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The plans of Slovenia's sole mutual health insurer, Vzajemna, to reincorporate itself as a joint-stock company have been at the centre of a political debate for more than a month. The battle lines seem to be very clearly drawn: while the great majority of the 33 members of the insurer's governing body want to privatize the company as soon as possible, the parliament and the government insist that the privatization process should be made more transparent. Exploding costs of health services As in most of the developed countries, Slovenia has a demographic time bomb on its hands. With an ageing population and one of the lowest birth rates in Europe, its health services have come under increasing financial strain, forcing successive governments to devise more or less innovative ways of dealing with the problem. In 1999, Vzajemna was established as a mutual insurance company that took over the management of supplementary insurance from the state-owned Health Insurance Institute, the aim being the prevention of cross-subsidization between compulsory and supplementary insurance schemes. Although more transparency was thereby introduced into the system, the establishment of Vzajemna did not solve the problems of rising health care costs. Admittedly, that was not Vzajemna's role at the outset, but it soon became clear that the government had single-handedly created a powerful lobby group that was more than capable of defending its interests against those of the state let alone the insured. Legal wrangling: glossing over the real question On 1st February, representatives of Vzajemna's 900,000 shareholders decided to proceed with its reincorporation plans. Even though the parliament, the government and its agencies tried to prevent the insurer from taking this decision - for fear of the so-called 'wild privatization that would only benefit special interests', Vzajemna's legal team succeeded in fending off all legal challenges, except for one. With the adoption of a special interpretative statement on a particular provision of the Slovenian Insurance Act, the parliament, at the last moment, forced Vzajemna to present its plans to the Insurance Supervision Agency (ISA) for confirmation. The fact that the final judgement on the admissibility of Vzajemna's plans rests with this agency is deplorable. Namely, Vzajemna's capital is composed of the insurance premiums of the 900,000 people insured by Vzajemna and who are also its sole owners. They are represented by only 33 members of Vzajemna's governing body, drawn mainly from the higher echelons of larger Slovenian companies. Combined with the lack of shareholder activism on the part of the most of Vzajemna's owners and the high-flying ambitions of the management team headed by Vzajemna's CEO, Marko Jaklic, it is easy to see why the governing body of the insurer, supposedly there to protect the interests of all shareholders, yielded to the temptation of floating the company on the stock market. At whose expense? When the privatization plans were announced in December, Mr Jaklic emphasised that all shareholders would be treated in the same manner: all of them have already been issued certificates that they could convert into shares once the company is listed on the stock exchange. Although Mr Jaklic's license has been revoked by the ISA (the decision being subject to a legal challenge) because in the latter's view he was not authorized to issue certificates, he insists that Vzajemna must be reincorporated if it is to compete successfully with its rivals on the Slovenian insurance market. Being a non-profit company and legally bound to offer only supplementary health insurance, Vzajemna cannot expand into offering other types of insurance unless it reincorporates as a joint-stock company. Only then could it issue bonds to get hold of fresh capital and start offering new services, a long-nurtured ambition of Vzajemna's leading managers. Of course, Vzajemna (meaning 'mutual' in English) would have to change its name after eventual reincorporation, because the element of mutuality would be sacrificed at the altar of profitability. Road to perdition? Yet it is hard to see why anyone would object or try to prevent Vzajemna's insured from becoming shareholders of a successful listed company. The trouble is that the privatization process as proposed by the management has been deemed non-transparent by independent insurance experts. They point out that there is no way to know just how much Vzajemna is worth today, so its insured could end up as owners of worthless shares. On the other hand, Vzajemna could be intentionally undervalued by the management: once the shareholders realized how much the company was worth, they would be more than ready to sell their shares to the buyer offering the best price. It can, therefore, be expected that the dispersed ownership of the newly privatized company will eventually be concentrated in a few interconnected funds, more or less as happened when the government issued certificates at the start of 1990's heralding the start of Slovenia's unruly privatization process. Experts fear that once the ownership of Vzajemna is consolidated, the management and the owners would start to look for a strategic partner, eventually selling the company and cashing in on the fat takeover premiums. However, this worst-case scenario need not happen. The government and the parliament have jointly demanded that the privatization be halted, but that does not necessarily mean that they reject the notion of privatization as such. In any case, if the ISA refuses to sanction Vzajemna's plans then that should buy the Slovenian public some more time to discuss the pros and cons of privatizing health services.