Reykjavik rising: Public Service Review: Europe - Issue 25

Reykjavik rising

16 April 2013

Iceland's healthcare system ranks among the best in Europe, but challenges remain, writes Minister of Welfare Gubjartur Hannesson...

The Icelandic welfare system is broadly comparable to the organisation of the welfare systems of the other Nordic countries, and healthcare and social welfare services are financed with general taxes. The social security system is divided into a pension, accident and sickness security system, and all persons with a legal domicile in Iceland have access to it. Iceland's population is about 322,000, and around two-thirds live in the capital and its vicinity.

The Icelandic pension fund system is financed by employers and employees. All active participants in the labour market pay premiums into pension funds and accumulate pension rights thereby. Those who are not active in the labour market are assured of certain minimum pension rights through the social security system. The method of financing the pension funds through an accumulation of assets instead of throughput financing is viewed as a great strength of the welfare system, especially in light of the rising average age of the nation.

The economic collapse in Iceland in the autumn of 2008 severely tested the foundations of the welfare system. As a result, it proved necessary to cut all expenditures. The government has deliberately spared the welfare system more than other public sectors but still had to cut healthcare spending by 20% in recent years. Healthcare expenditure amounts to 9.1% of GDP compared to 6.3% at the beginning of the 1980s. About 80% of healthcare spending is financed by the state and close to 20% through co-payments of the public.

The Icelandic healthcare system is considered one of the best in Europe. It is very accessible for those in need, waiting periods are short and efficiency is high. In spite of the spending cuts in recent years, Iceland is still in a good position compared to other European nations, coming in third out of 34 countries according to the Euro Health Consumer Index in 2012 – the same position it occupied in the previous survey in 2009.

However, experience has shown that the organisation and financing of the healthcare system can be improved in many areas. More than a year ago I ordered an extensive survey of the healthcare system with the assistance of an international consultancy. The objective was to evaluate the main strengths and weaknesses of the system and recommend improvements. The conclusions showed that the quality of healthcare services was generally high and the cost comparable to that of other European countries. Still, there are opportunities for change that could lead to better services and use of funds. There is a task ahead to make use of these opportunities.

Western nations are ageing fast, with birth rates declining and life expectancy on the increase. The Icelandic nation is relatively young by international standards, but over the coming decades its age composition will rapidly approach the levels commonly seen in Europe today. The Icelandic pension system is better placed to meet the rising average age of the nation than a normal throughput financing system could. The ageing population will, on the other hand, mean that the burden on the healthcare system and old-age services will increase, and it is important to meet these challenges.

One of the characteristics of Iceland's services for the elderly is the high proportion of older people in nursing homes. A determined effort has been made in recent years to change this. At-home nursing and home services have increased year after year, along with other services aimed at enabling older people to live in their own home as long as possible. This has yielded substantial results. It should also be mentioned that services for the elderly have hitherto largely been the responsibility of the state, but will in the next several years be shifted to the local authorities, as was done for disabled persons two years ago. The goal is to transfer the services closer to the residents and strengthen the role of local government.

After four difficult years, Treasury finances are rapidly recovering and in 2013, for the first time, there are no cuts in healthcare expenditures, and appropriations have been slightly increased. Nonetheless, there are great challenges ahead that need to be met to ensure the Icelandic healthcare system retains its position among Europe's best – while the welfare system must also be strengthened.