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11th June 2020
Competition & State Aid

Op-Ed: “Grand Chamber Judgment in Commission v Dôvera and Slovak Republic v Dôvera: The presence of for-profit companies in a compulsory health insurance scheme does not necessarily make the system at stake an ‘economic activity’ under EU Competition law” by Jorge Piernas

The Court of Justice, in Grand Chamber formation, delivered its judgment in Joined Cases C‑262/18 P and C‑271/18 P today. The judgment considers two appeals brought by the Slovak Republic and the European Commission respectively against the same judgment of the General Court , delivered on 5 February 2018. That General Court judgment annulled a Commission Decision related to alleged State aid granted to the Slovak State-owned insurance companies Spoločná zdravotná poisťovňa, a.s. (SZP) and Všeobecná zdravotná poisťovňa, a.s. (VšZP).

The Court of Justice’s judgment sets aside the General Court’s ruling and clarifies, inter alia, that: (i) insurance bodies managing a compulsory health insurance scheme which has a social objective and applies the principle of solidarity under State supervision are not ‘undertakings’ under EU competition law, even if they are for-profit companies governed by private law, and that (ii) other bodies involved in the scheme may not be classified as ‘undertakings’ on the ground that some bodies operating in the context of the same scheme are seeking to make a profit.

The contested Commission decision concluded that the Slovak health insurance sector was based on solidarity and, consequently, that the entities operating under that system, even though some of them were private operators, were not carrying out an ‘economic activity’, and hence were not ‘undertakings’, in the sense of the EU Courts’ case law. The Commission Decision did acknowledge that certain features of the Slovak compulsory health insurance system could point to the economic nature of the activities involved in that system, particularly the presence of several insurance operators (public and private), some degree of competition between these health insurers, and the fact that the regulation of compulsory health insurance in Slovakia allowed health insurers to make a profit. Indeed, the Commission notice on the notion of State aid considers the ‘profit-making nature’ of a social security scheme as an indication of economic activity. However, those features did not, according to the Commission, call into question the conclusion that compulsory health insurance in Slovakia was a non-economic activity (paragraphs 90-95).

The General Court’s judgment upheld the Commission’s conclusion that, in essence, the Slovak compulsory health insurance scheme had predominantly social, solidarity and regulatory features (paragraph 58). However, that Court found that the health insurance companies’ ability to make, use and distribute part of their profits and the existence of a certain amount of competition as to the quality and scope of services provided did call into question the non-economic character of the Slovak compulsory health insurance system (paragraphs 63 and 65). Consequently, the General Court concluded that ‘in view of the profit pursued by health insurance companies and the existence of intense competition as to quality and the services offered, the activity of providing compulsory health insurance in Slovakia is economic in nature’ (paragraph 68). As a result, the General Court found that the Commission had committed an error of assessment when it concluded that SZP and VšZP could not be considered as undertakings within the meaning of Article 107(1) TFEU, on the ground that the activity carried out by health insurance bodies in the Slovak compulsory health insurance scheme is not economic in nature (paragraph 70).

As underlined by Advocate General Pikamäe in his Opinion (paragraph 2), today’s judgment is relevant to clarify two important issues, namely: (i) the impact on the classification of an entity as an undertaking, of the fact that other operators within a compulsory health insurance system are seeking to make a profit, and (ii) the scope of the judicial review conducted in relation to assessments made by the Commission in the context of determining whether an entity is to be regarded as an undertaking. In particular, it examines whether such assessments are subject to a full review by the EU judiciary, or only to a manifest error of assessment analysis, as is the case in where complex economic assessments are concerned.

In relation to the first issue, the Court makes clear that ‘undertakings’ are determined by the existence of an ‘economic activity’, and not the other way around. That is, a company established under national law that provides services for profit is not necessarily an ‘undertaking’ under EU Law (see paragraph 39 of today’s judgment). This categorisation will depend on the nature of the activity at stake and on the characteristics under which the services at issue are provided at the national level. In the case of compulsory health insurance systems, if the system is predominantly based on solidarity, the fact that a certain degree of competition between insurance providers is allowed by the national regulation – in so far as the scheme includes a mechanism for the equalisation of costs and risks – is not enough to call into question the non-economic character of the entire system. Indeed, the introduction of a competitive element in the system may be considered, in line with the previous AOK Bundesverband and Others jurisprudence, as a reflection of sound management and in the interests of the proper functioning of the social security system (see paragraphs 34 and 43 of today’s judgment). Finally, the Court clarifies that there is no ‘contagion’ between for profit and non-for-profit bodies involved in the same system as to their categorisation as ‘undertakings’. That is, the fact that some operators within a compulsory health insurance system are seeking to make a profit does not result in the classification of another entity under the same system as an undertaking (see paragraph 50 of today’s judgment). Again, what matters ultimately is the nature of the activity at stake, and not the legal status of the bodies engaged in it.

In relation to the second issue, the argument that the Commission enjoys a wide margin of discretion in the determination of whether the compulsory health insurance system is an economic activity was made, surprisingly, not by the Commission, but by the Slovak Republic (see paragraph 22 of today’s judgment). The Court of Justice did not examine this argument, as it was no longer necessary after having upheld the previous grounds of appeal (see paragraph 52). However, the Court of Justice did not refer to any limits in its judicial review when it held, in accordance with its previous case law, that for ‘the purposes of assessing whether an activity carried out in the context of a social security scheme is non-economic in nature, it makes an overall assessment of the scheme at issue and, to that end, takes the following into consideration: the pursuit, by the scheme, of a social objective, its application of the principle of solidarity, whether the activity carried out is non-profit-making, and State supervision of that activity[…]’. (See paragraph 30 of the judgment.)

In our view, the argument put forward by the Slovak Republic could not be upheld for a number of reasons. Indeed, the EU judicature must in principle carry out a comprehensive review as to whether a measure falls within the scope of Article 107(1) TFEU. Admittedly, the Court of Justice has also held that judicial review is limited with regard to whether a measure amounts to State aid under Article 107(1) TFEU in a case where the appraisals by the Commission are technical or complex in nature. This limited review has been applied, for example, to the assessment of the advantage criterion under the Market Economy Operator Test, which may indeed involve complex economic assessments. This is not the case of the analysis of whether the Slovak compulsory health insurance system is an economic activity under the case law of the EU judicature.

The recognition of such a wide margin of discretion to the Commission would indeed be inappropriate. This is so also in light of the fact that the organisation of social security systems remains an exclusive competence of the Member States, the exercise of which could be unduly limited if the Commission were to enjoy a wide margin of discretion to determine their economic character for the purposes of EU competition law, including Article 107(1) TFEU and, consequently, if the EU Courts could not exercise a full review of this determination. In this regard, in today’s judgment, the Grand Chamber of the Court notes that in ‘the field of social security, the Court has held that EU law does not, in principle, detract from the powers of the Member States to organise their social security systems’ (see paragraph 30).

To this extent, for instance, the General Court has held, in relation to Article 106(2) TFEU, that the application of this provision in the hospital sector must take into account respect for the responsibilities of the Member States for the definition of their health policies and the organisation and delivery of health services and medical care (see CBI judgment).

Finally, the submission that the interpretation of national social security and health provisions must be ‘handled with care’ by the EU institutions, and must be subject to the full review by the EU judicature, may also find support in several elements: (i) a joint reading of Article 3(3) TEU, and the affirmation of a ‘highly competitive social market economy’ as one of the EU’s objectives; (ii) Article 9 TFEU, the cross-cutting social protection clause; and (iii) Article 7 TFEU, which states that the EU shall ensure consistency between its policies and activities, taking all of its objectives into account and in accordance with the principle of conferral of powers.

To conclude, today’s judgment provides some welcome clarifications regarding the notion of ‘undertaking’ under EU competition law in the context of solidarity-based health insurance schemes, and confirms the discretion that Member States enjoy to organise their social security systems in so far as they observe the principle of solidarity as interpreted by the Court’s case law.

 

Jorge Piernas is Assistant Professor of International Law and International Relations at the University of Murcia (Spain) and consultant to the World Bank and other public institutions in competition and State aid law and policy. He is the author of The Concept of State Aid under EU Law: From internal market to competition and beyond, published by Oxford University Press in 2015.

 

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