Financing
Kela receives most of its financing from the state budget. Financing for the benefit funds is also contributed by employees, self-employed persons, employers, the Employment Fund, students, municipalities and the Åland Islands government. Benefit expenditures are paid out of the following three funds: the National Pension Insurance Fund, the National Health Insurance Fund and the General Fund for Social Security. The social security schemes administered by Kela are financed on a pay-as-you-go basis, which means that the expenditure for a given year is financed with the revenues collected in that same year.
Additionally to the benefit funds, Kela has a Pension Liability Fund and a Service Fund. The assets of the Pension Liability Fund cover Kela’s liability for staff pensions. Pensions for retired staff members are paid out this fund. Kela uses the fund to prepare for future pension payments to employees covered by Kela’s staff pension scheme and to balance out fluctuations in year-to-year pension outlays. The fund is replenished by contributions from the employer, the fundable part of the pension contributions paid by the employees, and the yield on investments.
The Service Fund is used to cover the cost of transactions related to financing, accounting and funds transfer that are Kela’s responsibility in the context of the implementation and maintenance of the Kanta Services.
Financing of the benefit funds
To finance benefit expenditures, Kela operates a National Pension Insurance Fund, a Health Insurance Fund and a General Fund for Social Security, the last of which is used to finance the benefits that are not part of the pension or health insurance schemes.
The following chart illustrates Kela’s financing structure in 2022, consisting among others of payments by municipalities, health insurance contributions from employers, contributions by the insured to daily allowance and medical care expenditures, and unemployment insurance contributions.
Kela's funding in 2023 (picture):
- State advances on benefits and administrative costs: €12,704 million EUR (71%)
- Contributions towards daily allowances and medical care from the insured: €2,440 million EUR (14%)
- Health insurance contribution from employers: €1,584 million EUR (9%)
- Payments by the municipalities: €767 million EUR (4%)
- Unemployment insurance contributions and other revenues: €454 million EUR (2%)
The total expenditure of Kela’s benefit funds in 2023 came to EUR 17.2 billion. Benefit expenditure accounted for 96% and operating costs for 4% of that. In 2023, the state's share of the financing was 71%. Twenty-three percent was derived from statutory contributions levied on insured persons and employers, 4% from payments by municipalities, and 2% from other income.
Funds
Among the benefits paid out of the National Pension Insurance Fund are pensions and disability benefits, housing allowances for pensioners and front-veterans’ supplements. National pension insurance expenditure is financed by the state.
Maintaining liquidity across the year requires the National Pension Insurance Fund to be at or above a specified minimum level. Since 2010, the current assets of the National Pension Insurance Fund, after deduction for borrowed capital, have at the end of the calendar year been 3.5% of the total annual amount of the expenditure on national pensions, child increases, survivors’ pensions and work capacity assessments and of the Fund’s administrative costs.
The financing of health insurance is divided between earned income insurance and medical care insurance.
Earned income insurance comprises sickness allowances (including infectious disease allowances), daily allowances for parents and rehabilitation allowances, as well as the family leave compensations, compensations for the provision of occupational health services, and compensations for the annual leave costs of employees on daily allowances for parents.
The earned income insurance is mainly financed by employers (employers’ contribution to National Health Insurance) and by wage and salary earners and self-employed persons (contribution to daily allowances). The state funds that part of the costs of minimum-rate daily allowances and rehabilitation allowances which exceeds the allowance calculated on the basis of annual income. Further, the state funds 5% of otherwise insurance-funded sickness allowances and allowances for parents and an equal share of rehabilitation allowances. The state also funds part of the occupational healthcare of self-employed persons and farmers. The current financing model of the earned income insurance dates back to 2020. Under the model, 52% of the expenditure (not including compensations for family leaves, the additional contribution from self-employed persons and the state contribution) was financed with the National Health Insurance contribution levied on employers, while 48% is financed with the contribution towards daily allowances. Starting from 2021, the National Health Insurance contribution and the contribution towards daily allowances are adjusted by equal amounts in order to cover financing needs.
Medical care insurance includes the reimbursements which Kela provides for pharmaceutical expenses, doctors' and dentists' fees, examination and treatment costs and travel expenses, the expenditure on rehabilitation with the exception of rehabilitation allowances, the compensations for medical care expenses provided under the employment accident insurance scheme for agricultural entrepreneurs (basic coverage), compensations to the Finnish Student Health Service, and EU reimbursements for medical care expenses. Benefit expenditures and administrative costs under the medical care insurance are financed by the state and the insured. The state funds 67% and the insured 33% of the benefit and operating expenditure under the medical care insurance scheme. However, the EU reimbursements provided under medical care insurance are financed entirely by the state and by foreign institutions. In 2023, the state also funded all compensations in respect of COVID-19 vaccinations, which are included in the reimbursements for examination and treatment costs. A contribution towards medical care insurance is payable by all insured persons (i.e., employees, self-employed persons and pension recipients and other beneficiaries) based on their taxable earnings subject to local government tax.
The current assets of the National Health Insurance, after deduction for borrowed capital and funds set aside, must be between 8 and 12 percent of the total annual expenditure on health insurance. The criteria for the contributions payable by employers and the insured population, as well as the state’s share of funding for the medical care insurance, are determined so as to fulfil this condition.
Among the benefits paid out of the Fund, the state finances student benefits, maternity grants, adoption grants, conscript’s allowances, the rehabilitation-related travel costs of front veterans, the assistance with electricity costs (2023), and the urgent social welfare assistance provided to undocumented persons. The state is the main source of financing for child benefits, general housing allowances, interpreter services for persons with disabilities and child maintenance allowances, with the exception that in the Åland Islands, these benefits are financed by the Åland Islands Government.
Funds for advance payments of social assistance are transferred to Kela from the state (Ministry of Social Affairs and Health; Ministry of Economic Affairs and Employment). The municipalities cover 50% of the funds received from the Ministry of Social Affairs and Health. The state funds most of the expenditure on unemployment benefits. Additional funding comes from the municipalities and the Employment Fund. The Employment Fund pays for all of the expenditure on transition security allowances. Child care allowances are financed by municipalities, with the exceptions of allowances paid abroad, which are financed by the state. Health services for higher education students are financed with the student healthcare fee (23%) and a state contribution (77%). The Unemployment Insurance Fund contributes to the funding of basic unemployment allowances an amount equal on average to the amount of payments made to employees who are not members of an unemployment fund.