Case 3-2-1-143-03

The defendant appealed a decision from a lower court by claiming that § 4(2) of the Estonian Health Insurance Fund Act (the “Act”) violated § 11 of the Estonian Constitution. Under § 4(2) of the Act, a health insurance fund was entitled to collect costs which such fund had incurred upon payment of health insurance benefits for a certain entity if such entity was in arrears on its social tax payment. However, the payment of such costs to the health insurance fund did not release the entity from its duty to pay the arrears social tax.

The Plaintiff, the Estonian health insurance fund (“EHIS”), sued Defendant AS Laverna to recover medical expenses that Plaintiff paid on behalf of Defendant’s employees. Defendant had not paid its social tax since 2001 and the county court held that Defendant owed Plaintiff the amount that Plaintiff had expended on Defendant’s employees’ medical expenses.

Defendant appealed this judgment. The appellate court affirmed the county court’s judgment. The lower courts agreed that the statute’s purpose was to guarantee funding for employee medical expenses and, since the statute did not give rise to a tax relationship, did not constitute double taxation or a sanction for employer activity. On Defendant’s second appeal, the Civil Chamber of the Supreme Court referred the case to the Supreme Court en banc to decide whether the statute at issue complied with §§ 11 (proportionality requirement for restrictions on constitutional rights) and 32 (equal right to property ownership) of the Estonian Constitution.

The Court held that § 4(2) of the Act violated § 11 of the Estonian Constitution.

The Court determined that effectively   § 4(2) of the Act  established an additional financial obligation on a tax payer. It held that the § 4(2) of the Act restricted the constitutional right of social tax payers to freely possess, use, and dispose of their property under § 32 of the Constitution. Such restrictions could still be constitutional if the measure used was necessary, proportional and suitable to achieve the end desired. The Court noted that the statutory scheme for social tax already included a number of provisions designed to force defaulting social tax payers to fulfil their obligations and that the Act also established cash reserves in case of temporary cash flow problems to guarantee the performance of the health insurance fund’s duties. Thus, the Court found that because sufficient safeguards existed to achieve the aim of providing health care to patients and ensuring payment from liable tax payers, § 4(2) was unnecessary, i.e., the statute’s aim could have been achieved by means less restrictive than § 4(2). As a result, the provision was a disproportional restriction on Defendant’s right to use its money (property) as it pleased, and violated its constitutional rights under §§ 11 and 32 of the Constitution.

“On the basis of § 4(2) of the Estonian Health Insurance Fund Act the health insurance fund collected from persons owing social tax arrears the costs it had born when paying health insurance benefits. At the same time a person owing tax arrears was not exempted from paying the social tax arrears. In essence, § 4(2) of the HIFA established an additional financial obligation on a tax payer, which determined the purpose of the use of the income of the person, and restricted the freedom of the person to decide on the manners of using the property it owned. The Supreme Court en banc is of the opinion that the disputed regulation restricted the constitutional right of a person to freely possess, use and dispose of his or her property.” Para. 19.

“[T]he measure established in § 4(2) of the Estonian Health Insurance Fund Act was not necessary for the achievement of the aim, because the aim was achievable by ways less encumbering on persons taxable by social tax. The obligation of a person owing tax arrears to pay, in addition to social tax, also the sums paid by the health insurance fund in the form of health insurance benefits, the amount of which can not be foreseen, constitutes a disproportional restriction of the right of ownership. Thus, § 4(2) of the Estonian Health Insurance Fund Act was in conflict with §§ 32 and 11 of the Constitution in their conjunction.” Para 26.