The document discusses Finland's draft act on financing counties. Key points include: 1) The draft act transitions county funding from an expenditure-based model to a computational model between 2020-2023 to achieve 2.8 billion euro in savings by 2030. 2) Under the computational model, 90% of funding will be based on needs for different age groups and illnesses, with annual funding ceilings based on county expenditure increases plus 1% in 2020-2021 and 0.5% from 2022. 3) The predicted nominal growth rate of social and health care expenditures would be around 4.5% annually, but to achieve the 3 billion euro target, expenditures can only grow up to 3% per

1. 15.8.2016 1
The Draft
Act of Financing of the Counties
Noora Heinonen 6 July 2016
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2. 15.8.2016 2
The basic components of the Draft Act of the Financing of the Counties
1) Act concerns only the financial flow between the state and the counties (= separate Act on Central
Government Transfers to Local Governments and legislation on the financing flows between a county
and service providers)
2) The counties receive income only from the state funding and the client and user fees
3) State funding is computational (= not fully based on actual expenditure)
4) The state funding is not ear-marked; counties have self-rule (autonomy) to decide on the allocation of
the funding
5) The counties have limited possibilities to obtain short-term loan either from the private market or from
the state
6) Possible changes in the counties statutory tasks will be taken into account in the funding
7) Counties have the powers to charge client and user fees, which are set (= maximum amounts) in the
legislation
8) The level of the state funding is reviewed annually
9) The basis/determination of funding is reviews at least every 4th year
10) Financing of year 2019 is based on the actual expenditure by municipalities (based on the financial
statement of year 2016 in value of 2019)
11) Transition period years 2020-2023: gradual shift from expenditure-based costs to computational costs
12) The ceiling for the state funding is set on the basis of counties actual expenditure, which is annually
reviewed only by using a new county index, which then is added with 1 percentage unit in years 2020-
2021 and with 0.5 percentage unit from year 2022 onwards
13) If a county face serious liquidity problem, and if a loan is not usable, the government can allocate a
state subsidy. A review process will also be started by the state and the county.
14) The work is still ongoing for the design of counties’ other tasks (e.g. employment services,
surveillance authority tasks, sectors of tansport and agriculture)  new tasks, Act on financing will
eventually also be reviewed (even before it enters into force 2019)
15) The state funding will be paid on a monthly basis to the county without an application.
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3. 15.8.2016 3
Share,
%
Millions of € The basis/determination of funding
Social and health care
services
Per capita 7,5 1 325,24 Maakunnan asukasmäärän ja sosiaali- ja terveydenhuollon
asukaskohtaisen perushinnan tulo
Service needs and
circumstances of the regions
 Age groups 38,1 6 737,37 Maakunnan ikäryhmien asukasmäärien ja ikäryhmien
perushintojen tulojen summa
 Determinants/Reasons for
the use of health and
social care services
48,9 8 635,47 Maakunnan tarvekertoimen, maakunnan asukasmäärän ja
tarpeen perushinnan tulo. THL laskee jokaiselle maakunnalle
sosiaali- ja terveydenhuollon tarvekertoimen
 Population density 1,0 176,70 Maakunnan asukastiheyskertoimen, maakunnan asukasmäärän ja
asukastiheyden perushinnan tulo. Maakunnan
asukastiheyskerroin lasketaan jakamalla koko maan
keskimääräinen asukastiheys maakunnan asukastiheydellä.
 Non-native Finnish or
Swedish speaking
residents
1,0 176,70 Maakunnan vieraskielisyyskertoimen, maakunnan asukasmäärän
ja vieraskielisyyden perushinnan tulo. Maakunnan
vieraskielisyyskerroin lasketaan jakamalla maakunnan
vieraskielisten asukkaiden osuus vastaavalla koko maan
keskimääräisellä vieraskielisten asukkaiden osuudella.
Promotion of wellbeing and
health
1,0 176,70 Maakunnan hyte-kertoimen, maakunnan asukasmäärän ja
hyvinvoinnin ja terveyden edistämisen perushinnan tulo.
Other services e.g. rescue
services
Per capita 2,5 441,75 Maakunnan asukasmäärän ja muiden tehtävien asukaskohtaisen
perushinnan tulo
In total 100 17 669,93 UNOFFICIAL
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4. 15.8.2016 4
The key components of the Draft Act and how to achieve the 3
billion euro savings
1) Shift in the state funding system from expenditure-based costs to computational
costs
1) 5 years gradual transition period years 20(19)20-2023 (in 2019: 100 % expenditure, in
2020: 80 expenditure – 20 computational %, in 2021: 60 expenditure - 40 %
computational …)
2) Computational costs: 90 % of funding based on (i) the needs of 9 age groups and (ii)
the realization of service needs based on illnesses and socio-economic status
2) Annual ceiling for state funding from year 2020 onwards:
1) Counties’ expenditure level increase will be taken into account on the basis of a new
county index, which is composed from the consumer price index (0.40), wage-level
index (0.45) and the change of counties’ employer social security fees (0.15)
2) The increase based on the change (increase) of the county index will be added in years
2020-2021 with 1 percentage point and from 2022 onwards on 0,5 percentage point
-- Actual costs/expenditure is annually taken into account, but not fully
---> The funding model leads to the savings of 2,8 billion euro by the year 2030
-- The funding system demands/challenges/empowers the counties to improve
operational efficiency, manage better the provision of services and service needs as well as
define (even to limit) the scope of publicly funded services
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5. 15.8.2016 5
The baseline scenario of the nominal health and social services
expenditure growth in 2020-2029
0
1
2
3
4
5
6
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
SOME-mallin ennakoima sote-menojen
vuotuinen kasvu, %
Tuotantokustannusten
ennakoitu kasvu (tuottavuus 0
%, nimellisansiot 3 %)
Palvelutarpeen kasvu (väestön
ikärakenteen aiheuttama
paine)
3 mrd. tavoitteen mukainen
kasvu
 Nominal expenditure
growth would be
approximately 4,5 %
 In order to achieve the
set aim to decrease the
3 billion € of social and
health care costs, the
expenditure should be
max. 3 % / year in
2020–2029
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6. 15.8.2016 6
The prediction/forecast of the nominal expenditure growth of social and
health care in years 2019-2029
18.0
20.0
22.0
24.0
26.0
28.0
30.0
2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Mrd.euroa
Nimellisten sote-menojen kehitys
Maakuntaindeksin ennuste 2,6 % (painot: ATI = 45 %, sotu-maksut = 15 %, KHI = 40%)
Perusura: 1,5 % palvelutarve + 1 % reaalipalkat + 2 % inflaatio
Lakiesitys (reaalinen säästö 2,8 mrd.): Maakuntaindeksi + 1 % v. 2020-2021; Maakuntaindeksi + 0,5 % v. 2022-2029
Tavoiteura (reaalinen 3 mrd. säästötavoite): Maakuntaindeksi + 0,5 % v. 2020-2029
3 mrd. säästö
nykyrahassa
= nimellisesti
n. 3,7 mrd.
 Blue =
Baseline
scenario of
expenditure
 Red = Draft
Act on the
financing of
the counties
 Yellow =
The aim to
achieve the
3 billion
euro
savings
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7. 15.8.2016 7
Steering of the counties’ resource allocation
COUNTY
COUNTY GROUP
General Government Fiscal Plan
- Set objectives for the counties economy
- Assessment of the counties tasks and funding
State
Budget
Steering the
operations and
performance
Provisions on
economy in the
Act on Counties
(Section 13)
• Balance of financial flows
on operations and
investments
• County’s limited powers to
take a loan
• The criteria for the review
process are set on the
county group
State funding
• Computational
• County’s autonomy in
using the funding
Negotiations
between the State
and the counties
(Act on Counties 13 §)
State loans and
security as well
as possiblly state
aids in special
situations
Steering the
investments
Counties’ joint
service utilities
Sectoral
specialized
legislation
• Act on organising
social and health
care services
• Act on Client Fees
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