French News in English 

Published by 

France Now Association

Editor: Arvind Ashta

Editorial Committee:

W. W. Strangmeyer,

Emmanuelle Ashta




(French news in English)

September 1999, Monthly, Issue No. 29

(Only highlighted issues available for on-line consultation)

This month in search of an identity

Universal Medical Coverage

European Union: Is everyone free to move?

Accounting : Consolidation of corporate accounts

A tour of Paris in Alphabet Poems - X, Y & Z

Universal Medical Coverage

The Universal Medical Coverage (UMC) is going to cost the French State nine billion Francs. This is nine billion Francs paid by the taxpayer, including me and maybe you. The State will pay this nine billion Francs to the CNAMTS* and private mutual funds and insurance companies. These organisations, in turn, will pass on this money minus their profit or administration expenses to the health sector: pharmaceutical companies, doctors, medical analysis laboratories and, with this law, dentists and opticians. We know that the health sector needs growth in sales. For this, they need either a price increase or an increase in quantity consumed. To avoid inflation, the government would prefer the latter. An increase in consumption can either be more consumption per head or consumption by more people. Since France is already a world leader in consumption per head of medicines, especially tranquillisers, the French are already painfully aware of their neurotic image and would not like to tarnish it further. The increase in sales must be directed to those who are not consuming at all or not enough (although even this will increase the average quantity consumed per person used for international comparisons). Who are the culprits who are lowering French consumption of medicines from its potential? The healthy, the very healthy, who don't need it and the poor, the very poor, who can't afford it. While pollution may one day crack the former, it seems reasonable that the government find ways to help the poor consume. This is what a political settlement is all about. Help the poor consume and help the rich grow. The UMC is a way of funding the consumption of medicines by the poorest courtesy of the taxpayer.

The government has already taken steps to get the poorest to consume. First, it allowed non-working people to take up Personal Medical Insurance. Of course, this alternative was so expensive (average of FF 15,000 per person per year) that only 50,000 took it up. In fact, one would have to be really sick really often for it to be a rational decision. Thereafter the government made Personal Medical Insurance free for the very poor, notably those on the RMI*, covering another 500,000 people. The tab of FF 7.5 billion was picked up by the CNAF*(FF 3 billion), the Department (FF 4 billion) or the FSV* (FF 0.5 billion). Still, they did not consume. Why?

It is not clear if the government does the analysis for the pharmaceutical sector or if the pharmaceutical sector pays for its own market research and analysis. In any case, the Minister for Employment and Solidarity, Mme Martine Aubry, revealed that basic medical coverage pays only 70% of the cost of medical treatment, if the doctor charges the minimum certified rates and prescribes only reimbursable medicines, which is rare. The balance 30% (or more) is paid by the patient, unless he has complementary private insurance. 38% of the unemployed don't have this complementary coverage and the situation gets worse as we go down the income scale. The 30% to be paid by the patient is often a strong enough deterrent that one French person in five has avoided treatment for financial reasons. In a population of 60 million, this is 12 million people who have renounced treatment at least once a year. Imagine the shock of the directors of large pharmaceutical companies and of the economy. Inclusive of doctors' fees, if the average treatment costs FF 500, this is a loss of FF 6 billion! And many may have renounced the treatment more than once. Her analysis also revealed that the package of departmental aid varied from one department to another and people were never sure of whether they would be covered for a particular ailment. So, this also may have deterred them from going in for treatment. Finally, the schemes required the intervention of so many actors (associations, insurance funds, the prefect, etc.) and took so much time that the patient probably gave up.

The UMC needed to remedy all these defects. So the government needed to provide a complementary coverage to the six million people who are already being offered free basic coverage by the departments. This will improve their health, because now they will have no excuse not to go to the doctor. An increase in pharmaceutical sales also gets translated into an increase in employment, another national concern.

Another 150,000 people still refused to take up this Personal Insurance. Presumably, these were the healthy ones who did not see the economic benefits of taking up optional insurance if they rarely went to the doctor. The UMC will make these people pay because the basic coverage of the UMC is obligatory. Once they pay, they may be tempted to take consultations and buy medicines for ailments that they had hitherto ignored.

The law on the UMC explains that it consists of two schemes: an obligatory basic coverage and a free complementary coverage for the poorest (Article 1). The law also goes into the financial relations between the different intervening bodies (the State, the Departments, the CNAMTS and the private medical insurance options). Finally, the law discusses a host of unrelated issues of a social nature. For example, the free and anonymous testing to check if one has a transmittable disease or the urgent information necessary on the computerised health card, which should be legible in any EU country. Some of these issues were so unrelated to the main subject that the opposition members of the National Assembly asked the Constitutional Council to examine the constitutionality of such a law. The Council, used to this practice, let most of the articles pass. However, even it felt that throwing in an article related to stickers on cans of food products was really nothing to do with the rest of the law, and it threw this article out.

The basic coverage

The minimum basic scheme is being made compulsory (Article 2) and extended to all residents who are not covered by some other medical and maternity insurance scheme (Article 3). The only criterion of applicability is stable and regular residence. It is free for those earning less than a certain threshold, most of whom are already getting this benefit.

This basic coverage is now being extended to the itinerant homeless if they are registered with some humanitarian association. Who is going to verify the existence of these homeless people: the public auditors of the Cour des comptes?

It is also being provided free to certain others who meet the residence criterion such as youngsters in the sixteen-to-eighteen age group (Article 7), provided they meet the income criterion.

The only people exempted are diplomats, those who have come to France for treatment, those working across the border who are covered in that State for illnesses in France, and the retired agents of international organisations (Article 8).

All other residents must pay. The government estimates that 150,000 new people will get the compulsory basic coverage, some of whom would do so at government expense.

The government has announced that the tariff of the basic coverage is going to be less expensive than the compulsory personal insurance scheme (which is now scrapped by Art. 2). As an indication, it is likely to be free up to an income level of FF 3500 per month. Thereafter, beneficiaries would have to pay a percentage of their income beyond this threshold (Article 3). For example, those earning FF 5,000 would have to pay only on FF 1500 (5000 - 3500).

Of course, this raises the next question: what percentage? Salaried employees pay 20% of their gross salaries and their employer pays another 40% on social security. If we take total cost to the employer as the base, the total social security cost comes out to 50%. The employer complains that an employee is costing him FF 15,000 per month and the employee complains he is earning only FF 7,500. Of course, the medical insurance component is about 13.5% of the gross salary if we do not include the CSG* which was essentially replacing the employee's contribution to Medical Insurance. Otherwise, the total cost of medical insurance works out to a little more than 20% of the gross salary. Would the new people covered by the compulsory basic UMC be asked to pay 20% or more? If they pay only 20%, workers will complain. Why should they work to pay 20% medical insurance on their entire income, while those earning non-salaried income pay only 20% on the excess of FF 3,500? Obviously, one day, the government will have to provide a standard deduction of FF 3,500 to all and increase the rates. This law or another will have to be modified. Of course, some non-salaried income is also subject to the CSG and RDS used to finance medical insurance.

Article 4 explains that all claimants would get the benefit of the medical services immediately on proof of residence. Thereafter, the CNAMTS or the local fund can research the regime to which the claimant should belong. This takes away the long wait before a sick person could benefit from medical coverage and go in for treatment which he could not otherwise afford.

Article 5 ensures that no medical insurance organisation can cancel the affiliation of a person unless he no longer fulfils the residence criteria. It the patient is transferred to another organisation, his benefits cease only once his affiliation to the other organisation becomes effective. This stops the practice of passing the buck and explaining that the reimbursement form got lost in transit.

Of course, the laws are being tightened. If these 150,000 people don't pay their dues for the compulsory basic coverage, the CNAMTS can sue them and recover the money from their bank accounts (Article 14). It can also recover penalties for late payment and interest on the principal and on the penalties. So, the unemployed wealthy will suddenly find that in addition to the Wealth Tax and the CSG and RDS* on their interest and rental income, they now have to pay a Medical Insurance Contribution. (One day, the bankers will be asked to deduct this at source from interest income.) Another reason to consume now rather than to save and invest. It is pertinent to give the government another good suggestion: make transit insurance compulsory for all small businesses "so that they avoid taking the risk of going bankrupt by an accident".

Private insurance companies and mutual funds lose out to some extent. The obligation of taking the compulsory public basic coverage means that a person no longer needs any private basic coverage he may have taken instead of the expensive personal medical insurance. Article 18 allows the person to get reimbursed for the cancellation of all such contracts, pro rata for the unexpired period of coverage.

The complementary coverage

Free complementary coverage is being extended to the poorest. The complementary coverage would include the part of conventional tariffs and medicinal prices that the basic coverage does not reimburse, the hospital forfeit which is not reimbursed by the basic medical coverage and the dentists' and opticians' expenses not reimbursed by the basic coverage. 85% of French people already have the complementary medical coverage and 15% don't. This means about nine million people are without complementary coverage. Of these, Mme Aubry estimates that six million people will be provided free complementary coverage since they would be earning less than a threshold. This threshold is higher than that of the free basic medical coverage. It varies according to the size of the household (Article 20). The government has indicated that it would be around 3,500 francs per month for an individual, FF 5,200 for two people, FF 6,300 for three, and FF 1,400 per month for each extra person in the household.

This would include 650,000 people who would be covered by the free basic medical coverage and many of those who were already getting but not availing of the free personal medical insurance scheme. The people who get free complementary insurance would also get the benefit of not paying any advance and then waiting for it to be reimbursed. They can consult the doctor of their choice and he would get the payment directly from the CNAMTS and/ or from the private insurance company.

To simplify matters, the departmental aid, the associated financial juggling and the heterogeneity of the composition of the basic coverage, are all being standardised at the State level. Of course, all simplification is complicated, and for a number of years, the departments would be compensated for the reduction in subsidies. Departmental aid is being scrapped, but there will still be State Aid for people who don't live regularly in France, if their income is low enough to qualify. This includes primarily illegal workers and those helped by the French State on humanitarian grounds. Ironic! The government doesn't want to throw out the illegal workers but wants to provide them medical benefits. Why not provide them political security and reduce their stress by 90%? Because, it is not a politically acceptable solution even if the votes of the non-approved nationalist factions have fallen to below 10%. Lower stress may also reduce medical consumption and sales. So, politically and economically, it remains a poor solution. Not being able to regularise them, the government is doing the next best thing: it is letting them remain in good enough health to continue working. The question is how will the government assess the income of someone who is living and working illegally.

Private insurance companies are unhappy with the stipulations relating to complementary coverage for a number of reasons. First, of the six million people who would be provided free coverage, at least half hadprivate insurance policies for complementary insurance. The law permits them to cancel these and get reimbursed (Article 23).

Second, in most cases, the new complementary coverage is likely to be managed by the CNAMTS or related quasi-public social security funds, although patients can opt for a private organisation. This makes a major change from a relationship where the CNAMTS looked after the basic coverage and the private insurance had a virtual monopoly into complementary insurance (58% of the contracts were with mutual funds, 20% with insurance companies and 15% with providence funds).

Third, the mutual funds, the providence funds and insurance companies can opt to compete for providing the complementary insurance to the six million people only by paying a 1.75% tax on their entire health insurance turnover. The government would then pay them a charge, say FF 1500, for each person who opts to be covered by a private organisation instead of taking the simple route of letting one fund, CNAMTS, reimburse the whole amount. Which means that the private insurers would need to provide more benefits than those provided by the CNAMTS to attract enough "free" patients to recover their 1.75% entry fee.

Fourth, once an organisation decides to participate, it cannot refuse anybody. This avoids the practice of private insurance companies trying to attract only healthy patients through attractive schemes and leaving the really sick ones for the CNAMTS.

Evidently, the most important question to be posed is why the government is trying to dissuade people from working? Why would people work for the SMIC* and pay their own complementary insurance in addition to the 20% deducted at source for the basic medical insurance if others don't work, get the RMI, and free basic and complementary medical insurance? Somewhere, social justice is creating a strong disincentive to work. It is making people question the misery of an unproductive career if there is no gain from working. And all their capitalist education tells them not to work if there is no gain.

Doctors are allowed to either fix their tariffs according to a convention with the CNAMTS or charge whatever they want. In practice, this means that there is a minimum floor which everyone respects and there is thus no cut-throat competition among doctors. Those whose reputations allow, charge more. The basic medical coverage reimbursement is a percentage of the conventionally agreed tariff. The free complementary insurance will reimburse the rest of the conventionally agreed tariff. But if certain doctors charge more, the patient would still have to bear a part of the cost (although certain private insurance policies reimburse this too). It is normal that the State does not want the poor people to bear this cost as it discourages them from going to the doctor and consuming all the related medicines, laboratory analyses, etc. The government has therefore persuaded the doctors and legislated that the doctors would charge only the conventionally agreed minimum prices to the beneficiaries of the new UMC scheme (Article 24). A sort of discriminative pricing for those above and below a poverty threshold. This would be to the overall gain of the doctors, allowing them to eat into the consumers' surplus. In the diagram they would get HFGO extra.

In the chic 7th arrondissement of Paris, in the waiting rooms of doctors, dentists and ophthalmologists who charge FF 300 or more for a consultation instead of the conventional FF 115, one now expects to see urine-clothed homeless people finally taking care of themselves, while the other patients become sicker still to know that they actually have to rub shoulders with their stinking brethren. So much for the gauche caviar (term used for rich bourgeois prattling left-wing ideology). But how do you feel about that if you are working hard to earn a little more than the SMIC? These poor people can go free to good doctors that your 100% mutual does not cover. Just as those earning above another threshold look at the beautiful HLMs (low income housing) which they are neither entitled to nor can afford in the market place.

*CNAMTS = Caisse Nationale d'Assurance Maladie des Travailleurs Salariés (National Fund for Medical Insurance of Salaried Workers)

CNAF = Caisse Nationale d'Allocations Familiales (National Fund for Family Allowances)

CSG = Contribution Sociale Généralisée (Generalised Social Contribution)

FSV = Fonds de Solidarité Vieillesse (Old-age Solidarity Fund)

RDS = Remboursement de la Dette Sociale (Social Debt Reimbursement)

RMI = Revenu Minimum d'Insertion (Minimum Dole for the long-term unemployed to reinsert themselves into the system)

SMIC = Salaire Minimum Interprofessionel de Croissance (The Minimum wage in France)

European Union: Is everyone free to move?

In a federal country like India or Australia, people are free to move from one State to another. They can study, work, holiday or simply retire in another State.

The European Union (EU) is not yet a federation. It has not yet permitted complete freedom of movement for all its residents. First, non-EU foreign nationals residing in a EU member State are free to move without visas only within the countries who have agreed to the Schengen accord. Second, even for EU passport holders, the free movement is limited to workers, spouses of the local person, the retired and students. But all of these still have to go through some formalities to get their papers. Third, those who don't have money are not wanted in any other country.

The economic rationale is simple. Each State wants to attract productive workers or, better still, entrepreneurs prepared to invest and employ. It also wants to attract those who have the money (earned elsewhere) which they would be willing to consume and spend so that the State's economy could get the multiplier effect. This would include the retired and the students. Conversely, no one wants those for whom one would have to pay social security benefits: unemployment doles, medical benefits or family welfare. An exception is made for spouses of the local residents.

Now that member countries have understood and agree to the benefit of attracting employers, workers, spouses, well-heeled pensioners and students, the EU has directed that administrative formalities for EU nationals be made easier for these categories, at least. The modifications of the French legislation and procedures relating to visas and residence permits allotted to EU nationals and those of the European Economic Area (EEA) are to be interpreted in this background.

1. Earlier, the French consulate or diplomatic mission could refuse a visa ad hoc. Now, it has to provide reasons for refusing a visa to a European from the EU or the EEA. Besides being more humane in itself, this ruling means that the bureaucrat has to search for a legally valid and justifiable reason. Cases of refusal based on personal doubt are likely to diminish.

2. EU and EEA Europeans engaged in an economic activity (entrepreneurs, professionals, workers) would now immediately get a ten-year permit and, thereafter, a permanent one as long as reciprocal arrangements exist with the country of the applicant. At present, these people are first given a five-year permit, which is then renewed. For existing holders of five year permits, the ten-year permit would be given only at the time of the expiry of the current permit. The government has taken care to point out to the prefects that the benefit of such residence permits is not to be provided to those who want French social advantages: RMI, access to housing, State-financed professional training, help for finding employment, etc. This facility is also not to be provided to temporary or seasonal workers.

EU and EEA entrepreneurs, professionals and workers need to produce their National Identity Cards and either a certificate of employment in France or a declaration to engage themselves in business or profession.

3. EU and EEA spouses of French citizens will also be provided a ten-year card immediately instead of a five-year one, to bring them into equality with the treatment given to spouses from other countries.

4. EU and EEA retired pensioners are to be provided a residence permit if their pension is sufficient to allow them to live here. But even those who are not earning enough are to be permitted if they can show sufficient resources in kind (property owned or access to free housing by a friend who owns property in France, coupled with marginal activity, royalties or transfers from a relative who agrees to stand as guarantor). In addition, the applicant must have a medical and maternity insurance policy offering benefits similar to those provided by the French basic social security regime.

EU and EEA retired citizens therefore need two documents in addition to their identity cards: documents proving that they have sufficient income and a document indicating affiliation to a private medical insurance policy.

5. EU and EEA students will find things simpler. If they have the income and medical insurance documents, these are of course welcome. However, it is enough for the EU student to declare, on his honour, that he has enough resources and to declare that he has medical insurance for himself and his family. Based on these, they will get their residence permit.

Slowly but surely, therefore, as the EU moves towards federalism, administrative formalities are being simplified, at least where the member-States unanimously agree that it is in everybody's interest to do so. All are agreeing on the benefit of reducing the cost of administrative formalities and on attracting the above-mentioned categories of people.

If bums were to organise themselves in a European syndicate of bums and beggars, they would probably obtain the political clout to travel and live in countries where the social security handouts are more generous. Political clout can overcome their economic impediment, but organising is work.

Accounting : Consolidation of corporate accounts

Is the desire to pay lower income and wealth taxes the origin of the conservative principle of accounting? Does this explain why, having used these conservative principles for individual legal entities subjected to taxes, the owners of large groups of companies would nonethelss like to flaunt their real wealth by indicating much higher profits and assets for the group? This is why, after consolidation, the whole would be more than the sum of its parts.

In France, the guidelines on accounting are issued by the National Accounting Council (Conseil National de la Comptabilité -CNC), who replaced the Conseil Supérieur de la Comptabilité in 1957. This is the accounting body which has responsibility for the French Accounting Plan. It also provides guidelines for accounting treatment on specific matters. For consolidation of corporate accounts, the CNC issued guidelines in 1968 and 1978 as follows:

1. Where a holding company has more than 50% of the voting rights in another company or where full control is exercised, the method of consolidation to be used is global consolidation. This method may also be called global integration on line-by-line aggregation by different authors.

2. For holdings of more than 33 %, or a lower level if judged appropriate, the equity method was to be used. This method is known as "mise en équivalence" in French. Essentially, it requires converting the value of the investments into the proportionate net worth owned. It is not the same thing as the method "Evaluation des titres par équivalence" which concerns the accounts of a holding company and not that of the consolidated company (which does not really exist) and also concerns a holding company which controls (more than 50%) as opposed to a notable influence for the equity method.

3. For joint ventures owned by two or more groups, the proportionate consolidation method was to be used. This method is also known as the proportionate aggregation or proportional integration.

Lavabre & Lavabre* give a simple example of the results of consolidation using the three different methods. Company X owns 45% of company Y. The income statement and the balance sheet of the two companies are presented below along with those of the consolidated company XY using the three different methods.

The example illustrates the diversity of results obtained by the three methods. Obviously, if at 45% control, one is taking only a proportion of the income into account by using any of the last two methods, it may be worthwhile for a corporation to buy out another 5% to achieve the threshold to use the global consolidation method and report significantly greater profit and total assets.

It is evident that adjustments have to be made for inter-company accounting of reciprocal debts, incomes and dividends paid by the subsidiary to the holding company.

For complex holdings, either we can consolidate in stages, at the level of each holding company, or we can consolidate directly into the books of the final consolidated company. Either way the result is the same as long as there is no circularity. If there is circularity, the consolidation has to be direct and a system of multiple equations has to be solved to obtain the percentage share in the subsidiary.
  X Y XY
Global Consolidation Proportionate Consolidation Equity Method
Balance Sheet
Own Capital 10000 5000 11250 11250 11250
Minority Interest     2750    
Debt 3000 2000 5000 3900 3000
Total Liabilities 13000 7000 19000 15150 14250
Various Assets 12000 7000 19000 15150 12000
Investments 1000       2250
Total Assets 13000 7000 19000 15150 14250
Income Statement
Income 100000 41000 141000 118450 100000
Proportionate profit of equalised companies         225
Total income 100000 41000 141000 118450 100225
Expenses 99000 40500 139500 117225 99000
Profit 1000 500 1500 1225 1225
Total (Exp. Profit) 100000 41000 141000 118450 100225

The law of 3rd January 1985 and its decree of application dated 17th February 1986 introduced an obligation for all commercial corporations to present consolidated accounts if they own, control or exert a significant influence on another company. These texts were a ratification of the accounting methodology considered appropriate by the CNC. The legislation was passed to implement the seventh council directive of the European Community. The obligation to present consolidated accounts started in 1986 for all stock exchange listed companies and by 1990 for all other companies. There was no need to present consolidated accounts if the company itself was included in the global consolidated accounts of another company that provided the information comparable to that required for the French consolidated accounts in accordance with the EC seventh directive.

Over the years, it was generally recognised that significant influence started as early as 20% and as such companies should be included in the global consolidated accounts if the holding company, its subsidiary or the different entities of the group held more than 20% of another company. In all such cases the equity method was to be used.

The major evolution was a recognition that

* The same accounting policy should be used throughout the group for presenting the consolidated accounts (e.g. Depreciation policy, stock valuations, accounting of leased assets).

* The effect of accounting entries made solely to conform to tax laws should be eliminated

* The recognition of deferred tax (timing differences and effects of tax losses carried forward) should be accounted for.

* The value of the assets to be used in obtaining the net worth was to be based on a revaluation principle so that the consolidated accounts present a more accurate picture of the global enterprise. Since revaluation in general inflates the figures, it may be presumed that the idea of presenting consolidated accounts is to show how strong or potent the group really is and to lay aside the principles of conservative accounting which seem to be valid only for the individual enterprise.

* The difference in the book value of the shares and the cost of acquisition could be treated as the difference owing to a lack of revaluation and the difference owing to the extra price of acquiring control. It is evident that a fair accounting treatment requires that the two components be separated and reflected in the accounts of the consolidated company.

All this extra accounting and revaluation mean more money paid to accountants. This is obviously in the interest of accountants. It also means that small companies may not afford all the extra accounting fees for consolidation accounting. Does this mean that legalising the CNC's guidelines endorses a policy that mergers and consolidations are to be left for the big boys? "No", replies Deepak Menon, partner at J.P. Kapur & Uberai's Chartered Accountancy firm: " As I see it if there is a merger or consolidation of plural corporate entities, they unite into a single entity and this ultimately leads to only one set of financial statements and not plural financial statements which need to be consolidated as in the case of as group where each unit maintains a separate identity though is part of the same group, thus needing consolidation of accounts."

The latest guidelines of the CNC (December 1998) have now been ratified by the Accounting Regulations Committee (April 1999), itself ratified by an order of the Ministry of Economics, Finance and Industry (June 1999). The CNC has updated the entire accounting policy associated with the issue of the Consolidation of Corporate Accounts. The final version seems rather poorly presented, even though it follows a codification scheme. For example, many pages are devoted to global consolidation and only a third of a page to proportional integration and less than a page to the equity method. In both of the latter methods, certain principals discussed in the global consolidation method are to be applied. This criticism could have been obviated by placing all the common provisions in one part and then using a second part to discuss the separate principals unique to each method. The result would have been an easier understanding of the differences between the methods and their application. Maybe, the reason for the lack of balance in the plan is that the CNC has been trying to include every change in a preconceived code to which accountants are already accustomed.

*C. Lavabre & G. Lavabre: Comptabilité des sociétés fusions consolidation, (1995) DECF, Litec.

UN Centre for Transnational Corporations: International Accounting and reporting issues (1987).

C. Nobles & R. Parker ed.: Comparative International Accounting (1995), Prentice Hall Intl (UK).

** Our thanks to Deepak Menon for having read through the article and the suggested corrections. He also adds that there is no legislation on the subject in India, thus allowing a large amount of flexibility in presenting group accounts.