Whether motivated by determination to muffle strident criticism from domestic opposition and the international community, or a desire to score political points ahead of the 2009 parliamentary elections, Bulgaria’s Government embarked on a long-delayed and holistic reform of the social security system.

At a May 10-11 meeting in spa hotel Katarino near the Bansko resort, the tripartite ruling coalition approved a raft of critical changes in health care, pensions and social security contributions.

The grand idea for comprehensive reform comes hot on the heels of several moves, interpreted by some as heralding radical reform while others saw them as no more than band-aids. These include a one-off pension payment increase and a decrease in pension contributions last year.

May 10 and 11 produced a number of key decisions.

Health care
The health care package includes an increase in health insurance contributions by two percentage points to a total of eight per cent of gross salary. Bulgarian Finance Minister Plamen Oresharski said that that the hike would not translate into an increase of the overall social security burden because higher health insurance contributions would go hand-in-hand with state contributions to social security payments.

The coalition also hailed the phased-out liberalisation of the health insurance market. First, the National Health Insurance Fund (NHIF) is due to be legally stripped of its monopoly in 2009, while as of 2010, private health insurance funds, if eligible, would be allowed to vie for the entire pool of health insurance proceeds. Until the end of 2009, they will be entitled to operate only two percentage points of the health insurance contributions.

It was also agreed that funds would be allowed into the market through a two-phase licensing process. The first licence would be granted to funds each with a minimum capital of 10 million leva of proven origin and whose shareholding structure is fully transparent. Funds would also need a second licence, which would be given on scooping a minimum of 100 000 clients.

De-monopolisation would be delayed until 2010 for technical reasons, Bulgarian Prime Minister Sergei Stanishev said. The single health information system is yet to go online (its launch is scheduled for autumn this year), whereas the private health insurance funds’ operation is yet to be integrated into current legislation.

The ruling coalition also decided in principle to start privatising hospitals. While some hospitals will remain on the list of entities banned from sale, the rest will be subject to sale under the 70-30 principle. This means that on any privatisation, the state or relevant municipality would remain owner of a 30 per cent stake. Buildings and adjoining areas would be eligible for sale.

The Government will also create a guarantee and solidarity funds. The rationale behind this is to ensure financial stability in health care and access of all social groups, children and pensioners included, Stanishev said.

Pensions
Proposed changes to the pension system were similarly substantial. As of 2009, the ruling coalition will use 2007 average income as the benchmark for calculating pensions. To date, the one in use was 2000, which is half the previous one. The second increase will come from ascribing a higher coefficient to each year of service. While until now the coefficient has been one, starting next year it will be either 1.05 or 1.1.

The hike will cost between one and 1.4 billion leva a year and will be financed from tax proceeds, according to the deputy head of the parliamentary committee on the economy, Petar Kounev.

Furthermore, pensions will be subject to a 10.35 per cent hike as of July 1 this year, while until now the increase was planned to be 9.5 per cent. Expectations are that pensions would be subject to a further hike as of October this year.

The Government is also expected to cover 3.5 per cent of the Pension Fund deficit. Although presently the budget outlays are the same, this government subsidy would already be legitimised.

Social security contributions
The ruling coalition also decided to add the state as a payer of social security contributions. To date, social security contributions have been payable by the employer and employee in a 60-40 share-out. The overall social security burden was 22 per cent to date. Under the new system, the state will pay 12, the employer 10 and the employee eight percentage points of gross salary.

Others
The Government is also due to increase the instalments to the Silver Fund, the fund to finance projects of strategic importance to the Government. While the law on the Silver Fund is yet to be endorsed, it is set to accrue 50 per cent of budget surplus and half the proceeds from privatisations and concessions. It is also due to accumulate about 800 million leva by the end of the year, National Movement for Stability and Progress (NMSP) MP Hristina Hristova said.

As of July 1, social aid would be given for a period of one year.

Grandmothers are also slated to get support for assisting in raising a grandchild aged three or younger.

The government is also set to open labour exchanges in Germany, Greece and the UK, as well as develop a strategy aimed at attracting Bulgarian emigrants to repatriate.