Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698054950321.pdf (Georgia)
SOURCES OF FINANCING MEDICAL SERVICES WHY IT IS IMPORTANT TO FINANCE INDIVIDUAL MEDICAL SERVICE PRIMARILY BY PREPAID (POOLED) FINANCIAL RESOURCES Prepared by ANDRIA URUSHADZE This publication was made possible with the support from the American People provided through the United States Agency for International Development (USAID).
Opinions expressed in the publication are those of the working group and do not reflect the views of the United States Agency for International Development or the Government of United States.

© 2020.

ECONOMIC POLICY RESEARCH CENTER (EPRC) CONTENTS INTRODUCTION 1.

SOURCES OF FINANCING HEALTH CARE AND PREPAID REVENUES 1.1.

SOURCES OF FINANCING HEALTH CARE 1.2 SPECIFICS OF HEALTH CARE COSTS AND OBJECTIVES OF FINANCING 2.

POOLING AND MANAGING PREPAYMENTS 2.1 POOLING PREPAYMENTS AND MANAGING RISKS 2.2.
POOLING PREPAID REVENUES – INSTITUTIONAL ARRANGEMENT 3.

EXPERIENCE AND REFORMS OF COUNTRIES 3.1 EXPERIENCE OF DEVELOPED COUNTRIES IN MANAGING PREPAID FINANCIAL RESOURCES 3.2 EXPERIENCE OF GEORGIA AND CHALLENGES 3.2 FINANCING INDIVIDUAL SERVICES FROM PREPAID REVENUES AND ITS ALTERNATIVES 4.

CONCLUSIONS AND QUESTIONS FOR A FUTURE DISCUSSION 5.
LITERATURE 5 8 8 9 12 12 14 18 18 21 21 25 27 INTRODUCTION A working group was set up upon the initiative of the Economic Policy Research Center (EPRC) to draft a document on the development of health care sector in Georgia: Strategic Vision of Health Care Sector Development.
Among the key directions of the development are the prioritization of public health care, promotion of personal responsibility and equal protection against financial risks, which should serve as a basis for the establishment of health-oriented (and not only treat- ment-oriented), fair and financially sustainable health system.

The implementation of proposed concept largely depends, among all other factors (legislative, economic, social, cultural…), on a strategy selected for financing health care.
A funding model must ensure equal access to quality medical service and, more importantly, equal protection against disease-related financial risks.

Protection of population against disease-related financial risks is one of the most serious and unresolved problems for the health care system of Georgia.

More than half of all health care costs (55% in 20171) is still covered from out-of-pocket payments of the population.
Is prepaid funding of individual service a solution and a guarantee of equal protection from finan- cial risks?

This is the question which needs to be answered.

Launch of universal health care program in 20132 has improved the access to health care services, but equal protection against financial risks remains a serious problem.

The program protects population 1 National health care reports 2012-2017.

2 Ordinance №36 of 21 February 2013 of the government of Georgia.
4 S O U R C E S O F F I N A N C I N G M E D I C A L S E RV I C E S from ordinary costs, but often fails to protect them from catastrophic risks.
In 2015-2017, the share of households that found medical expenditure catastrophic, increased from 29.8% to 34.2%.3 It is worth noting that catastrophic expenditure increased in all groups of population except the richest quintile.4 The increase in catastrophic expenditure was the highest among the poorest population – 14% and among those in the second quintile – 30%; this may be explained by the rise in prices on medication and outpatient services.
Current state programs and financing of medical services are mainly focused on the provision of service to the population covered by the universal health care program.

At the same time, more than 10% of the population enjoys private insurance and there is no regulation whatsoever that would define a minimum insurance level and guaranteed service package of a private insurance beneficiary.
The document also discusses a model of personal health care savings accounts and a form of di- rect service financing as alternative forms of financing; they have their role in funding health care risks but cannot ensure protection from catastrophic expenditure.
As the experience of developed countries prove, where population is protected against impov- erishing treatment-related costs, the financing of individual medical service primarily by prepaid (pooled) revenues allows for the redistribution of disease-related risks and equal protection against these risks.

Similar recommendation is offered by international organizations, including the World Health Organization (WHO).
Pooling of prepaid revenues5 is also a precondition for the implementation of solidarity mecha- nisms among groups of society with various income levels and needs as well as for a fairer and more cost-effective use of limited financial resources.

This paper was prepared within the frame of discussion platform initiated and supported by EPRC.

The paper was drawn up with the support from USAID-funded Good Governance Initiative project.

3 UNICEF.

2018.
3 UNICEF.

2018.

The Wellbeing of Children and their Families in Georgia Survey – Fifth Stage.

4 Curatio International Foundation.

Barometer 8th wave survey.

Changed in catastrophic health spending during 2010-2015 (household survey).

5 Here and throughout the text the term used is “pooling.” 5 1.

SOURCES OF FINANCING HEALTH CARE AND PREPAID REVENUES 1.1.

SOURCES OF FINANCING HEALTH CARE In every country, be it poor or rich, the main source of financing health care is people.
Popula- tion pays health care service fees either before or after receiving these services.

Prepayment may be mandatory – through general or specific taxes as determined under the law, or vol- untary.

In some countries medical service is mainly financed through general taxes (for example, in the United Kingdom, Spain or Georgia) while in other countries the financing is carried out through mandatory specific contributions.
Forms of specific taxes are social insurance (Germany, Canada, Estonia) or a mandatory private insurance (Switzerland, the Netherlands, Israel).

Mandatory pre- payment may be in the form of individual medical savings accounts.

The example of the latter is Singapore.

In the United States of America, one of key sources of financing is a voluntary health care in- surance, which shows a distinguished attitude of the population of this country towards health.
Population of European countries views health care as a human right and consequently, society believes that it is their obligation to ensure equal access to medical services for all citizens based on solidarity principle.

The majority of Americans, however, think that health is a personal respon- sibility and therefore, every citizen may decide themselves whether or not to get insured and what type of insurance they want.
Despite this attitude, the US implements health care programs to finance health care costs of separate social groups (for example, the poor – Medicaid, and elderly people – Medicare).

These programs are financed from general taxes and therefore, they can be considered as a form of mandatory prepayment.

6 S O U R C E S O F F I N A N C I N G M E D I C A L S E RV I C E S An example of prepayment is a supplementary6 voluntary health insurance.
In the majority of coun- tries citizens may purchase supplementary insurance and get insured against those service costs that are not covered by a mandatory insurance.

In other words, a citizen chooses a prepaid form of financing the service and insures him/herself against those unexpected costs that he/she, in case of need, will have to co-finance after receiving the service.

Yet another example of prepayment is health care voucher.
The voucher enables a citizen to pre- pay fixed fee of medical service and get protected from unexpected costs when he/she will need such service in future.

1.2.

SPECIFICS OF HEALTH CARE COSTS AND OBJECTIVES OF FINANCING In contrast to any other service, costs related to disease are, as a rule, unpredictable in terms of time and amount.

One cannot be certain either whether the available income or saving will be sufficient to cover those costs.
This uncertainty in time and amount gives rise to a financial risk.

Clearly, patients with chronic diseases or people with special needs require a larger amount of health care services; it is also clear that with ageing, people approach medical institutions more frequently, but, as a rule, it is difficult for a household to plan in advance and get prepared for such costs.

Studies carried out by Newhouse et al.


(Newhouse 1989) proved that even when all possible fac- tors contributing to individual’s health care costs are measured, only around 20% of annual costs may be predicted.

Even in case of brilliant information system, this indicator rarely exceeds 10%.

An expensive surgery or a treatment of chronic disease may pose serious financial problems to the majority of households.

Comparing out-of-pocket spending to income, i.e.


finding out a percentage of revenues that a household has to spend on health care needs, enables us to judge how cata- strophic this expenditure is for a wellbeing of a household.7 6 Here and throughout the text the term used is “supplementary.” 7 The WHO defines expenditure as being catastrophic if a household’s financial contributions to the health system exceed 40% of net income for subsistence needs.
(Net income for subsistence needs is calculated as gross income of a household minus costs of subsistence needs.

Subsistence needs is defined as median of costs of households for food).

(WHO 2010).
(WHO 2010).

7 To assess the impact of financial risk, it is also important to identify the tools a household uses to cover these costs – current income, savings, private borrowing, bank loan, sale of valuables or dwelling as well as the effect of the spending on the wellbeing of a household - whether it re- mained the same, worsened, became poorer, or got impoverished.
Financial risk is further increased by additional factors related to health care services: inequality of income and services, information asymmetry, disease-related unemployment.

Incomes, as a rule, do not match medical service needs.

Low-income citizens (for example, elderly, patients suffering from chronic diseases or persons with disabilities), normally, require a greater amount of medical services and experience a heavier disease-related financial burden.
Poverty is also a serious social determinant of health and a significant barrier to enjoying medical services.

Inadequate living conditions, poor nutrition significantly contribute to morbidity and a financial risk of related costs.

Information asymmetry is yet another characteristic of a medical service market.

An educational and informational disbalance between a patient and a physician create a room for manipulation.
Patient is not ensured against unnecessary, irrational services and hence, further increase in costs.

A diseased person often loses job and accordingly, income either temporarily or permanently, which further worsens financial status of a household.

Often, a household has no other way but to refrain from incurring other necessary basic costs, such as, for example, children’s education, wholesome nutrition, necessary household costs.
It is these specific medical costs that objectives of universal health care and, particularly, health care financing follow from – to ensure each citizen with equal access to quality services and si- multaneously, to protect them against economic disadvantage resulting from incurred costs.

A comparative analysis of economic indicators of countries and structure of medical costs shows that out-of-pocket health care spending correlates with a level of country’s economic develop- ment.
The richer the country economically and the higher its GDP, the lower the share of out-of- pocket spending in total spending and the higher a degree of citizen’s protection against economic disadvantage.

See chart #1.1.

8 SOURCES OF FINANCING MEDICAL SERVICES Chart 1.1.


Share of out-of-pocket spending in total health care expenditure Other Private Out-of-Pocket Private Pre-Paid plans Social Security Territorial Government 100% 80% 60% 40% 20% 0% HIGH UPPER-MIDDLE LOW-MIDDLE LOW The WHO recommends that the share of prepayment in the total expenditure should not be less than 80%.

Clearly, this figure is nominal, but it shows the importance of prepayments in achieving objectives of health care, in general.

9 2.
9 2.

POOLING AND MANAGING PREPAYMENTS 2.1.

POOLING PREPAYMENTS AND MANAGING RISKS Pooling prepaid financial resources is one of main functions of health care financing through which revenues received in the health sphere are transferred to the state or private purchasers.

Prepayment and pooling allow equal redistribution of disease-related financial risk among citizens and equal protection against this risk.
The WHO views the management of disease-related risks as risk pooling for insurance purposes to balance results of realization of health risks of separate individuals (WHO 2010).

The WHO provides several risk redistribution scenarios: OPTION #1.

All participants of the pool pay equal amounts on a monthly basis regardless of the cost of medical service they receive.
In this case, risk is redistributed in time (pooling allows to pay medical costs “in installments”) and also, financial risk is shared between healthy members and members requiring medical service.

OPTION #2.

All members of the pool equally enjoy services but the amount of payment varies and depends on the size of income of a pool participant.

In other words, the higher the income of a participant the larger the contribution received from him/her.
As a result, costs/risks of low- er-income participants are shared by higher-income members.

A similar solidary model works between generations too, because people of various ages have different needs, productivity and income.

Consequently, polling risks and revenues enables the sharing of risks among generations as well.
10 SOURCES OF FINANCING MEDICAL SERVICES PATIENT-HEALTHY RICH-POOR $ $$$ $ $ $ $ $ $ $$ $ $ $$$ $ $ $ $ $ $ $$ $ $ PRODUCTIVITY- UNPRODUCTIVITY $$$ $ $ $ $ $ $ $$ $ As seen from the above risk-distribution scenario, for a pool to not only perform a function of risk redistribution, but also to enable the realization of solidarity principle, the size of contribution shall not directly dependent on a health status of a contributor and cost of individual consumption.
When speaking about the management of disease-related financial risks and reduction of these risks, it is necessary to take into account the following two points.

FIRST, risk sharing is not the only strategy for reducing risks.8 No less important is the reduction of those perils and hazards that increase the risk of disease and related financial burden.
Such perils may include, for example, health threatening environmental factors: polluted air, water, low-qual- ity food; while from hazards one should primarily mention healthy lifestyle and moral risks related to medical consumption.

Therefore, it is important to also view the primacy of public health care and disease prevention, protection against adverse effect of environment and promotion of per- sonal responsibility as a very important mechanism of reducing financial risks.
SECOND, risk distribution reduces financial risks but the protection from financial risks may only be achieved when a financial risk is transferred either completely or partially in such amount that the remaining part does not pose economic threat to a household any longer.
For example, a person may be insured and receive a needed service without impediment, but if a set limit of coverage does not compensate a full cost of treatment, a financial security of a household will depend on the total cost of treatment and the amount of the share to be covered by that person.

8 Perils and hazards imply direct causes of disease (natural, or depending on a person) and threats (physical, moral, dependence, related to law) which increase frequency and severity of disease.
For example, smoking significantly increases the risk of cancer and may become a cause of disease.

Perils and hazards of disease have a significant effect on the amount of expected cost.

11 It is important to consider pooling and risk management function in conjunction with other func- tions of health care financing – collection of amounts and purchase.

For a pool to fulfill its objec- tives, it is necessary that: a.

The economy allows for collecting money that is sufficient to finance risks; b.
The bulk of this money is prepaid and pooled; c. The financed services, conditions of their purchase and of com- pensation provide equal guarantees of protection.

2.2.

POOLING PREPAID REVENUES – INSTITUTIONAL ARRANGEMENT One can hardly find two countries that have an absolutely similar form of pooling amounts paid for medical services.

Despite similar objectives and main principles, national peculiarities affect institutional aspects of pooling amounts.
History, culture, territorial arrangement, social and eco- nomic conditions, political systems – all these factors play a role in policy decision-making in the health care sector.

Participation in pooling prepaid amounts may be mandatory or automatic and voluntary.

By struc- ture, it may be unitary or fragmented.


In fragmented structure one can also see different types of pooling which depends on the following conditions: existence or nonexistence of competition; possibility to correct risks and distribute risks; uniform or different service packages; pricing pro- cedure, etc.

Institutional arrangement of pooling affects possibilities of redistribution and management of risks within and among pools.
Pooling is mandatory or automatic when its membership is not a free choice, but required under the law.

The ground of mandatory membership is a specific tax.

This tax may be paid either by a citizen or be fully or partially covered by a budget transfer.

The ground of automatic pooling is not a specific tax but a political or social status of a citizen (for example, poverty), which, as a rule, is funded from general taxes.
12 SOURCES OF FINANCING MEDICAL SERVICES The ground of voluntary pooling is a free choice.

A citizen is free to decide whether he/she want to be a member of any of pool.

He/she selects him/herself desired insurance products from those available on the market.9 By structure, a pool may be unitary, a single pool, or fragmented, that is several pools.

When pools are several, their forms may differ.

A fragmented pool may be territorially distinct or overlapping in terms of members and services.
Competition may be allowed for new members or contracts or redistribution may not depend on competition; see Table #2.1.

Table #2.1.

Institutional forms of pool STRUCTURE OF POOLING Unitary or fragmented In case of fragmented: – Territorially distinct, or overlapping – Competitive, or uncompetitive – With population segmentation, or without segmentation FORM OF POOLING Voluntary, or mandatory, or automatic Source: (Inke Mathauer, 2019) According to Mathauer et al.
(Inke Mathauer, 2019), there are eight different types of pooling ar- rangements: 1. a single pool; 2. territorially distinct pools; 3. territorially overlapping pools in terms of service and population coverage; 4. different pools for different socio-economic groups with population segmentation; 5. different pools for different population groups, with coverage for all; 6. multiple competing pools with risk adjustment across the pools; and in combination with types 1.-6.; 7. fragmented systems with voluntary health insurance, duplicating publicly financed cover- age; and 8. complementary or supplementary voluntary health insurance (Inke Mathauer, 2019).
The WHO recommends to select such a pooling arrangement that ensures best solution for the main objective – risk pooling and redistribution and hence, better protection of citizens against financial risks.

The WHO advises the countries to give preference to: 9 Can the government force a citizen to purchase health insurance?

This question triggered very interesting debates in the USA during a Supreme Court hearing of Obama Care (Goodnought 2019).

13 1.

Larger rather than smaller pools, 2.


Pools with a more diverse risk mix and more possibility of distribution, 3.

Compulsory rather than voluntary pools (WHO 2020).

Many disagree with these recommendations from the WHO; they must be considered in the light of particular context.

For example, excessively large pools are often riddled with problems related to effectiveness of management and therefore, it is more popular to manage pooled resources not on a central but meso or micro levels.
That allows maintaining a common format of risk distribu- tion but improving the quality of management.

There are arguments concerning mandatory forms of pooling.

They especially relate to establishment of mandatory specific taxes in those economies where the share of informal sector is large and it fails to cover that segment of population who does not pay taxes and, at the same time, is not socially vulnerable.

Chart 2.2.
Chart 2.2.

Integration and its effect on risk redistribution Unified arrangement of risk redistribution Integrated arrangement of risk redistribution Fragmented arrangement of risk redistribution Private insurance Out-of-pocket payments Size of individual unpredictability ინტეგრაცია Source: Smith P.C.

Witter S.N.

2001 14 SOURCES OF FINANCING MEDICAL SERVICES 3.

EXPERIENCE AND REFORMS OF COUNTRIES 3.1.


EXPERIENCE OF DEVELOPED COUNTRIES IN MANAGING PREPAID FINANCIAL RESOURCES Developed countries10 with universal health care have different forms of pooling.

What they have in common is that the law ensures mandatory participation and individual service is largely fi- nanced from prepaid amounts.

For example, France11 has a social insurance model which is financed from specific taxes.
Social insurance finances 70% of individual medical costs and 100% of expensive and long-term treat- ment costs.

This mechanism ensures the protection against catastrophic expenditures.

Addition- ally, more than 90% of the population enjoys voluntary private health insurance (supplementary insurance) which ensures the financing of co-funding costs by prepaid amounts.

The system is different in Switzerland and the Netherlands.12 Participation is mandatory there.
Financ- ing is performed by private insurance companies.

The budget finances insurance premium of those members who are not capable to pay (children, the poor).

Citizens choose a company themselves.

There is a common premium pricing and correction system, allowing the redistribution and common management of risk.

Within the scope of mandatory insurance, insurance companies act as non-profit organizations but they are allowed to offer supplementary insurance based on actuarial estimates.
Germany is among the pioneers of social insurance which operates to date and covers approx- imately 85% of the population.

Contributions of low-income population are subsidized.

The re- 10 Save the USA.

11 Winner of the first place among health care systems of countries according to WHO 2000 evaluation.

https://www.who.int/healthinfo/paper30.pdf 12 Two best systems in Europe in 2018 according to Euro health consumer index.

https://healthpowerhouse.com/media/EHCI-2018/EHCI-2018-report.pdf.
15 maining population can enjoy complementary voluntary health insurance.13 Co-payment for social insurance beneficiaries is small while children and people with chronic diseases enjoy special benefits.

High-income citizens may reject social insurance and purchase a voluntary insurance.14 However, they may also go back to social insurance at their will.
It is important that voluntary in- surance premium is calculated on the basis of actuarial estimates when entering into the first con- tract; thereafter its price, according to regulation, may depend on the age but not a health status.

In the United Kingdom, both financing and service delivery is mainly in the hands of the public in- stitutions.

Costs are financed from general taxes and mainly in the establishments of the national health care system.
However, around 10% of the population has private insurance (A. Sagan.

2016).

In Sweden, much like in other Scandinavian countries, the ground of pooling revenues is a so- cial insurance and territorial division of the country, however, it is managed and fiscal stability is achieved on the national level.

Singapore is an example of the system where small and high value risks are financed by different mechanisms.
Individual medical accounts – Medisave, covers co-payment of outpatient and inpa- tient costs.

This account is similar to savings pension scheme and in this case risk redistribution mechanism is not a pooling but payment in installments over time.

Catastrophic costs of long-term and expensive treatment are compensated under a special program, Medishield.
The analysis of pooling-oriented health care reforms of recent years shows that their main objec- tives were to increase the share of prepaid revenues, to increase coverage of citizens, to enhance the possibilities of risk redistribution and a more effective management of financial risks.

See Table #3.1.

13 Here and throughout the text the term used is “complementary.” 14 A similar system operates in Chile.

16 SOURCES OF FINANCING MEDICAL SERVICES Table 3.1.
Types and demands of pooling reforms TYPE OF REFORM IMPACT ON STRUCTURE IMPACT ON OBJECTIVE DEMANDS Mandatory, or Increase in size and Increases possibility automatic coverage diversification of redistribution and effectiveness If dependent on contributions, subsidizing those people who are unable to pay Pooling of funds Increase in size and Increases possibility diversification of redistribution and effectiveness Cross subsidization Maintains a pool Equates capitation structure premium in various pools Harmonization Maintains a pool Equates financed among pools structure services and terms of service Interestingly, one of main results of successful reforms in Turkey15 in recent years (since 2003) was the reduction of fragmentation and establishment of a unitary pool (Zeynep Ökem.
2015).

The cre- ation of unitary pool was part of a complex reforms, alongside infrastructural component based on private and public partnership and investment in the development of human resources.

Unification of fragmented system and common management was one of main results of reforms implemented in Moldova and Kyrgyzstan; a similar aim is pursued by reforms underway in Kazakh- stan and Ukraine.

3.2.
3.2.

EXPERIENCE OF GEORGIA AND CHALLENGES Since regaining independence, the health care system of Georgia underwent significant changes.

With the change of political leadership, agenda of reforms changed too.

In all the three reforms 15 Health Transformation Program (HTP).

17 implemented so far, health care financing occupied a central place, but the emphasis was mainly placed on the access to services than on the protection against financial risks.
In 2006, the model of social insurance fund was replaced by a system based on private insurance companies, while since 2013 a universal health care program based on one payer principle has been introduced.

In the past few years, the size and share of public financing in the total health care funding has been increasing.
Chart 3.1 reflects a structure of total health care expenditure over the past 10 years, which shows that the share of public expenditure in the total expenditure increased from 15.6% (in 2007) to 38% (in 2017) whereas the share of private expenditure over the same period decreased from 78.6% to 60.3%.

Chart 3.2 shows the changes in out-of-pocket payments which decreased from 72.4% in 2012 to 54.7% in 2017.
The number of citizens enjoying private insurance has increased too; nevertheless, out-of-pocket payments still remain the main source (almost 60%) of financing and only 9% of it is in the form of prepayment (MOLHSA 2018).

This has a strong impact on the protection of population against financial risks, including catastrophic risks.
Chart 3.1 Structure of total health care expenditure INTERNATIONAL AID PRIVATE STATE Source: The Ministry of Internally Displaced Persons from the Occupied Territories, Labour, Health and Social Affairs of Georgia.

National health care report, 2007-2017.
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 18 SOURCES OF FINANCING MEDICAL SERVICES Chart 3.2 Share of out-of-pocket payments OUT-OF-POCKET PAYMENTS, GEL MILLION SHARE OF OUT-OF-POCKET PAYMENTS (%) IN TOTAL HEALTH CARE EXPENDITURE Source: The Ministry of Internally Displaced Persons from the Occupied Territories, Labour, Health and Social Affairs of Georgia.
National health care report, 2007-2017.

The universal health care program has significantly increased the coverage of population and ac- cess to medical services.

Coverage is automatic for all, except for holders of voluntary insurance and for those whose annual income exceeds GEL 40 000.

The program sets different terms of payment for various social groups.

Socially vulnerable groups (the poor, pensioners, children) enjoy benefits.
For others a retrospective co-funding, after the receipt of service, is established.

There are limits set on concrete services (for example, GEL 15 000 for intensive therapy), but these limits are set for patients and not for service providers, which cannot ensure the protection of households from catastrophic expenditures.

Under the existing regulations, beneficiaries of universal health program are prohibited to purchase supplementary insurance.
Around 15% of the population has a voluntary health insurance.

The majority of insurance con- tracts is collective and employment based.

The market of individual or household insurance is not developed.

The share of voluntary insurance in total expenditure does not exceed 6% (A. Sagan.

2016).

Terms and prices of voluntary insurance are not regulated by the state.
If for any reason, a citizen loses health insurance there is a period of several months set before he/she can reenter the list of beneficiaries.

In the conditions of annually increasing costs and budgetary fiscal pressure, the government tries to curb the increase in costs by selective contracting and decreasing price on separate services (for 19 example, the Ordinance #52016).
These initiatives have not brought about any results yet, though there is a threat that the quality of and access to service will deteriorate.

Despite a significant growth of budgetary funding of health care in recent years, a serious chal- lenge of protection of population against disease-related financial risks still remains.
According to the 2017 study by UNICEF, the number of those households that incurred catastrophic health care costs increased from 29.8% to 34.2% between 2015 and 2017.17 3.3. FINANCING INDIVIDUAL SERVICES FROM PREPAID REVENUES AND ITS ALTERNATIVES As seen from the above provided information, the financing of individual health care service pri- marily from prepayments may be considered as an effective instrument for equal protection of population against disease-related financial risks.
It ensures the protection from risks related to unpredictability of costs of disease as well as the redistribution and equation of risks of citizens with different income and health status.

Alternatives to service by prepaid revenues are forms of out-of-pocket payment or individual health care savings accounts (example of Singapore).

Out-of-pocket payment, although it does not protect citizens from financial risks, has its role and meaning in health care financing.
There is no country where out-of-pocket payment is not a source of financing.

Some studies18 prove that when covering individual service co-payments reduce irra- tional and unnecessary treatment risks.

Individual health care savings accounts protect citizens from ordinary and unexpected costs, but as noted above, it cannot ensure the protection against catastrophic expenditures and therefore, such expenditures are financed from additional programs in Singapore too.
16 According to the ordinance, service prices on critical condition, intensive therapy and cardio surgery as well as interventional cardiology and arrhythmia therapy have decreased.

Reasons cited for these changes were optimization of expenditures and high financial gains of service providing clinics, which were unacceptable for the ministry.
17 The survey conducted by UNICEF in 2017, considered the health expenditure as being catastrophic if it exceeded 10% of total consumption of a household, or 25% of non-food consumption of a household.

18 H.E.

Frech.

2009.

Cost-Sharing Enhances Cost Control.

20 SOURCES OF FINANCING MEDICAL SERVICES 4.

CONCLUSIONS AND QUESTIONS FOR A FUTURE DISCUSSION In recent years Georgia saw a significant increase in health care financing in the national curren- cy19 and a downward trend in out-of-pocket payments.
The increased funding improved the pop- ulation’s access to medical services, however, equal protection against financial risks, including against treatment-related catastrophic costs, remains a challenge.

The existing health care financing model is oriented on covering cost of services and is less effec- tive in protecting the population from financial risks.

We discussed the importance of pooling revenues and possibilities of protecting population from financial risks.
It is important that when taking political decisions concerning the health care sec- tor, the emphasis is placed on mobilizing additional revenues and improving access to them as well as other objectives of financing such as equal protection from financial risks.

Following the example of successful countries, Georgia may set a new agenda for the develop- ment of health care sector, which will be equally oriented on equal access to services and equal protection against financial risks.
Changes in this direction require the creation of conditions and regulations that ensure the financing of individual services primarily from prepaid amounts.

Such changes require answers to many questions which should become a basis of political decisions.
Should the state regulate the universal health care and equal protection of beneficiaries of volun- tary health insurance from financial risks by setting mandatory minimum levels of service packag- es and financing terms for the beneficiaries of both programs?

19 The effect of increase in financing must be assessed in the light of depreciation of the national currency and a significant rise in prices on items of medical consumption, including on medications.
21 Should the purchase of supplementary health insure be prohibited for universal health care ben- eficiaries?

Should an additional mechanism for the protection against catastrophic risks exist for all citizens irrespective of their membership of a program – the universal health insurance or a voluntary in- surance?

Should an additional mechanism for the protection against catastrophic risks exist in case of medication expenditure?
How should a health care cost be estimated per each citizen and how to decrease fragmentation and duplication within the state-funded and private insurance-funded programs?

There is a need to achieve public consensus on these and many other questions; that will enable us to spend allocations on health care in a more rational way and increase the share of prepay- ments for individual services in the total expenditure.

22 SOURCES OF FINANCING MEDICAL SERVICES LITERATURE A.

Sagan., S. Thomson.

2016.


Voluntary health insurance in Europe Role and regulation.

Geneva: WHO.

De Pietro C, Camenzind P, Sturny I, Crivelli L, Edwards-Garavoglia S, Spranger A, Wittenbecher F, Quentin W. 2015.

Switzerland: Health system review.

Health Systems in Transition.

Copenhagen: WHO regional office in Europe.

Goodnough, Abby.

2019.

„Obamacare Insurance Mandate Is Struck Down by Federal Appeals Court.“ The New York Times, 18 December.

Health Consumer Powerhouse.

2019.


Euro Health Consumer Index 2018.

Euro Health Consumer.

Inke Mathauer., Priyanka Saksena., Joe Kutzin.

2019.

„Pooling arrangements in health financing systems: a proposed classification.“ Mathauer et al.

International Journal for Equity in Health 11.

J.

Kutzin., Ch.

Cashin., M. Jakab.

2017.

Implementing Health Financing Reform: Lessons from countries in transition.

World Health Organization , on behalf of the European Observatory on Health Systems and Policies.
Jowett M, Brunal MP, Flores G, Cylus J.

2016.

Spending targets for health: no magic number.

Health Financing Working Paper No.

1).

Geneva: World Health Organization.

MOLHSA.

2018.

National Report on the Health Status of Population of Georgia.

Tbilisi.

MOLHSA.

2018.

2018.

National health care report, 2012-2017.

Tbilisi: The Ministry of Internally Displaced Persons from the Occupied Territories, Labour, Health and Social Affairs of Georgia.
Newhouse, J. P., Manning, W. G., Keeler, E. B. and Sloss, E. M. 1989.

„Adjusting Capitation Rates Using Objective Health Measures and Prior Utilization.“ Health Care inancial Review10, 41-54.

NYHD.

2011.

New York State Department of Health.

წვდომილი 2020 წლის 30 07. https://www.health.ny.gov/regulations/hcra/univ_hlth_care.htm.

Sagan, Anna.

Sarah Thomson.

2016.

Voluntary health in Europe.

Country experience.

Copenhagen: WHO Regional Office for Europe.

23 Savedoff., Chris James.

William.

2010.


Risk pooling and redistribution in health care: an empirical analysis of attitudes toward solidarity.

World Health Report.

Background Paper, 5, Geneva: World Health Organization.

Smith, Peter C. Witter, Sopie N. 2004.

„Risk Pooling in Health Care Financing : The Implications for Health System Performance.

Health, Nutrition and Population (HNP) discussion paper.“ Accessed on 24.

07.

2020. https://openknowledge.worldbank.org/handle/10986/13651.

UNICEF.
UNICEF.

2018.

The Wellbeing of Children and their Families in Georgia Survey – Fifth Stage.

Tbilisi: UNICEF Georgia.

Vilcu I, Probst L, Dorjsuren B, Mathauer I.

2016.

„Subsidized health insurance coverage of people in the informal sector and vulnerable population groups: trends in institutional design in Asia.“ World Health Organization International Journal for Equity in Health 29. WHO.

2010.

Fragmentation in pooling arrangements.


World Health Report 2010 Technical Brief Series - Technical Brief No.

5.

Geneva: WHO.

WHO.

2010.

Monitoring the building blocks of health systems: a handbook of indicators and their measurement strategies.

p.77.

Geneva: WH O.

2020.

Pooling revenues and reducing fragmentation.

Accessed on 30.

07.

2020. https://www.who.int/activities/pooling.

Witter, Peter C. Smith and Sophie N. 2001.

Risk Pooling in Health Care Finance.


Report prepared for the World Bank Workshop, York: Centre for Health Economics, University of York.

World Health Organization.

2000.

The World Health Report 2000.

Health systems: improving performance.

Geneva: World Health Organization.

Xu., K. 2005.

Distribution of health payments and catastrophic expenditures methodology.

Geneva, Switzerland: World Health Organization.

Zeynep Ökem., Mehmet Çakarb.

2015.

„What have health care reforms achieved in Turkey?


An appraisal of the “Health Transformation Programme”.“ Health Policy, Volume 119, Issue 9, September 2015.

Pages 1153-1163.

WWW.EPRC.GE