Communities Commission Theeuropean Of

COMMUNITIES COMMISSION OF THEEUROPEAN SECRETARIAT.GENERAL

Brussels,

SG-Greffe(2009)Dl STALE ZASTUPENIE SR PRI EU BRUSEL Avenuede Cortenbergh79, 1000Bruxelles

LN 226 EC/casesother than failure to notifv measures

Subject:

Letterof formal notice Infrinsement No 2008I 4268

The Secretariat-General shouldbe obliged if you would forward to the Minister for Foreign Affairs the enclosedletter from the Commission.

For the Secretarv-General.

Karl VON KEMPIS

Encl.C(2009)

EN B-1049Bruxelles/ EuropeseCommissie,B-1049Brussel- Belgium.Telephone:(32-2)299 11 11. Commissioneurop6enne, Office:BERL 05125.Telephone:direct line (32-2)296.93.35.Fax: (32-2)296.43.35. http://ec. europa.eu/dgs/secretariat_general/index -f r.htm

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COMMUNITIES OFTHEEUROPEAN COMMISSION

Brussels, 200814268 c(200e)

Your ExcellencY, a complaint submittedto with this letter of formal notice, I wish to draw to your attention 200814268,regarding the the Commission and registered under reference number Council of the Slovak compatibility of certain provisions of the Act of the National Insurancecompanies and Republic No. 5g1/2004 coll of 21 october 2004 on Health as Act No' 53012007Coll HealthcareSupervision,as amendedby a numberof Acts such with community law. of 25 october 2007and, most recently,by Act No. 19212009, initiatives throughout the The Slovak Republic has been involved in health sectorreform people. In particular, an 1990s,aimed at improving the provision of healthcareto its 58012004coll and No' ambitious reform strategy was implemented by Acts No. the public health insurance 5g1/2004 coll. Those Acts placed emphasison reforming privately-owned health system by creating an environment for both publicly and market and compete in insurancecompaniesto enter the Slovak public health insurance among other things, providing pubic health insuranceto individuals. This was don. by, publicly and privately-owned transforming the five public health insurance funds into further joint-stock companies which were allowed to make profits and encouraging joint stock privately-owned health insurance companiesto compete with the existing minimum and companies by offering healthcare cover over and above the statutory the main driver of superior customer service. competition was intended to be improvementsin quality, accessto health care,cost control and efficiency' on the level Act No. 5Bl/2004 Coll, as initially adopted,did not contain any limitations expenses of expenditurethat health insurancecompaniesmay use to cover their operating the from and only minor, technical limitations on the use of any profits resulting the provision of public health insuranceby private health insurancecompaniesand on Coll transfer of insuranceportfolios. Indeed, section 2(2) of the Act No. 58112004 the by regulated provided (and still piovides) that health insurance companies are years' Commercial Code, unlessotherwisestipulatedin the Act. Accordingly, for several on and health insurancecompaniesfreely decidedon the level of their operatingexpenses the use of any profits resulting from the provision of public health insurance,the latter subjectonly to fulfilment of certainminor technicalconditions. However, since 2006, a series of amendmentsto Acts No. 58012004Coll and No. 5g1/2004Coll, have been adoptedwhich have imposeda number of restrictionson the businessactivities of health insurancecompanies,especiallyaffecting those which are

privately-owned. In particular,on 25 October 20A7, the Slovak ParliamentadoptedAct No. 53012007Coll which, amongotherthings: a)

precludeshealth insurancecompaniesfrom freely disposing of any profits resulting from the provision of public health insurance in the Slovak Republic;

b)

further reduces the maximum limit of gross written premiums that health insurance companies may use to cover their operating expenses, first introducedby Act No. 52212006 Coll, from 4o/oto 3,5o .

Most recently, a further amendmentto Act No. 58112004Coll was adoptedon 29 May 2009 (Act No. 19212009Coll) which provides that the transferof the portfolio of a health insurancecompanyhas to take place without paymentand to either a State-ownedhealth insurancecompanyin caseof liquidation or to a State-ownedor privately-ownedhealth insurancecompanyin other,undefined,circumstances. 1. Relevant EC and Slovak law A. Primary Treaty law The free movementof capital Article 56 (l) EC stipulatesthat: "Within the .framework of tlzeprovisions set out in this Chapter, all restrictions on the movementof capital betweenMember Statesand betweenMember States and third countriesshall beprohibited." The free rnovement of capital, as a fundamental principle of EC law, can only be restrictedby nationalrules which arejustified by reasonsreferredto in Article 58(1) EC or by overriding requirementsin the generalinterestrecognisedby the ECJ. The freedomof establishment Article 43 EC stipulatesthat "Within the.frameworko.ftheprovisions set out below, restrictions on the.freedom o.f establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-upof agencies,branchesor subsidiariesby nationals o.f any Member Stateestablisltedin the territory of any Member State. Freedom of establishmentshall include the right to take up and pursue activities as self-employedpersons and to set up and manage undertakings,in particular companies or firms within the meaning of the secondparagraph of Article 48, under the conditions laid down .for its own nationals by the law of the countryt where such establisltmentis effected,subject to the provisions of the Chapter relating to capital."

be The freedom of establishment,as a fundamental principle of EC law, may only or EC 46 restrictedby national rules which arejustified by reasonsreferred to in Article by overriding requirementsin the generalinterestrecognisedby the ECJ. B. Secondary EU legislation The First Non-Life InsuranceDirective 1973 on the Article 2(1)(d) of First Council Directive 73l239lEEC of 24 July to the taking-up coordinationoi laws, regulationsand administrativeprovisionsrelating (the First Nonand pursuit of the businessof direct insuranceother than life assurance the following to apply Life InsuranceDirective) statesthat " [tJ his Directive does not of social security'" kinds of insurance(...) insuranceforming part of a statutorysystem The Third Non-Life InsuranceDirective coordinationof laws, Article 54 of Council Directive 92l49lEECof 18 June 1992on the insurance other than life regulations and administrative provisions relating to direct (the Third Non-Life assuranceand amendingDirectives 73l23glEECand 88/357|EEC InsuranceDirective) statesas follows: ,,l. I{otwithstanding any provision to the contrary, a Member State in which to Directive contracts covering the risra in class 2 of point A of the Annex health cover 73/231/EEC may serve es a partial or complete alternative to systemmay require that those contracts provided -comply by the statutorysocial security protect with the spectfic legal provisions adopted by that Member State to of insurance,and that the general and special the general good in thatluit authoritiesof that conditionso./that insurancebe communicatedto the competent Member Statebefore use. C. Slovak legislation 522 12006Coll and No' Section 6a(1)of Act No. 58 112004Coll, as amendedby Acts No. Coll, Providesas follows: 53012007 ,,A health insurancecompanymay spend,in the relevant calendaryear, for the 3.5% of the operationalactivitiesof itte heatth insurancecompanyno more than yeLr." sum of premiumprior to premium redistributionfor the relevantcalendar 530/2007Coll, Second.section15(6) of Act No. 58 112004Coll, as insertedby Act No. providesas follows: ,,1f,after.fuffilmentof the legal requirementsset out in specialregulationsand the requirement set out in paragraph I letter (b), the result of the public health insuranceoperationsis positive, such result may be usedonly for paymentsto the extentset out in a specialregulationand by no later than the end of the calendar positive result of the operations year 'tuesfollowing the calendar year .for which the ieported, and in a menner not posing a risk for the systematicand ffictive company to ensure fuffilment of obligations owed by the health insurance 'available healthcare under this Act (paragraph 1(a)) and not contradicting the obligation of the health insurancecompanyto makeproper and timely payments for the healthcareprovided."

The scopeof section15(6) is clarifiedby section86d of Act No. 581/2004Coll, which statesthat "a health insurance company shall meet its obligation to use the positive economic result generatedfrom public health insurance to pay .for healthcare under $ 15 paragraph 6 .for the.first time in 2009, and in respectof the.financial yezr 2008." Section 15(6) of Act No. 58112004Coll, when read in conjunctionwith section86d of Act No. 581/2004Coll, therefbreprecludeshealth insurancecompaniesfrom using any profit theymake other than for the provisionof healthcarein the Slovak Republic. Finally, section 6l(1) of Act No. 581/2004Coll, as amendedby Act 19212009Coll, providesas follows: "The [Healthcare SurveillanceJ Office may order a health insurance company to trans.ferall or a part of the acceptedapplications.for public health insurance (the "insurance portfolio") to another health insurance company if the health insurance company does not perform the measuresimposed by the Office in connection with a threat to its ability to per.form the liabilities resulting .from received and acceptedapplicationsfor public health insurance and agreements on provision of health care and in other casesset out by this Act. The Office shall order the transfer of the insuranceportfolio of a health insurancecompanywhich was wound up through liquidation to a health insurance company in which the State has a I00% interest, as at the date o.f the .former health insurance company's entry into liquidation; in other casesthe Office shall order a transfer of insurance portfolio always as at the I st day of the calendar montlt. Each transfer of an insuranceportfolio shall be.freeof any charge." 2. Contacts with the Slovak Authorities In order to allow the Commissionto veri$r whetherAct No. 581/2004Coll as amendedis compatible with Community law, the competentservicesof the Commission sent an administrative letter to the Slovak Republic on 3 September 2008, requesting explanationsin relationto two main issues: a) how the prohibition on healthinsurancecompaniesfreely disposingof any profits resulting from the provision of public health insurancein the Slovak Republic is compatiblewith Article 56 EC and with the exceptionscontainedexpresslyin the Treaty and/or overriding requirementsof the generalinterest; b) how the maximum limit of grosswritten premiumson the expenditurethat health insurancecompaniesmay use to cover their operating expensesis compatible with the Third Non-Life InsuranceDirective and the freedomof establishment. The Slovak Republic replied by letters dated 21 October 2008, 7 January2009 and 9 March 2009. In relation to point (a) above,the Slovak authoritiesarguethat the prohibition on the free use of profits (including repatriation)does not constitute a breach of Article 56 EC becausethe health insurancepremiums that are collectedby a health insurancecompany cannotbe said to constitute"capital" for the purposesof Article 56 EC. Moreover, it is

personin the Slovak arguedthat, even if the health insurancepremiumsthat eachinsured free movement Republic pays could be said to constitute"capilal" , any restriction on the oritrat capitalcould be justified underArticle 58(1xb) EC. light of the caselaw In relation to point (b) above,the Slovak authoritiescontendthat in do not engagein of the ECJ, public health insurancecompaniesin the Slovak Republic is entitled to limit the any ecorrorni. activity and that therefore the Slovak Republic use to cover their peicentage of expenditure that health insurance companies may insurancesector health iperating .*p.nr.r. Finally, it is arguedthat becausethe Slovak rules do not apply to the is basedon the principle of"solid arity',the Treaty'scompetition activities of public health insurancecompaniesin the slovak Republic. 3. Legal Assessment provision of public health A. The restrictions on the use of profits resulting from the Act No. 581'12004Coll may insurance in the slovak Republic under section 15(6) of capital movements constitute an unjustified restriction on the freedom of 56(1) EC, prohibits all The freedom of capital movements, enshrined in Article ,,restrictionson the movementof capital" betweenMember States.The EC Treaty does the ECJ has derived useful not contain an exhaustivedefinition of "capital". However, of 24 June 1988 for the and extensiveindicationsfrom Annex I to Directive 88/361IEEC 88/361/EEc)which containsan implementationof ex-Article 67 of the Treaty(Directive illustrative list of different typesof capital' of Directive 88/3611EEC' Moreover, even where a transactionis not listed in the annex movement within the meaning of the ECJ has found that it can still constitutea capital of dividendsto shareholders, Article 56(l) EC.For example,in the caseof the payment of dividends to shareholderswas the ECJ found rn Verkooijei that althoughthe payment consideredto be "indissociable not listed in Annex I to Directive 88/361/EEa, it was thereforecoveredby Directive 88/361: fro* a capital movement"and ,,Although the Treaty does not define the term capital movements,Annex I to which constitute Directive gg/361containsa non-exhaustivelist of the operations directive' capital movementswithin the meaningof Article I of the in the nomenclature Although receipt of dividends is not expressly mentioned 'capital movements"it necessarilypresupposes annexedto Directive 8g/361 as to in Heading I(2) of the participation in new or existing undertakingsreferred nomenclature. distributing dividendshas Moreover, since, in the main proceedings,the company of the Netherlandsand is its seat in a Member State other thai the Kingdom on sharesin that companyby a quoted on the stock exchange,receipt of dividends 'Acquisition by residents of .foreign Netherlands national may-also be hnlkedto in Heading III'A(2) of the securities dealt in on a stock exchange'es referred to verkooijen, the united nomenclature annexed to Directivi 88/36l, as Mr an operation is thus Kingdom Governmentand the Commissioncontend.such indissociablefrom a capital movement'

Consequently,the receipt by a national o.fa Member State residing in that Member State of dividends on shares in a companywhoseseat is in another Member Stateis coveredby Directive 8B/361."1 Against that background,and regardlessof whetherhealthinsurancepremiumsconstitute capital owned by health insurancecompanies,' following Verkooijen the receipt, by shareholdersin other Member States,of profits which public healthinsurancecompanies retain (once they have collectedpremiumsand coveredall the costsassociatedwith the provision of healthcareto their customers)is coveredby Directive 88/361 and comes within the notion of capitalmovements. Moreover, this can also be seen from the fact that when a health insurance company incurs a loss in a given financial year either becauseit has been unable to collect sufficient premiums or becausethe healthcarecostsincurredby their customersexceeds the level of the collected premiums, that loss reducesthe shareholders'equity in the health insurancecompany. If cumulated losses are of such magnitude that solvency requirementsare no longer met, the Slovak regulatoryauthority will demandthat a health insurancecompany's shareholderscontributeadditionalcapital,failing which its licence may ultimately be revokedon solvencygrounds. Consequently,since shareholdersare forced to cover lossesfrom their capital, equally, any profit retained once they have collected premiums and covered all the costs associatedwith the provision of healthcareconstitutescapital, whish health insurance companiesshould be entitled to disposeof freely, including by repatriatingsuch funds to shareholdersor a related company in another Member State under the provisions of Article 56(1)EC. As for the questionof whether the movementof such capital may lawfully be restricted undersection15(6) of Act No. 58 I12004Coll, the prohibitionintroducedby Article 56(1) EC goes beyond rneasureswhich discriminate on grounds of nationality and also prohibits conduct(eitherlegislativeor administrative)by the nationalauthoritieswhich in practicemakesforeign investmentmore difficult or lessattractive. In Cornmissionv Portugal,3the ECJ found that "Article t56(l)l of the Treaty lays down a general prohibition on restrictions on the movemento.f capital betweenMember States. That prohibition goes beyondthe mere elimination of unequaltreatment,on grounds o.fnationality, as betw'eenoperators on the.financialmarkets. Even though the rules in issue may not give rise to unequal treatment, they are liable to impede the acquisition of shares in the undertakingsconcerned and to dissuadeinvestorsin other Member States.from investing in the capital of those undertakings. They are thernftrn liable, as a result, to render the .freedomof capital movementsillusoty."

'

CaseC-35/98, Stocrtssec:r"etcu"is t,an Finctncitn,t,B.G.M.Verkooiien,[2000] ECR l-4071, at paragraphs2T t o 30. t Thi* will be consideredfurther in section3C. t Car" C-367198120021ECR I-4731,paragraphs44 and 45. 7

of Act No. 53012007Coll On that basis,it seemsto the Commissionthat section 15(6) insurancecompaniesfrom constitutesa restriction to the extent that it precludeshealth in other Member States, transferring profits to shareholders(or other recipients) located associated with the costs once they have collected premiums and covered all the investorsin provision of public healthcare. In addition, this measuretends to dissuade companiesin the other Member Statesfrom investing in the capital of health insurance Slovak Republic,which constitutesa breachof Article 56 EC. can be justified Moreover, it does not seem to the Commissionthat these restrictions the public health under Article sg(lxb) EC as they appearneither suitable for securing objective. objective pursued,nor limited to what is necessaryin order to attain that policy (in its broadest It is true that, under Community law, responsibilityfor health primary responsibility of sense)and the provision of public health insuranceremain the the extent to which the Member Statesand Article 152 EC providesclear limitations to "health tourism" cases the Community may legislate in this field. Furthermore,as the of public health -"r..-clear,4 io*r^rnity law recognisesthat, due to the special nature systems, insurance and the existence of different national public health insurance legislationin this Member Statesenjoy a certainmeasureof discretionin designingtheir field. In the Wattscase,the ECJ statedthat ,,it is possible balanceof a for the risk of seriouslyunderminingthe.financial social security system to constitute an overriding reason in the general interestcapable ofjustifying an obstacleto thefreedom to provide services" and ,otheobjectiveof maintaininga balancedmedicaland hospitalsenticeopen to a1 miy also fall within the derogations on grounds of public health under Article 46 EC in so far as it contributesto the attainmentof a high level of healthProtection."t However, the "health tourism" casesalso make clear that the mere fact that health policy is involved, doesnot remove the obligationfor Member Statesto exercisetheir national sovereigntyin full respectfor fundamentalprinciples of Community law. As Advocate General Tesauro said in his opinion in Kohtl andDecker, the provision of public health insuranceby the Member Statesis not "an island beyondthe reach of Community law"6 and that restrictionson the fundamentalfreedomsmust be suitablefor securingthe public health objective pursuedand limited to what is necessaryin order to attain that objective. Even if it is acceptedthat section 15(6) of Act No. 530/2007Coll seeksto enhancethe protectionof public health in the Slovak Republic,the restrictionsit imposeson the use by health insurancecompaniesand their shareholdersof the profits they retain, are neither suitable for securingthe public health objective pursuedi.e. improvementsin terms of

o

CasesC-120195,Decker [998] ECR I-1831, C-158196,Kohll, C-157199,Smits & Peerboomsl200ll ECR I-5473, C-368/98, Vanbraekel,l200ll ECR I-5363, C-385199,Milller-Fcrure and Van Riet, [2003] ECR I-4509, C-56/01, Inizan, [2003] ECR I-12403 and C-8/02, Leichtle, l2004l ECR I-2641, C-372104 Wcttts[2006] ECR l-4325 and C-466104Acereda Herrer"a120061ECRI-5341. t Case C-372104,paragraphs103 and 104. 6 Joined Opinion delivered on l6 September1997in the Decker andKohll cases,paragraph34. B

quality, accessto healthcare,, cost control and efficiency,nor limited to what is necessary in order to attain such an objective. The restriction on the use of profits generatedby health insurancecompaniesdoes not seem necessaryas it actually harms, rather than improves the quality of, and accessto, healthcarein the Slovak Republicas it reducesthe incentivesfor privately-ownedhealth insurancecompaniesand their shareholdersto make further investmentsin the Slovak public health insurance system in terms of capital and know-how and may even encouragethose companieswhich are alreadypresentin the Slovak Republic to reduce and/or withdraw their investments. Moreover, the restrictionseemsdisproportionateas there are other lessrestrictivemeanswhich could be takenin order to improve the quality of, and accessto, healthcarein the SlovakRepublic. The Commission is also not aware of any other overriding requirement in the general interestwhich may justiff the provision in question. As a result,the restrictionscontainedin section15(6)of Act No. 53012007Coll on the use of profits resulting from the provision of public health insurancein the Slovak Republicmay constitutean unjustifiedrestrictionon the freedomof capitalmovements. B. The maximum limit of gross written premiums on the expenditure that health insurance companiesmay use to cover their operating expensesunder section6a(1) of Act No. 58112004Coll mav constitute a breach of the Third Non-Life Insurance Directive The Non-Life InsuranceDirectivesdo not affect a Member State'sfreedomto designits social security systemand how it will be organised.Indeed,Article 2(1Xd) of the First Non-Life InsuranceDirective excludesfrom the scope of application of the Non-Life InsuranceDirectives"insurance.formingpart of a stqtutorysystemo-fsocial security." In accordancewith Article 54 of the Third Non-Life InsuranceDirective, if a Member State decides to open up coveragebelonging to the statutory social security system, it may adopt specificgeneralgood provisionsin that field. In that regard,as the conditions under which private health insurersmay provide coverageof a risk belonging to the statutory social security regime have been the subjectof exhaustiveharmonizationby the Community legislature,the Slovak Republic can only attemptto justify the restrictionon the freedom of establishmentcontainedin section6a(1) of Act No. 581/2004Coll by refbrenceto the exceptionsset out in that harmonisinglegislationi.e. Article 54 of the Third Non-Life InsuranceDirective and not those containedin Article 46 EC or which qualify as oveffiding requirementsin the generalinterestrecognisedby the ECJ.7 Article 54 of the Third Non-Life InsuranceDirective providesthat, becauseof the nature and social consequences of private health insurersbeing able to provide coverageof a risk belongingto the statutorysocial securityregime,Member Statesare entitledto adopt specific legal provisions aiming at protectingthe generalgood. However, to the extent that such requirementsrestrict the freedom of establishment,they must be objectively

'Judgment

of the ECJ in CaseC-206198atparagraph45'."ctsto the argumentbasedon Articles [45J and Treutlt, it is sufJicientto state thut thoseprovisions cannot be relied on in a./ieldwhich, as in of the t96(2)l tlte present case, is the sub.jecto.f harmoniscttion,in the context of which the Community legislature has taken account of the general interestsreferred to by the Belgian Government,in c'ontradictionto the rules of that hctrmoniscttion." I

as the generalgood is necessaryand proportionateto the objectivepursued.sMoreover, with regard to the freedom of an exception to the fundamentalprincipler or the Treaty the burden of showing establishment,that concept must be interpretedstrictly. Finally' that theseconditions are met restswith the Member States' seek to ensure that all its In this context, it is legitimate for the Slovak Republic to reasonablecost. To achieve residentshave accessto a basicpackageof essentialcareat a principles: that aim, the Slovak systemis basedon inter alia the following o

open enrolment,

o

pensionersetc); the statepays insurancepremiumsfor certainresidents(children,

o

which must be a basic minimum level of health care cover as defined by law and provided by all public health insurancecompanies;and

o

profits a premium redistribution system to reduce health insurance companies' portfolios. and lossescausedby differencesin the risk profile of their client

Non-Life Insurance These principles appearjustified under Article 54 of the Third pursued by the Directive as they upp.ur objectively necessaryto achievethe objectives Slovak Government. written premiums on By contrast,the imposition of a maximum percentagelimit of gross their operating the expenditure that health insurance companies may use to cover law. This is expensesappearsto the Commissionto be incompatiblewith Community general good becausesuch a limit is both unsuitable for securingthe attainment of the privately-owned and disproportionateto the aim pursued,as it reducesthe incentives for public health Slovak in the health insurance companies to make fuither investments insurancesYstem. in Furthermore,the Slovak Republic's argumentthat public health insurancecompanies it is the Slovak Republic are not engagedin any economic activity, with the result that to use may entitled to limit the percentageof expenditurethat health insurancecompanies cover their operatingexpens.r, ,unnot be accepted.As the ECJ made clear in the "health tourism" cases, health services offered by social security systems do constitute an economicactivity within the meaningof Article 50 of the EC Treaty.e Finally, the claim that the Slovak health insurancesector is based on the principle of .,solidarrtt'',so the Treaty's competitionrules do not apply, is irrelevant. Rather,once a Member State has openedup (either in full or partially) coverageof a risk belonging to the statutory social security regime to private insurers, it has to accept that any Community insuranceundertaking may cover that risk on the basis of the freedom of establishmentand the freedom to provide services. In any case,the Commission has not challengedthe compatibility of section 6a(1) of Act No. 581/2004 Coll with the EC competitionlaw rules.

*

S"e the Commission's2000 Communicationon the freedomto provide servicesand the generalgood in the insurancesector,OJ C 4315of 16.2.2000,at page 16. n 55-58. Smits& Peerbooms,paragraphs Seeamongothers,C-157199, 10

By imposing a maximum percentagelimit on the expenditurethat health insurance companiescan use to cover their operatingexpenses,section6a(1) Act No.53012007 Coll may constitutea breachof the Third Non-Life InsuranceDirective. C. The fact that the transfer of the portfolio of a health insurance company has to take place without payment and to either a State-ownedhealth insurance company in case of liquidation or to a State-owned or privately-owned health insurance company in other circumstances,may constitute an unjustified restriction on the freedom of establishmentunder Article 43 ECIO. The amendedversionof section61(1) of Act No. 581/2004Coll, which enteredin force on I June 2009, providesthat the transferof the portfolio of a healthinsurancecompany has to take place without paymentto either a State-ownedhealth insurancecompany in case of liquidation or to either a State-ownedor privately-ownedhealth insurance companyin other,undefined,circumstances. Before the enactmentof this amendinglegislation,it was lawful for client portfolios to be transferred to any health insurance company and for the payment (or "reward") to be notified to - and approvedby - the Slovak HealthcareSurveillanceOffice. The new legislation(the revisedArticle 61(l)) providesfor: a) a direct interventionby the Slovak HealthcareSurveillanceOffice to transferthe client portfolio to another(State-owned)insurancecompany- without paymentin caseof the insolvencyof the healthinsurancecompany;and b) the transfer of the client portfolio of a health insurancecompany which has not become insolvent (in circumstanceswhich are not specified),to another(Stateowned or privately-owned)healthinsurancecompanyalsowithout payment. The backgroundto this new legislation is set out in the proposal put forward by the Slovak Member of Parliamentwho proposedthe amendment. In essence,the reasoning provided is to the effect that public health insurancecannotbe left to the free market, but must be exclusively under public control. Furthermore,it is argued that insurance policies in the public health areacannotbe classifiedas individual contractsbetweenthe health insurance company and the insured and such contracts do not create a normal "portfolio" for the health insurance company carrying out the health insurance. According to the documentationaccompanyingthis proposedlegislation,this explains why the transfer of the portfolio of a health insurancecompany can take place without paynent whetheror not a situationof insolvencyexists. The Commission questions whether, as the proposer of the new Slovak legislation suggests,it is correctthat there is no contractualrelationshipbetweena health insurance company and insured persons. The fact that a health insurance company receives premiumsin return for insuringpersonsand is underan obligationto satisff claims made under the relevant insurancepolicy, suggeststhat a contractualrelationshipexists. Even in the absenceof a signed contract, a contractual relationship would appear to exist, which endows a health insurer with property rights in the premiums. It seems

'u

This legislation was of coursenot addressedin the letter sent by the Commissionto the Slovak Republic on 3 September2008. Nonetheless,in accordancewith Article 226 EC, the Commissionnow providesthe Slovak authorities, in this letter of formal notice, with an opportunity to conxnent on the Commission's views of the compatibility of this amendinglegislationwith Community law. 1

public health misconceived to claim that premiums paid to a private provider of of a insurance,when a Member Statehas allowed such companiesto provide coverage not and funds public risk belonging to the statutory social security regime, constitute private property rights. This is confirmed by the 2004 explanatorynotes to the original version of Act No. 58112004Coll, which consideredthat a commercialtransfer of an insuranceportfolio was perfectly acceptable: ,, iven that health insuroncecompaniesare players in the insurance market, it [gJ is possible that insurance portfolio, as e set of executedand valid insurance contracts/policies witt be the subject of trading between health insurance companies." In that regard,such an interferencewith the propertyrights of health insurancecompanies of legally establishedin the Slovak Republicmay constitutea restrictionon the freedom national establishmentas "according to settled case-law,Article 43 EC precludes any grounds of measure which, even though it is applicable without discrimination on nationality, rs tiable to hinder or render less attractive the exercise by, Community that is guaranteedby the Treaty."" nationalsof thefreedomof establishment 61(1) As for whethersuchrestrictionscould be justified, the amendedversion of section State of Act No. 58112004Coll fails to take into accountthe fact that, when a Member social allows private companiesto provide coverageof a risk belonging to the statutory care is a security regime, Community law becomes applicable. Thus, although health open sector which falls principally within national sovereignty,to the extent that they States Member investment, their national health or social security systemsto foreign be must respectCommunity law and any restrictionson the fundamentalfreedomsmust is necessary what to suitable for securingthe public health objective pursuedand limited in order to attain that objective. Consequently,evenif it is acceptedthat the amendedversionof section61(1) of Act No. 5g1/2004Coll seeksto enhancethe protectionof public health in the Slovak Republic, the restrictions that provision imposes on the exercise of the rights granted to undertakingsby Article 43 EC are neither suitablefor securingthe public health objective pursued i.e. improvements in terms quality, accessto health care, cost control and nor limited to what is necessaryin order to attain that objective. In fact, they "ffiri.nry, actually harm, rather than protect, the integrity of the Slovak public health insurance may ,yri"-, as they reducethe incentivesfor privately-ownedhealth insurancecompaniesand their shareholdersto make further investments in the Slovak public health insurance system in terms of capital and know-how and may even encouragethose companies which are already present in the Slovak Republic to reduce and/or withdraw their investments. The fact that the transfer of the portfolio of a health insurancecompanyhas to take place without payment and to either a State-ownedhealth insurance company in case of liquidation or to a State-ownedor privately-owned health insurance company in other circumstances,may therefore be incompatible with the freedom of establishment,as interpretedby the EuropeanCourt of Justice.

" Se. most recently Joined CasesC-l7ll07 and C-172107Apothekerkammerdes Saarlandes and others, judgment of l9 May 2009, not yet reported,paragraph22. 12

4. Conclusion setout above,it appearsto the Commissionthat On the basisof the considerations a) the prohibition on health insurancecompaniesfreely disposing of any profits resulting from the provision of public health insurancein the Slovak Republic under section 15(6) of Act No 58112004Coll constitutesan unjustified restriction on the freedomof capital movementsguaranteedby Article 56 EC; b) section6a(l) of Act No. 581/2004Coll, as amended,constitutesa breachof the Third Non-Life InsuranceDirective as it imposesa maximum percentage limit on the gross written premiums on the expenditurethat health insurance companiesmay use to cover their operatingexpenses;and c) section 61(1) of Act No. 58112004Coll, as amendedon 1 June 2009, 43 constitutesa breach of the freedom of establishmentguaranteedby Article EC. has failed to Consequently,the Commissionis of the opinion that the Slovak Republic fulfil its obligations under the EC Treaty. 226 of the Treaty The Commission invites your Government,in accordancewith Article foregoing within establishingthe EuropeanCommunity, to submit its observationson the two months of receiptof this letter. within the After examining theseobservations,or if no observationshave been submitted as prescribedtime-limit, the Commissionffi&y,if appropriate,issuea Reasonedopinion provided for in the sameArticle.

Yoursfaithfully,

For the Commission Charlie McCreevY Memberof the Commission

13