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Otto von Bismarck.

The Beginning of Sickness Insurance in Europe

The history of sickness insurance extends back to the 19th century when the first sickness insurance act was passed into law in Germany in 1883 at the initiative of Otto von Bismarck. Why was this necessary?

As industry evolved, industrial accidents became more serious compared to agricultural accidents and independent entrepreneurs were no longer able to pay for the treatment of workers to the extent that was necessary. It was, however, necessary to treat workers because due to the specialised nature of work, manpower became increasingly more valuable. Then the idea of centralising means by way of insurance payments emerged as a way of spreading out the risk of medical treatment expenses. Naturally, workers also demanded that manufacturers improve working conditions and cover medical treatment expenses in the event of accidents. Bismarck’s aim was nevertheless not only the better organisation of the treatment of industrial workers but also to improve cooperation and communication between manufacturers and workers’ health insurance funds.

The health insurance act created in Germany encouraged the workers of other countries to fight for their rights as well. Tempestuous events unfolded in all the major countries of Europe. In France, the first health insurance act was passed in 1894, whereas it was compulsory to insure miners. The laws passed in Italy, Belgium and Switzerland in 1910 also insured all women between the ages of 15–50, while the law passed in England in 1911 insured all workers over the age of 16.

The rulers and industrialists of tsarist Russia did not escape the workers’ growing pressure to change working conditions and the ordering of the affairs of the lives of workers either. During the revolution of 1905–1907, workers demanded, among other things, that the tsarist government provide insurance for old age, disability and illness. The Duma worked out the fundamentals for state insurance in 1905 already and draft legislation for health and accident insurance (HÕKS) was deliberated for the first time in 1908. The deliberation and reworking of the draft bill was an arduous process. The State Council of tsarist Russia did not approve the fundamental principles of health and accident insurance within the framework of the Russian Industrial Labour Act until 23 June 1912. According to the new law, health insurance funds were to be created at industrial enterprises with at least 20 workers where machine power was used. All businesses with fewer workers, as well as handicrafts enterprises were not subject to this law.

The establishment of health insurance funds began in 1913. In May of that year, six health insurance funds supposedly existed in tsarist Russia. By July of the same year, there were already 66 such funds. Tsarist health insurance was in effect in tsarist Russia for exactly five years. On 25 July 1917, Russia’s bourgeois Provisional Government passed an amended health insurance act that prescribed the complete local self-administration of health insurance funds and required the creation of health insurance funds for enterprises with at least five workers. The complete self-administration of health insurance funds also meant that workers founded and managed health insurance funds, and the owners or managing directors of enterprises were not included in the management of the funds. Additionally, the types of business covered by sickness insurance were also expanded. After the October Revolution, enterprises had to hand medical establishments over to health insurance funds as well because it was felt that health insurance funds run by workers would be good managers of hospitals and dispensaries.

Evolution of Sickness Insurance in Estonia

Prior to the work of health insurance funds, there was no definite law or ordinance in Estonia that would have prescribed financial assistance to workers in the event of their illness, or financial assistance for parturient women, or support in the event of the death of a family member. Since laws passed by the Russian Duma were in effect in Estonia, the insurance act of 23 June 1912 was implemented here and the creation of health insurance funds began. In March of 1913, representatives were elected to create a health insurance fund at the Sindi Broadcloth Manufacturing Association factory and at three enterprises in Tallinn – the Baltic Cotton Textile Mill, and the Wiegand and Volta factories. In May of the same year already, the representatives managed to put together a draft statute for the health insurance fund.

Wiegand Factory Health Insurance Fund statute of 1913.

The Tartu General Health Insurance Fund was founded on 23 June 1912 at Tartu’s largest industrial enterprise and is one of Estonia’s oldest health insurance funds, yet it nevertheless did not begin operating until 1 May 1914. This is why the health insurance fund founded at the Sindi Broadcloth Manufacturing Association (formerly Wermann and Son) factory is considered to be the first health insurance fund, the statute of which was approved on 15 May 1913. A few months later on 20 September 1913, the Baltic Cotton Textile Mill health insurance fund was created. The statute of the health insurance fund at Volta Ltd. was approved on 2 October 1913. By the end of that year, health insurance funds had been created at the Wiegand, Luther, and other factories. The Luther factory health insurance fund statute states that its general meeting and its board of directors ran the activity of the health insurance fund. The general meeting consisted of deputies of health insurance fund members and representatives of the enterprises. The chairman of the board of directors was the owner of the enterprise or a person appointed by him. A representative of the employer chaired general meetings of deputies. Deputies appointed by the representative of the employer had 2/3 of the votes of the participants at the meeting. The Tallinn Municipal Health Insurance Fund was founded on 21 March 1914. It insured the workers and employees of three enterprises – the gas plant and waterworks, the electric power station, and Tallinn Horse Tramway Ltd. The demand by factory workers to found a common health insurance fund for all of Tallinn’s factories did not gain the approval of employers. A large association of workers in the form of a common health insurance fund was not welcome in Tallinn as a large industrial centre because it was feared that it would be easy to direct other workers’ events and the general workers’ movement through this common fund.

K. Mauritz, Chairman of the first Board of Directors of the Tallinn Municipal Enterprises Health Insurance Fund.

In subsequent years, the number of health insurance funds grew rapidly. In 1914, 22 health insurance funds began operating. In 1915, there were 33 health insurance funds in Estonia with a total of 35 000 members, six general health insurance funds with a total of 2500 members, and 12 health insurance funds of enterprises with a total of less than 500 members.

Upon the creation of health insurance funds, mostly 1 % of wages was set as membership dues, yet it became apparent quite soon that this was not enough to cover all expenses. Thus the insurance fee was soon increased to 2–3 % of the worker’s wages. The employer had to add an equal amount or at least 2/3 of the fees collected from the workers. Workers were paid illness benefits of 1/2 to 2/3 of the worker’s daily wages according to the amounts approved by law and the means available to the health insurance fund. In cases of accident, 2/3 of the daily wage was paid out. In the case of childbirth, support amounting to 50– 100 % of the monthly wages was paid out. The funeral benefit in the event of death was 30 days wages. The family members of workers were also insured and they had the right to receive benefits amounting to 50 % of the benefits of workers.

Unstable Times

The newly established health insurance funds did not have a chance to gain experience in managing their affairs before the First World War began, followed by revolution. Many workers were mobilised for military service, working time was reduced in factories, many large enterprises went broke, currency values plunged, food was in short supply, and diseases and epidemics tallied up large numbers of victims. All this decreased the income of health insurance funds and increased their expenditures. Since the possibilities for increasing insurance fees were limited, the extent of the insurance (insurance restrictions were established for family members) or the size of benefits was decreased instead. In spite of everything, revolution had a favourable effect on the development of health insurance funds. Insurance legislation was extended to all branches of industry, whereas handicrafts and construction enterprises with at least five employees also had a right to insurance. Enterprises were required to transfer medical institutions to health insurance funds.

Health insurance funds went through their most difficult period during the German occupation in 1917–1918. Industrial production declined, many industrialists neglected to pay insurance fees, and health insurance fund reserves declined. The owners of Tallinn’s publishing houses of that time were in the front ranks of those who refused to pay.

A meeting of 17 health insurance funds took place in Tallinn on 16 April 1917 to organise their work. A central bureau of health insurance funds was elected at this meeting. Its task was to work out a plan for the unification of health insurance funds together with a joint statute. This statute was approved on 13 November 1917. This joint health insurance fund comprised the health insurance funds of 16 enterprises by the beginning of the following year, covering a total of 2456 workers with 3724 family members.

Tallinn Municipal Enterprises Health Insurance Fund Board of Directors and office workers in 1926.

Tallinn Municipal Enterprises Health Insurance Fund Board of Directors, Auditing Committee and employees in 1932.

A new and successful period in the work of the health insurance fund began during the era of the Republic of Estonia. The sickness insurance legislation passed by the Russian Provisional Government on 25 July 1917 remained in effect in the Republic of Estonia since other legislation had not been passed. Changes were made to that sickness insurance legislation in 1923, 1934 and 1936. The Republic of Estonia did not manage to pass its own sickness insurance legislation due to major conflicts, although several attempts were made to that end. One of the most serious conflicts was the right to found health insurance funds and the organisation of the management of those funds.

The economy was on the upswing in the early 1920’s and opportunities for compensating for medical care and disability expanded. Since some smaller health insurance funds had encountered serious difficulties over the course of several years of operation and several health insurance funds merged, the idea emerged to start coordinating the work of health insurance funds more effectively. The Tartu Health Insurance Fund mentioned the need for an association for the first time in 1922. The Estonian Association of Health Insurance Funds was created in 1923 after a long period of preparation. The greater portion of smaller health insurance funds operating in Estonia belonged to this association at different periods. Membership in the association was voluntary. About 3/4 of the health insurance funds were part of the association in the 1930’s. The main role of the association lay in disseminating information among its members and in participating in debates concerning the organisation of sickness insurance and medical care. Publication of Haigekassa (Health Insurance Fund), the voice of the association, began in 1925. The paper shortly changed its name and was published until 1940 under the name Töö ja Terwis (Work and Health).

Representatives of workers managed and founded Estonian health insurance funds until 1929. Regardless of their great political influence, industrialists did not succeed in convincing workers to include the owners or managers of enterprises in the administration of health insurance funds. In this respect, the Republic of Estonia differed initially from other European countries, where the owners of enterprises founded and administered health insurance funds either partially or completely. The managers or owners of enterprises nevertheless also gained their say in the administration of health insurance funds in 1929.

Tartu General Health Insurance Fund activity report in 1939.

Estonia was conspicuous in Europe with its relatively low proportion of sickness insurance – only 17.9 % of the population was covered. Sickness insurance essentially remained the privilege of industrial workers and recipients of the Vabadusrist (Cross of Liberty). Persons who worked in agriculture, education, or some other sector and the members of their families had to pay for health services themselves. It was not until the latter half of the 1930’s that several acts of legislation went into effect that extended sickness insurance to civil servants and governmental employees, university teachers and professional military personnel together with the members of their families.

Major outbreaks of disease significantly affected the work of health insurance funds. The years 1933–1934 were difficult for Tallinn’s Health Insurance Fund because that is when Tallinn suffered a serious outbreak of influenza. Tallinn nevertheless managed to recover from the crisis in a few years: most likely due to increasing insurance fees, which were increased to 6 % of each member’s income.

The work of health insurance funds towards the end of the 1930’s was nevertheless not equally successful. Tartu’s General Health Insurance Fund ended 1938 in the red, which was partially due to an outbreak of the mumps at the end of the year. The health insurance fund was forced to reduce its expenditures and thus it decided to stop paying sickness benefits for Sundays and holidays.

Medical Care before and after the Occupation

The foundation of the health care system in the Republic of Estonia was the system implemented in tsarist Russia, where most health care institutions were either established and run by enterprises or were private practices and private hospitals. According to legislation that went into effect during the brief period of Soviet rule, enterprises were required to hand health care institutions over to health insurance funds and several institutions managed to do so.

Prior to the Soviet occupation in 1940, the evolution of the health care system in the Republic of Estonia resembled the way health care was set up in Western European countries. Three types of hospitals emerged in Estonia in its hospital system, providing medical care round the clock: private hospitals, municipal hospitals for the poor, and publicly owned hospitals. Maternity and paediatric clinics, tuberculosis treatment centres, and sanatoriums and medical institutions for the mentally ill were publicly owned. Primarily dispensaries belonging to the health insurance fund, contractual private physicians, and private physicians working in schools provided ambulatory care. Larger enterprises had dispensaries that provided care for their employees and members of their families. Municipal physicians with salaries paid by the public sector worked in rural counties and provided medical care mostly to the less affluent population.

People in need of medical attention had no opportunity to choose their physician. That was determined by the health insurance fund agreement. If anyone wanted to go to another physician, he had to pay for his visit to the doctor himself or he had to apply for special permission from representatives to request such an appointment. Whoever was not a member of the health insurance fund or a person of equivalent status also had to pay a fee for his visit, which was two kroons in the 1930’s. Any procedures performed also had to be paid for in addition.

The occupation of the Republic of Estonia by the Soviet Union in 1940 cut off the health care system’s path of development and the Soviet Semaško system was adopted, according to which health care was financed under the direction of the government from the state budget through centralised planning.

Rapid changes had far-reaching consequences. A large number of health care employees left Estonia during the Second World War and this had a severe effect on its manpower structure. The concentration of all attention on normative objectives led to an excessively large number of hospital beds.

There was no private sector in the health care system during the Soviet era. All citizens seemingly had unrestricted access to health care services, which were provided by salaried state employees. The preparation of medi cal employees and the quality and availability of health care services were evaluated in general terms.

Publication commemorating 25 years of activity of the Tallinn Municipal Enterprises Health Insurance Fund.

Prologue of Contemporary Health Insurance

The search for innovative solutions for reshaping the social sphere began in the course of political changes in the 1980’s. The Association of Estonian Physicians (EAL) was re-founded on 11 June 1988. The establishment of an umbrella organisation made it possible to bring interest groups together and to start seeking and working through ideas for reorganising the health care system and its financing. Health care reform was initially not spoken of. Only the transformation of the existing system and putting that system in order was under consideration. Even though the idea existed to combine the health care and social welfare systems and to form joint social assistance funds at the local government level, these ideas did not yet emerge in the forefront.

The conviction that it would be appropriate for Estonia to apply the principles of insurance medicine was arrived at through the initiative of Dr. Laur Karu, the first president of the re-established Association of Estonian Physicians. The authors of the first drafts of sickness insurance legislation were Laur Karu, Enn Õunpuu and Georg Männik. These legislative drafts incorporated the principles of solidarity in health insurance. Regardless of intense work in developing this legislation, the insurance ideas that this trio shaped did not spread beyond a narrow circle of interested parties. Developments reached the stage in 1989 that the ESSR Council of Ministers Presidium decided to form a broad-based commission to work out proposals for reorganising the health care and social assistance of ESSR residents. For the first time, the understanding was arrived at that the new system should be based on social funds and health funds.

In short, it was felt that the correct approach would be to switch completely from state financing of health care and the social assistance system to insurance medicine founded on insurance taxes, including health tax. In the health care system, the decision was arrived at that further development must be based on the preferential development of ambulatory specialised medical care and that the transition to the family physician principle is advisable. Since the political trend was decentralisation, the increased inclusion of local governments in resolving social issues was seen as being necessary.

Examples of health insurance fund membership cards.

Vello Kuuse, who at that time still worked at Eesti Kindlustus (Estonian Insurance), participated in working out the concept of insurance medicine. Several working groups were created with the task of thoroughly studying the principles of health care and the insurance system. Knowledge was gathered from examples from other countries and several choices were discussed. Primarily doctors participated in the working groups. Arguments and misunderstandings emerged concerning terminology because the legislation of other countries was taken as the basis and the lack of terminology or its inadequacy in the model of society that had been in effect until then was frequently encountered in the course of translating that legislation. The ideas of that time were far from considering the health insurance fund as an organisational form because the structure of the system was seen primarily as structures of the ministry. At the same time, there were already ideas based on business where an association of health and social assistance insurance funds would be created as a public limited company in the ministry’s administrative field. One idea was to hand insurance operations over to Eesti Kindlustus. The possibility of the partial voluntary insurance of disability days was discussed in terms of benefits and the condition of being insured. There was also an idea to combine all the different funds, including the medical care fund that could possibly be created.

This preceding work culminated on 28 May 1990 when the Government of the Republic of Estonia made the decision to implement insurance medicine. The Ministry of Health Care was assigned the task of submitting an all-encompassing conception of insurance medicine by 25 September 1990. Health insurance was thought of as a fundamentally new, economically self-regulating health care system, where a person’s interest in preserving and strengthening his own health is central.

The results of the work of specialists and experts at the Ministry of Health Care led to the position that health insurance in Estonia should be founded on the following principles:

• The national budget would cover only the capital expenditures of medical institutions.

• Health care institutions will begin operations as autonomous commercial enterprises and their status would be equal to that of all other enterprises.

• Health care institutions will be transferred from national ownership to municipal ownership and opportunities for their privatisation will be created.

• Health insurance funds will be created for the administrative territory of each county and municipal government. The health insurance fund is a division of the independent insurance company that is to be created with the rights of a legal person.

• The insurance company is the umbrella organisation for the health funds. It is practical to create the insurance company as a public limited company.

• The compulsory health insurance tax rate will be established at 13 %.

• Voluntary health insurance is prescribed. The voluntary insurance contribution rate is 3–5 % of wages. The duration of the insurance agreement is five years.

• Voluntary health insurance contributions are tax free in calculating income.

Since discussions had lasted for several years and little time remained, draft legislation was submitted to the Government of the Republic instead of a conception. The legislation combined the ideas that had been discussed during the preceding years. There was still no concept yet of what the health insurance fund should be – the concept of toetuskassa (relief fund in Estonian) was used because according to the opinion of many people, the term haigekassa (literally sickness fund in Estonian) places too great an emphasis on illness and on being ill and thus this term was unsuitable. Another important clause stipulated that the legislation also covers people who have concluded voluntary insurance agreements.

Legislation concerning compulsory health insurance tax came next. It contained an interesting provision that stated that the health insurance tax rate is 13 %, of which 2/3 will go to local governments and 1/3 will be used to cover nationwide expenditures. All important draft legislation was completed by August of 1990 and was thereafter sent for broad-based consultation in order to arrive at a consensus, meaning that agencies, offices and county governments were included in consultations. It took several months to work through the proposals.

The next deadline in starting up insurance medicine was projected in the latest drafts of legislation as 1 July 1991 already. The most important key words that remained in use regardless of what version of draft legislation is considered were as follows:

• compulsory participation of enterprises and proprietors,

• willingness to preserve and foster health,

• the formation of the idea of voluntary insurance,

• the formation of health funds (nowadays known as health insurance funds),