Finland finds a way

Lessons from Finland’s social and healthcare reform experience

While Scotland ponders the vexed question of health and social care reform, Finland have actually started down the reform route. Finland’s social and healthcare reform has now been live for over six months and in that time, no large-scale scandals have arisen. However, with the analysis of this reform remarkably quiet, this leaves significant questions about the reality behind the scenes.

The aim of this wide-ranging reform is to homogenise the delivery of services across the country, create seamless services between service providers and well-functioning collaboration between different sectors and service providers within the sectors.

Observers feel the change was so vast that its impact on everything is still being processed, analysed and not yet understood, but already we can begin to see the impacts on Finland’s local government and even on voting patterns. However, we can also identify with the themes of centralisation and financial pressure only too familiar for local government around the world.

Sharing the preliminary findings from Finland’s social and healthcare reforms, this briefing highlights opportunities for learning from the current experience, especially with regard to financial impacts. This will be of interest to everyone working in health and social care, integrated joint boards as well as communities

Background

Finland has three levels of governance: central, regional and local.

Constitutionally enshrined, Finland’s 309 municipalities are based on a model of self-government with control over a range of community services such as schools, water supply, local streets and until recent reforms, health and social care. (Council of Europe)

In 2021, parliament in Finland approved a Bill for the establishment of welfare counties, responsible for social and healthcare services as well as rescue services referred to as the “Sote” reform. These reforms became fully effective on January 1st 2023. You can read more about the original plans here.

Budgets

One of the core aspirations of the health and social care reform was to deliver savings of up to €‎3bn, directly impacting the manner in which local government finances work, and in some cases, taking a huge burden off local government’s shoulders.

However, while it is still early days, this reform is not a panacea for local government’s financial challenges, even though reform of health and social care shifted many responsibilities away from municipalities to the newly created well-being services counties. Local demographics and the size of each municipality play a big part in how much they each benefit from the reform. That in turn means the impacts are far from even felt.

For example, in Punkalaidun, a population of 2,500 with a large proportion of those over 66 years old, is expected to have over €‎350,000 in budget surplus. Previously, the town was over €‎650,000 in deficit. Similar numbers, proportionally, are seen in the region’s biggest city, Tampere.

Taija Myyrä, an expert in social and healthcare management, explained,

“The concern about elderly care has been lifted from the municipalities. However, municipalities are very different from one another, they have diverged and their services have also diverged. Now, of course, the goal is to make the services ever more equal, but significant challenges arise precisely due to the differentiation and different population structures,”

“The next couple of years will be spent following the fluctuations caused by social and healthcare reform. Within five years, there significant budget adjustments will be needed in municipalities. Delivery and structures of services will need to be thoroughly considered to make them efficient.”

Myyrä has discussed with a range of people from municipalities and surmises that there are no firm conclusions to draw from the reform yet but highlights the variance in preparedness from different municipalities, with some facing unpredicted costs and changes.

State subsidies used to also be paid to municipalities for facilitating health and social care, but reform changed this. Jyväskylä, with a population of 134,000, has been in the news since April 23 because it’s expecting to face a deficit of up to €45m in 2023. The sizeable deficit came as a surprise and was mostly a result of the loss in state subsidies for basic services, culture and education in municipalities.

“The economic situation is very challenging; half of the municipalities are projected to have deficits by 2025, which is of course a significant challenge. There is a risk that for example early childhood education may face cuts, which would have a big impact, especially on families with children,” (Myyrä).

The reform, which transferred social and healthcare tasks from municipalities to the well-being services counties, had a negative impact on tax revenues. Municipal tax which, not dissimilar to the UK’s model of council tax, was uniformly reduced by 12.64% points.

Eero Laesterä, a well-known municipal expert and Doctor of Administrative Sciences, also questioned whether the tax cut was properly executed, when interviewed by the national public broadcaster, Yle. Laesterä commented,

“As we have examined the economic decline until the year 2024, one can dare to wonder if the municipalities were stripped of half a percentage point too much, as the municipal economy seems to be deteriorating,”.

Laesterä suggested that the financial state of municipalities could potentially revert to conditions prior to the Covid-19 pandemic. The pandemic years, maybe surprisingly, brought about favourable outcomes for Finnish municipalities, largely attributed to the €5bn Covid-19 aid package granted by central government.

However, these substantial funds have now been depleted and familiar challenges are on the horizon: a migration trend from north to south and rural to urban areas, coupled with an ongoing ageing population. The health and social reform was expected to deliver help to manage this demanding situation.

“While some degree of anticipation was present, significant underlying issues persist in municipalities’ financial troubles,” Laesterä said.

Expenditures, it appears, are increasingly surpassing revenues in a growing number of Finnish municipalities. Currently affecting around a dozen localities, this trend is set to expand significantly according to projections by Laesterä, potentially encompassing dozens of municipalities next year and exceeding a hundred by the end of the decade.

In an effort to steer away from further financial strain, municipalities are employing tactics familiar to anyone working in public services including austerity measures, increased borrowing, asset sales and possible tax hikes. However, identifying areas for cost-cutting can prove to be a challenging endeavour, especially after multiple rounds of budget cutting. Taking on additional debt adds a fresh layer of complexity due to rising interest rates, therefore posing a significant challenge to financial sustainability.

Silver lining

One silver lining from the reform, and in particular the uncertainty it brings, is the added impetus to collaborate and innovate in service delivery. Myyrä comments that an ever-increasing number of municipalities are exploring ways to collaborate more in effectively providing the necessary services.

“Collaboration is, of course, positive and it creates new ways of operating. Even though municipalities still have many tasks, removing social and healthcare governance significantly clarifies their operations. Now, municipalities can focus on promoting democracy, for example.

“The social and healthcare reform is also a municipal reform and I see this as an opportunity; it’s not just about ‘running out of money, everything is negative.’ New things are not always solely negative. This reform allows municipalities to develop their operations and do things differently.” 

Local Democracy vs Centralisation

One of the questions this reform raised in terms of local government is the familiar question of local vs central decision-making. Finland’s strong municipal autonomy has become known worldwide and now, as a result of this, reform the power of 309 municipalities has been condensed to 21 well-being services counties.

The new well-being services counties are led by 1,397 elected representatives whose term runs for four years. The first elections took place in January 2022, a year before the reform was to be implemented.

Voter turnout for the county elections was 47.5%, which is considered low compared to previous elections. The turnout was 7.6 percentage points lower compared to the previous local elections held in 2021, which had a turnout of 55.1% while the turnout was slightly higher in smaller municipalities.

The relatively low turnout is concerning for democracy, according to election expert Sami Borg from Tampere University. After the election, the Chair of the National Coalition Party, Petteri Orpo, stated he was disappointed in the low voter turnout. According to him, the result provides a poor democratic foundation for the work of the well-being countries.

“There is no trust in the model,” Orpo said.

The winner in the regional elections was the National Coalition Party, which also won the most recent national parliamentary elections in March 2023, replacing the Social Democratic Party’s tenure. This change of power to a more right-leaning government has certainly brought Finland into the news and is overshadowing social and healthcare reform despite the massive impact on society as a whole.

Comment – Early days and unintended consequences

Well-researched data on the outcomes of the reform is not yet widely available and rather the feedback and success of the large-scale reform largely relies on individual qualitative experiences. A lot of focus has been on Spring 2023 parliamentary elections and the coalition government that emerged from it, with a central government program focused on austerity and stability measures.

A new central government programme, which was recently published has evoked both approval and criticism, but initial reactions from municipalities reflect a sense of relief. Many of the entries in the section of the government program which addresses municipal policies, align with the goals outlined by the Association of Finnish Local and Regional Authorities (Kuntaliitto).

Faced with the prospect of an extensive €6bn austerity program, municipalities feared the worst. Historically, significant savings in public finances have been drawn from municipalities’ basic service state subsidies, and those cuts have been sugar-coated with the inclusion of certain new discretionary state grants. A story familiar to those in the UK, Ireland and Australia. But in Finland, health and social care reform avoided major reductions in state subsidies, even though the next government term will introduce a one percentage point index brake on municipal state subsidies.

Many questions remain about the government programme. A sore point in the upcoming government term will inevitably revolve around the division of responsibilities between municipalities and well-being services counties, particularly concerning housing services and the promotion of people’s health and well-being, also employment services and benefits. Finnish municipalities are facing yet another major reform concerning the transfer of Public Employment Services (TE-palvelut) to the local level, with the aim to strengthen municipalities’ responsibilities in employment services. This reform is to take place in 2024.

While it is still early days, a new national government means it is difficult to form comprehensive, wide-ranging conclusions on how the reform has gone. But given parallels in centralisation and financial sustainability with local government systems in UK, Ireland and Australia, LGIU will continue to report on the progress of this work and share lessons.