The Dovera-saga: Peace of mind for solidarity or cold feet for EU competition law?
Last summer’s CJEU judgment in Case C-262/18 P Dovera Zdravotna Poist’ovna has gone by quite unnoticed with only a few mentions and annotations in the usual blogs and journals. However, this judgment – which concerned a State aid question in the context of Slovakian supplementary health insurance – is significant for the interaction of EU competition law (specifically State aid law) with social protection and social security law.
Since the AG2R Prévoyance judgment, it was generally assumed that supplementary insurance schemes involving a (partially) compulsory affiliation fall within the scope of EU competition rules. The supplementary French insurance scheme at issue in that case was assessed under Article 106(2) TFEU. After considering that EU competition rules were applicable, the CJEU assessed the insurance scheme in line with the principle of proportionality and the interest of the European Union. The case did not concern State aid regulation, but the role of the French Government as facilitator of infringements under Article 101 (cartels) and Article 102 TFEU (abuse of dominance). This judgment could be considered a reversal of previous case law, as the concerned services were held to fall within the scope of the rules on competition – contrary to the older Poucet & Pistre and FFSA judgments. These judgments had ruled that EU competition law did not apply to compulsory forms of social insurance schemes, regardless of its supplementary or statutory nature.
What we can conclude from these previous cases, is that the Court (as well as the Commission in consolidating notices) uses a (so-called) solidarity test to assess whether social services and social security schemes are considered ‘non-economic activities’, and thus fall outside the scope of EU competition law. This solidarity assessment is different from the AG2R Prévoyance test, where an insurance scheme (and its relating State subsidies or exclusive rights) is judged on the basis of compliance with the conditions of Article 106(2) TFEU.
The solidarity principle in EU competition law is based on the idea that there is no selection of risks and no balance between contribution and benefit within the provision of the service. Furthermore, the case law mentions the following (indicative) conditions:
– The scheme is based on a system of compulsory affiliation (Poucet & Pistre);
– the scheme has an exclusively social purpose;
– the scheme is not profit-oriented;
– the service providers are subject to State supervision (e.g. Cisal);
– the benefits paid do not depend on the amount of the contributions (e.g. AOK Bundesverband);
– the amount of benefits paid is not necessarily proportionate to the professional income of the insured person (e.g. Kattner Stahlbau);
When these conditions are fulfilled, the insurance activity at stake is considered non-economic and out of scope. However, it remains unclear how these conditions relate to one another, as social insurance schemes can often be present in a very competitive and profitable environment. Hence, it was only a matter of time before the Court of Justice would be asked to clarify the relation between the solidarity exception (i.e. where EU competition law does not apply) and the exception for services of general economic interest (i.e. where services need to be assessed under the exception of Article 106(2) TFEU). This pas de deux thus became the central issue in the Dovera cases.
The disputed aid measure was granted to a compulsory supplementary health insurance scheme organised by various insurance companies. The scheme involved a risk equalization mechanism, compensating potential losses for providing supplementary insurance to high-risk policyholders. Despite the social character of the insurance, the providers were able to generate profits and compete in terms of price and quality of the services. In the initial case (T-216/15), the General Court (GC) assumed that a market of both economic and non-economic activities was non-existent, and therefore a thorough market definition was needed.
In paragraph 49 of the Dovera judgment, the GC further stated:
“it must more specifically be noted that, in the field of social security, the Court of Justice has held that certain bodies entrusted with the management of statutory health insurance and old-age insurance schemes pursued an exclusively social objective and did not engage in economic activity. The Court of Justice found that was so in the case of sickness funds which merely applied the law and could not influence the amount of the contributions, the use of assets and the fixing of the level of benefits. Their activity, based on the principle of national solidarity, was entirely non-profit-making and the benefits paid were statutory benefits bearing no relation to the amount of the contributions (…).”
According to the GC, this statutory nature of the insurance scheme was not met in Dovera (para 66). The compulsory nature is not in itself sufficient to be subject to the solidarity exception. Moreover, on the basis of previous case law (amongst others, Albany, paras 84-87), the GC found that the social aim of a health insurance scheme also does not suffice to exclude the economic nature of the service (para 51). Additionally, the GC annulled the Commission Decision, ruling against Dovera (the complainant) and in favour of the non-economic nature of the Slovakian health insurance scheme and its related risk equalization subsidies. The Commission Decision, according to the GC, unlawfully stated that the strict regulation of profit distribution may be a symptom of a non-economic activity.
The GC further concluded that the insurance scheme was economic in nature, on the basis of two new or ‘unprecedented’ arguments:
– A service can be considered economic in case of de facto competition between service providers, either based on price or quality of service (‘value for money’, para 66). The existence of competition was further motivated by the volatility of policyholders and the possibility of switching to other providers (para 68).
– The absence of a profit motive is not in itself sufficient to defend the non-economic nature of the activity (para 50). The GC went even further, holding that the presence of (one or more) profit-making service providers ipso facto leads to an economic activity (paras 59 and 69). This argument assumes that a market cannot include both economic and non-economic activities.
Both arguments (de facto competition and profit motive) were unambiguously overruled by the Court of Justice on appeal. The social character and strict State supervision on the insurance scheme was a rightful ground for the Commission to find that State aid rules did not apply to the insurance subsidies (para 63). Moreover, the existence of competition was deemed as ‘insufficient’ and ‘secondary’ by the Court of Justice (para 61). The judgment of the GC and all the pleas in favour of upholding the GC judgment were set aside (para 70).
The notion of ‘undertaking’ and ‘economic activity’ is assumed to have a uniform meaning in the context of EU competition law, independent from the question which rules apply (cartel agreements, abuse of dominance and State aid). However, the relation between Dovera (on State aid rules) and AG2R Prévoyance (combining Articles 101, 102 and 106 TFEU) seems to uncover a slightly divergent notion of the economic activity, the latter assuming a broader field of application. It is therefore possible that the political sensitivity of State aid rules for insurance services may have been one of the motives to overrule the GC. As such, the GC ruling would have led to notification obligations (or, otherwise, implementation of the State aid rules for services of general economic interest) for all aid measures involving supplementary insurance schemes.
To conclude, the Dovera saga may lead to an ambiguous feeling:
On the one hand, this case has redefined the boundaries of application of EU competition law, albeit in a negative sense (how not to define an economic activity?). As for now, subsidies (in particular, risk equalization mechanisms) for providers of a compulsory form of supplementary health insurance do not fall within the application of EU State aid law and – more generally – the rules on competition, regardless of the existence of de facto competition and profit motive. In this perspective, Dovera is a victory for Member State autonomy in matters of health insurance.
On the other hand, this ruling may be considered a missed opportunity for both social security services and EU competition law. State aid rules could have proven to be sufficiently lenient and adaptive in the context of health insurance services. It should further be noted that governments who use market mechanisms to organise their social insurances should also bear the regulatory consequences. In light of the increasing liberalization of social protection throughout the EU (both for supplementary health and pensions services), Dovera is certainly far from the last judgment on EU competition law and social insurance.