of single households among the elderly (Nolte et al., 2016; OECD, 2019). LTC spending is projected to increase faster than health care spending (Figure 2.33). The uncertainties surrounding this estimate are large. For example, a positive demographic shock in the form of longer-then-expected life expectancy could lead to four times higher increases in public spending The authorities recognised the need for long-term care reform more than 15 years ago and more recently in the Active Ageing Strategy (IMAD, 2018). However, the proposed Act on Long-Term Care to integrate different resources and providers in long-term care and secure sustainable financing remains under preparation (Majcen, Stropnik and Rupel, 2018).

Figure 2.33. Long-term projections of public health and long-term care expenditures

As a percentage of GDP

LTC spending is relatively low and mostly on institutional care. About 11½% of the older population, lower than elsewhere, receives one or another form of LTC. Institutional care accounts for about three quarters of all LTC spending (Figure 2.34 and Figure 2.35) (Normand, 2016). Relatively few older long-term care recipients receive care at home (OECD, 2019c). The available LTC supply covers only a small share of perceived needs, as retirees spend a relatively large part of their retirement in poor health and have relatively large perceived health related limitation in their daily activities (Figure 2.36) (OECD, 2019c; European Commission, 2019).

Figure 2.34. Public long-term care spending is relatively low

Public long-term care spending as % of GDP, 2016

Figure 2.35. The share of institutional long-term care is relatively high

Recipients as a percentage of the population aged +65, 2018 or latest available year

Long-term care is provided in the form of in-kind services by the health and social care sectors and by cash allowances for care and assistance. In addition, family assistants that provide home care for the disabled are compensated for lost income at the level of the minimum wage. In contrast with most other countries, the costs for recipients, even for moderate needs, are much higher for home-based care compared with institutional care to an extent where affordability becomes an issue and people are moved to institutional care (OECD, 2018c). Even family members would favour such a move as they are legally required to support recipients and means testing is based on the income of the family members (Muir, 2017). The affordability issue induces longer hospital stays and led during the economic crisis to people being left at home without proper care. The unusual legal requirement should be removed and means testing should be on the recipient’s income.

Figure 2.36. A relatively high share of old-age people need assistance due to health problems

Service provision, governance and financing are fragmented and overlapping (IMAD, 2018). Different legal acts are in place for each of the before mentioned benefits (European Commission, 2019). Moreover, the numerous financing sources include the HIIS, other health insurers, the Pension Fund, the Ministry of Labour, Family, Social Affairs and Equal opportunities, local governments and private providers (Normand, 2016). This has led to fragmented and overlapping service provision, governance and financing Common financing mechanisms would help coordination and improve efficiency. More generally, providing home-care is often cheaper (particularly for low needs) and often a preferred solution. In addition, a greater reliance on home-care would reduce the need for institutional care, which together with increasing efficiency, would partly finance the projected increase in LTC. Remaining financing needs should be addressed through the state budget to avoid higher social security contributions.

The lack of coordination and clarity about roles, responsibilities and communication between actors complicates planning and quality standard setting (Majcen, Stropnik and Rupel, 2018). There is no unified entry point or standard model for assessing care needs leading to different eligibility criteria between LTC services and with assessments by different expert teams, leading to a lack of transparency and uneven access (Nolte et al., 2016; European Commission, 2019). Eligibility and assessments should be aligned for similar care services. The focus on institutional service provision removes attention from prevention, regaining skills and other measures that allow people to remain in their homes (Normand, 2016).

Currently, means-testing criteria in home-based care excludes the value of owner-occupied housing. Including it and deferring payments by making a similar sized stake in the heritance, as in Denmark, would better align means testing with ability to pay. Greater emphasis on means-tested user-fees would increase self-assessment incentives and reduce the need for bureaucratic assessments. At the same time, user-fees give recipients incentives ensure that they get value for money, improving quality monitoring. In addition, the level of user-fees should make home care financially more attractive as compared with institutional care.

The supply of institutional LTC can be expanded by converting vacant wards or smaller inefficient general hospitals to long-term care purposes. Residential institutional care could be reduced through more home-based care, often a more cost-efficient alternative (particularly for moderate care needs) that better responds to people’s preferences (Muir, 2017)(CURAVIVA, 2016). This requires a more integrated approach of community nursing and home help (European Commission, 2019). Public tendering with time-limited contracts and strong emphasis on input requirements (such as staff, procedures, etc.) mimicking conditions for public providers has limited market entry. Focussing long-term care tenders on output and quality would facilitate entry of new innovate private providers would secure a more flexible expansion of supply.

FINDINGS (main findings in bold)	RECOMMENDATIONS (key recommendations in bold)
Preparing the pension system for population ageing
Recent reform of the public pension system has eroded its fiscal sustainability increasing further the need for intergenerational transfers	Increase the statutory retirement age to 67 for both men and women. Link further increases, if needed, to gains in life expectancy. Index pension benefits to price developments
Old-age pension benefits and the effective retirement age are low while work and saving incentives are eroded by a lack of actuarial fairness	Adjust the parameters of the public pension system to better align contributions and benefits for all contributors. Make bonuses and maluses symmetric and applicable at a fixed point, such as the statutory retirement age. Increase the number of years used in the income base for calculating pension benefits to include all years worked.
Lack of actuarial fairness leads to redistribution and erosion of work and saving incentives, contributing to an internationally low effective retirement age	Ensure that contributions are paid on all labour income
Special retirement systems provide exit routes	Update the list of hazardous occupations. Introduce work assessments for early retirement in all remaining special retirement systems.
Savings in the second pillar is low, particularly for low-income workers	Make enrolment in the second pillar an opt-out choice. Reduce tax advantages while applying them to higher contributions; introduce matching contributions for low-wage workers. Reduce the possibilities for accelerated pay-out and lump-sum payments
Coping with rising demand for health care
Co-payments are ineffective	Establish positive lists for covered services and improve guidance
The gatekeeper role of primary care is hampered by weak information exchange and low GP density	Make per-patient payment (capitation) and fees-for-services cost-reflective. Use the per-patient payment to attract GPs to underserved areas. Improve national patient pathways Increase the share of fee income while making the billing catalogue cost-reflective. Replace budget caps with targets.
Preventive care is weak in some areas	Increase GP fees for preventive measures and minor interventions Raise tobacco and alcohol taxes to counter lifestyle factors.
Planning and budgeting are not performance oriented	Introduce selective public tenders for health services. The tenders should be linked to evidence based clinical pathways and treatments Use updated reimbursements for all acute services. Plans should include governance arrangements and needs assessments with clear descriptions of roles and responsibilities.
The many small general hospitals lead to inefficiencies in cost, quality and safety	Establish required minimum interventions for maintaining services, while giving management greater responsibility in service supply decisions. Create a nation-wide monitoring system of quality, safety and efficiency.
Hospital doctors’ remuneration contains few performance incentives	Ensuring competitive salaries and performance incentives for doctors.
Waiting lists remain a concern	Regularly update DRGs. Replace hospitals’ budget caps with budget targets under an umbrella of a national budget cap with retrospective adjustment of individual budgets.
The use of generics is low	Focus reimbursement rates on generics and biosimilars and make guidelines more binding. In medicine sales, remove location regulation and liberalise advertising rules and investment regulation.
Information exchange between providers is low	Improve the electronic gathering and exchange of administrative and medical data.
Developing long-term care
The low LTC spending is focussed on institutional care with many providers and uneven access	Integrate LTC with common financing mechanisms and eligibility criteria.
Home-care is underdeveloped	Integrate regulation and provision of community nursing and home help. Facilitate entry of private home care providers through quality and output-focussed tenders.

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