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The State Reimbursement Reform (2015)

As part of the employment reform from 2014, the respective parties have agreed on a state reimbursement system reform (2015) which took effect on 1 January 2016 and aims to promote an efficient labour market policy.

The present state reimbursement system consists of a set of complex regulations where the percentage of the municipality’s expenses on social benefits, for which the state is liable, varies by social benefit category and depending on which participants in active labour market policy are the recipients of the social benefits in question. The concern with these regulations has been whether the efforts of municipalities have been too focused on acting in accordance with the complex regulations and the complicated reimbursement system rather than providing the best possible labour market policy.

The state reimbursement system reform introduces a simpler and more transparent system in which the percentage of the individual municipality’s cost of social benefits for which the state is liable no longer varies by social benefit category. The reform introduces a state reimbursement system where the percentage for which the state is liable varies solely according to the number of weeks a person has received social benefits.

The state reimbursement system reform aims to encourage municipalities to focus on the results of an effective labour market policy. Following the reform, a lower percentage of municipalities’ expenses on social benefits are refunded directly via reimbursement, while a larger proportion of these expenses are refunded via universal subsidies granted on the basis of objective criteria. This ensures a greater financial incentive for municipalities to prevent individuals from receiving social benefits on a long-term basis and implements an effective labour market policy. Thus the state reimbursement system reform has the goal of reinforcing municipalities’ efforts to offer an effective labour market policy which serves to bring individuals closer to un-subsidized employment, in contrast to a labour market policy based upon the percentage of a given municipality’s social benefits expenses for which the state is liable.

The state reimbursement system reform entails:

  • A reimbursement nominator, which counts the number of weeks a person has been in receipt of particular social benefits. Individual seniority on the reimbursement nominator determines the percentage of municipalities’ expenses on the social benefits in question for which the state shall be liable.   
  • That the state shall be liable for 80% of the municipality’s expenses on particular social benefits during the first 4 weeks a person receives social benefits. The state is liable for 40% during the subsequent 5-26 weeks, 30% during the subsequent 27-52 weeks and 20% after 52 weeks.
  • A self-reliance nominator, counting the number of weeks a person has been in ordinary un-subsidized employment and/or not in receipt of social benefits. The self-reliance nominator resets the reimbursement nominator if a person has been self-reliant for more than 52 weeks over the course of the preceding 3 years. The state is then once again liable for 80% of the municipality’s expenses on social benefits during the first 4 weeks etc., should the person become dependent upon social benefits.
  • That those in receipt of social benefits as of 1 January 2016 are included in the new state reimbursement system, with seniority on the self-reliance nominator determined as of 1 July 2014.
  • That the state reimbursement system reform will not apply to people who have already been granted a disability pension or a flexi-job before 1 July 2014. The percentage of the municipality’s expenses on social benefits for which the state is liable will in these cases be based on earlier state reimbursement system regulations.
  • That a separate subsidy paid to municipalities is introduced so as to continue promoting the granting of flex jobs after 1 January 2016.

In implementing the state reimbursement system reform the government seeks to continue to support an effective labour market policy for groups with special needs which serves to bring them closer to un-subsidized employment or an ordinary education. 

The following categories of social benefit are subject to the state reimbursement system reform, and thereby influence the reimbursement nominator:

  • Cash benefits
  • Unemployment benefits
  • Sickness benefits (with jobs)
  • Rehabilitation allowance
  • Salaries paid under a specially-arranged scheme
  • Early retirement pension
  • Flex-wage subsidies
  • Employment subject to wage subsidies

Some social benefit categories - for instance maternity benefits and old age pensions - are not subject to the state reimbursement system reform, and will therefore not affect the individual reimbursement nominator or municipalities’ expenses on of social benefits.

Last updated: 12-12-2018