SECOND INTERGOBERNMENTAL REGIONAL CONFERENCE ON AGEING Brasilia, Brazil, 4 to 6 December, 2007

Transcription

1 SECOND INTERGOBERNMENTAL REGIONAL CONFERENCE ON AGEING Brasilia, Brazil, 4 to 6 December, 2007 Social Security Panel: Advances in coverage, quality and financing countries of the region: the Aruban experience

2 (Slide 2) LOCATION : 14 miles north of the coast of Venezuela POPULATION : (end 2006) POLITICAL SYSTEM : autonomous part of the Kingdom of the Netherlands with a parliamentary democracy Introduction: Aruba is a small island state with a population of just over about 14 miles north off the coast of Venezuela. Aruba was until 1985 part of the Netherlands Antilles, which was comprised of the islands of Aruba, Bonaire, Curacao, Saba, Saint Eustatius and Saint Martin. Aruba attained its so called Status Aparte in January 1986 and became an autonomous part of the Kingdom of the Netherlands with full autonomy on internal affairs within a parliamentary democratic system. International affairs and defence resort under the Kingdom and we do have a joint high court of justice appointed by the monarch. (Slide 3) GDP Growth in Afl. millions (US$=Afl. 1,80) 5,000 4,000 Afl. 3,000 2,000 1, Year GDP (nominal) GDP (Real)

3 Aruba enjoyed throughout the 1990 s a prosperous economic period with an average annual (real) economic growth of circa five percent (5.25%). This development was driven by the expansion of the tourist industry. During this period, the nominal GDP more than doubled. In 2006, the nominal and the real GDP per capita were respectively US$ 22.3 thousand and US$ 16.6 thousand. This economic development caused a need to import foreign workers at such a rate that at the moment the 2000 Population and Household census was taken, almost one-fourth (23.2%) of the total population is foreign-born who has settled in Aruba since the year The Social Protection System in Aruba: (Slide 4) I will elaborate next on the social protection in Aruba. The social welfare system in Aruba is based on: a private-public partnership at the implementation level, social Policy definitions are in the hands of the government, with participation of line directorates such as Education, Public Health, Labour and Social Affairs, the social welfare system (safety net) prevailing in Aruba has many features usually found in the so-called welfare-states, especially in the way public services and benefits are financed. Most of them are paid for and/or warranted by state funds, The Aruban welfare system is essentially a residual welfare system, where the state has a subsidiary role, as opposed to an institutional welfare system. Although, some segments are institutionalized and universally available to all residents, such as the general old age and bereavement s pensions and curative healthcare. Also universally accessible are in principle social support services (social work, psychosocial, community work) delivered by line-ministries directorates and publicly subsidized NGO s. Following the Dutch model, social services and care are being delivered primarily by NGOs that are mostly fully or partially subsidized through public funds. In fact, delivery of social services is perceived as a primary function of the NGO sector. On the other hand, public assistance programs are only available after one has passed a means test. These include (relief checks) welfare, free legal services, public housing subsidy, etc. In other words, services are received only upon evidence of established financial needs and qualification for a particular program, nationality and period of residency. The next table depicts an overview of the social security programs and their shares of the GDP over a period of time. Income protection programs and access to healthcare are in place via compulsory social insurance programs. Within the social security program framework, illness and work related disability insurances are mandatory for those workers who qualify. So is also included insurance against work termination due to employer s bankruptcy (see also table 6). (Slide 5)

4 Tabel 3: Overview of revenues and expenditures of social insurance programs and welfare program by yeat and proportion of GDP Verzekering INCOME/TOTAL PREMIUM PAID Old age Survivors Sickness Work accident Cessantia Univ H. Care Total (3,8%) (0,7%) (1.6%) (0,4%) (0.05%) (6.5%) (3.2%) (0.6%) (1.8%) (0.5%) (3.7%) (0.7%) (1.7%) (0.5%) (6.0%) EXPENDITURES/ENTITLEMENTS Old age Survivors Sickness Work accident Cessantia % BBP Univ, H.Care Welfare check Total (3.7%) (1.8%) (0.2%) (6.1%) (3.7%) (1.8%) (0.05%) (6.4%) (3.7%) (1.7%) (6.1%) (0.2%) (5.9%) (3.6%) (0.6%) (1.2%) (0.4%) (5.7%) (3.5%) (1.7%) (0.1%) 700 (0.02) (5.7%) (3.6%) (0.6%) (0.5%) (0.2%) (0.05%) (5.0%) (3.7%) (0.4%) (0.1%) 900 (0.03%) (4.5%) (3.5%) (0.7%) (1.9%) (0.2%) (5.9%) (11.2%) (3.8%) (0.4%) (0.1%) 900 (0.03%) (8.9%) (0.6%) (12.3%) (3.8%) (0.6%) (0.03%) (5.7%) (11.1%) (3.6%) (0.4%) (0.1%) (9.1%) (0.5%) (11.9%) Bron: Algemeen Verslag van de directeur van het U.O. AZV over het boekjaar 2005; ILO 2005; Government Sector Account, CBS Aruba, 2005.

5 In addressing the present state of the Aruban social protection and the challenges it faces, I will refer next to the two most important social insurance programs, namely, the national universal healthcare insurance scheme and the general old age pension scheme, both which are critical for the welfare of the local elderly population. Social protection has been perceived in Aruba in general as a matter of citizens right. The absence of the present social protection programs is unimaginable. But it is also eminent that we face important challenges due to the changing demographic, epidemiological and economic realities. For example, when the old age pension scheme was designed and implemented in 1960, we had an industrial-based economy as opposed to the present tourism driven economy, a young population structure and a population size that was about 50% smaller. Moreover, the population is ageing rapidly. The population of 60 years old and over has grown in absolute terms with 47% between 1991 and 2000 comprising 11,2% of the total population in By the year 2018, one out of every five residents will be an older individual and by 2023 there will be more older persons than children under the age of 15 years old. General Old Age Pension Next I will elaborate a bit more on the old age pension s scheme. The old age pension insurance is a (partially funded) PAYG non-contributory scheme. The present retirement age is 60. Its coverage is estimated around 95% and is the only income for more than two third of the population age 60 and over. At present time, the individual pension amounts to an equivalent of US$. 550 and the pension for a married couple equals US$ 927. Periodic indexations maintained a rather favourable individual pension benefit to minimum wage ratio of around 70% in passing years. The legal contributions paid by both employers (8.25%) and employees (3.25%) are collected on the basis of wages and there are flat benefits for everyone independent of contributions paid. The self-employed do contribute on basis of their profits. According to a report by the International Labour Organization (ILO) issued in 2005, this financial logic is, on the long term, in danger of violating the principle of equivalency between contributions paid and benefits received. Hence, the concerned report recommended the government to consider introducing a component on top of the existing scheme in order to provide additional old-age pension income based on individual (additional) contributions. Within this context, it should be noted that an important recent development has occurred. In the year 2005 the legal framework that allows the civil-workers pension scheme to introduce a voluntary-based second-tier contributory pension program for non-civil workers, has been formalized. At present time, the majority of the workers in Aruba are not covered by a second-tier pension. It should also be noted at this point that according to calculations made in a recent actuarial report by ILO in 2004, the Old Age Pension/survivors funds reserves will be exhausted by 2025 if no corrective measures are taken. In this light, the ILO report recommended further the following steps as the most efficient within a given scenario: (Slide 6)

6 - increase normal retirement from age 60 to 62; - Individualization of the pension (it is now based on one working head of household in a conventional nuclear family); - Increase the legal contribution rate gradually from 12.5% to 16.5%. The latter is based on indexation through the national average wage index as opposed the presently applied consumer price index method. This is proposed to provide pension coupled to the real economic development instead of just maintaining purchasing power of the elderly. The same is applicable to the minimum wage and the insured wage ceiling. The growing misbalance in solidarity mentioned earlier is evident both for the old-age pension and the universal healthcare scheme. This pattern is worrisome considering the expanding tourist-based economy is producing mostly relatively low added value jobs. The paying jobs, particularly for women, are concentrated at or around the minimum wage level (see graph 2). Slide 7 - Graph 2: Income distribution for the year SLIDE ,250 1,5501,8502,1502,4502,7503,0503,3503,6503,9504,2504,5504,8505,1505,4505,7506,0506,3506,6506,9507,2507,5507,8508,150 8,4508,7509,0509,350 9,6509,950 Mannen Vrouwen From the data in the next slide/table 3 we learned that in the national healthcare insurance scheme, almost six out of every 10 economic active residents require some subsidies in In terms of the old age pension s program, about half of the 7workers would receive more benefits than they contributed to the funds, therefore requiring some solidarity. This situation is the reverse of the expected. A scenario where 60% helps pay for the remaining 40% is deemed an adequate solidarity support ratio. (Slide 8)

7 Table 4 Breakeven-point of the Universal Healthcare Insurance (UHI) and Oldage pension: extent of required solidarity in practice (2005) Fund NHI Old Age TOTAL BEP ( Afl.) % As a result, the government s subsidies to the funds will have to increase if everything remains equal, jeopardizing the sustainability of the respective funds as it would place further strain on an already stretched out public budget. (Slide 9) Table 5 Mix of Financing Mechanisms and Health Services in Aruba SERVICES-ACTIVITIES Public health- disease control, health promotion Ambulatory care preventive and curative Hospital care Institutional long-term care Drugs and diagnostics Research and training Taxes FINANCING Taxes, Univ. health insurance, Out of the pocket Univ. health insurance, Complementary private health insurance Taxes and Out of the pocket Universal health insurance, Complementary private health insurance, Out of the pocket Taxes, Grants, Out of the pocket National Healthcare Insurance (NHI): Subsequently, I will explain some aspects of the universal national healthcare insurance scheme, which was introduced in This scheme applies a flat rate irrespective of age or health condition. The scheme covers a basic package of mostly curative medical and paramedical services and benefits, medications and aids. Longterm care is financed mainly through public subsidies. In all, the proportion covered by public revenues of the total NHI s costs during the period of , reached a high of 62.5% in the year 2002 and a low of 34.7% in the year This occurred through recurrent annual grants and respective supplementary budgetary support to cover the program s deficit. It aims to be a selfsupporting and risks spreading scheme, but is being financed through general tax revenues, grants and contributory solidarity. It is therefore, contended to be a quasiinsurance scheme.

8 (Slide 9) Table 6 : Mix of Financing Mechanisms and Health Services in Aruba SERVICES-ACTIVITIES Public health- disease control, health promotion Ambulatory care preventive and curative Hospital care nstitutional long-term care Drugs and diagnostics Research and training FINANCING Taxes Taxes, Univ. health insurance, Out of the pocket Univ. health insurance, Complementary private health insurance Taxes and Out of the pocket Universal health insurance, Complementary private health insurance, Out of the pocket Taxes, Grants, Out of the pocket According to the data of the National Health Account , the total healthcare expenditure per capita in 2004 was US$ 1,914. For the sake of comparison, Spain s per capita healthcare expenditure was US$1.556 in 2001, Netherlands SLIDE 10 Some important advantages of the NHI scheme include: broad non contributory coverage, more transparency in terms of healthcare expenditures, enhanced accessibility to healthcare by the needy, foreigners and the elderly, more targeted funds for healthcare, provides a mechanism for cost control, more choices for the patients and better incentives for the providers of healthcare. To conclude, I argue that we are in pressing need to critically evaluate and adapt the present schemes to the present economic structure and demographic developments in order to maintain the present level of coverage and quality of services and benefits rendered.

9 Table 6: Types of entitlement programs by mandate, benefits and coverage Type of entitlement Objective/mandate Narrative and coverage per 2003 Compulsory notcontributory old age pensions (social security). Compulsory survivors /bereavement benefits (social security). Insurance against sickness (employees insurance) Insurance against workrelated disability/ employment injury benefit (employees insurance) Cessantia (Employees nsurance) Universal Healthcare Insurance (Social security) One US$ = Afl. 1,80 Is designed to provide a safety net for (guaranteed) income in third age. It is a compulsory pension insurance for all residents. The compulsory survivors pension protects the total population against lost of income due to the passing of a married partner or parent(s) via the provision of a basic income. This insurance scheme is compulsory for those employed i the private sector (and registered by the Social Insurance Bank) and whose employers do not provide similar insurance coverage, up to a stipulated income category (Afl. ) It protects against loss of income as result of sickness invalidity during a limited period of time. It aims to protect all employees in the private sector earning up to a certain annual wage against loss of income as result of work-related accident. The objective of the so-called Cesantia program is to compensate the workers in the private sector who lost their jobs due to reasons beyond their control (i.e. company went bankrupt, etc.). it is in the form of a lump sum based on the number of years of service rendered. This compulsory program insures all residents against (curative) medical costs and medications. It seeks to meet the following objectives:: (1) guarantee accessibility to medical care, (2) qualitative medical car, (3) uniform/centralized processing of the concerned costs and (4) cost curtailing or management. Contributions paid by both employers and employees are collected on the basis of wages Contrib. rate: Employer 8,25%, Employee 3,25%. Contributions paid by both employers and employees are collected on the basis of wages Total coverage per 31 December 2003: insured and beneficiaries Maximum entitlement: Individual: Afl. 900 Couple: Afl. 1,500 (In 2007: Afl. 990 and 1668) Contr. rate: Employer: 1,25%, Employee: 0,75%. Total insured population per 31 December 2003: Beneficiaries: Entitlement: Widow(er): Afl (2007) Orphan: Afl (2007) The employer pays the annual insurance s premium. The employee has right to income protection up to a maximum period of two years. Premium: Employer 4,0%, Employee 0%. Total insured population per 31 December 2003: The employer pays an annual premium in accordance to the risk factor of the type of work that the employee is exercising. The employee is entitled to work-related disability compensation as long as the injuries suffered limit his/her working again. Premium: Employer 0,7% at average. Employee: 0%. Total population insured per 31 December 2003: The employer pays an annual premium to the Social Security Bank. Premium: Employer: Afl. 40 per year for each employee. Total insured population per 31 December 2003: Total beneficiaries: 59. The premium is partly paid by the employer and the employee.. Premium: Employer: 6,5%, Employee: 1,0 % (as of ,5% and 1.0%) Independents (including pensioners) pay 7.5% Total coverage: Per 31 December 2003 were circa persons insured.

10