Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697749595860.pdf (Georgia)
saqarTvelos mecnierebaTa erovnuli akademiis moambe, t. 16, #1, 2022 BULLETIN OF THE GEORGIAN NATIONAL ACADEMY OF SCIENCES, vol.

16, no.
16, no.

1, 2022 Economics Development of Social Health Insurance in Georgia: Challenges and Lessons Tengiz Verulava* and Avtandil Jorbenadze** *School of Medicine and Healthcare Management, Caucasus University, Tbilisi, Georgia **Chapidze Emergency Cardiology Center, Tbilisi, Georgia (Presented by Academy Member Vladimer Papava) The social health insurance system, unlike general tax financing system, is more focused on market mechanisms.
Despite certain achievements, the introduction of social health insurance in Georgia turned out to be quite difficult.

Due to ongoing economic crisis, the state failed to finance its promised commitments, resulting in a chronic shortage of funding for the healthcare system.

The new government abandoned the idea of building a social insurance system and switched to the general tax financing model, where the state takes a dominant lead, and the healthcare is financed from the state budget.
Given that the social insurance system is the best way of mobilizing additional funds and therefore providing sustainable funding for health sector, it is advisable to promote social insurance development.

The healthcare sector needs consistent, continued and successive reforms.

Despite the change of governments, the strategic course should not change drastically in the long run and the achievement should not be denied due to the political climate change.

© 2022 Bull.

Georg.

Natl.

Acad.

Sci.


Social Insurance system, healthcare reforms, general tax-financed healthcare model Since the early 1990s, the former communist completely financed from the state budget and tax countries of Central and Eastern Europe have revenues.

Under the Beveridge model, the state implemented extensive reforms in the financing, takes a dominant lead, compared to the Bismarck organization, and delivery of healthcare.
One of the model, because healthcare organizations are more hallmarks of the health systems is funding.

There dependent on the state.

are two main models of the health system When creating a new financing system, 22 out financing: the health insurance (Bismarck) model of 28 countries in the region have introduced the and the general tax-funded (Beveridge) health social health insurance system.

The adoption of the insurance model.


Under the Bismarck model, the social health insurance (Bismarck) model in citizens are required to pay pre-determined Eastern Europe and former Soviet Union countries insurance premiums to the insurance funds.

The was conditioned by many factors.

One of the main national (Beveridge) model of healthcare is reasons is usually related to politics, in particular, © 2022 Bull.

Georg.

Natl.

Acad.

Sci.


128 Tengiz Verulava and Avtandil Jorbenadze to the political desire of distancing oneself from the independent country.

For the first four years of Soviet system [1].

independence, Georgia had a hard period of severe Thus, as the Beveridge model was more economic crisis, emerging as a result of the civil associated with the centralized state structures of war [4, 5].
Between 1990-1994, gross domestic the Soviet period (the Ministry of Health), while the product per capita amounted approximately from Bismarck model was associated with non-state, $8,000 to $2,200, i.e., was reduced by 70%; In public institutions (Social Insurance Funds), the 1994, and industrial production was decreased by preference was given to the development of the more than half [6, 7].

latter.
latter.

The acute economic crisis in the country led to Also, a big role was played by the desire of the demolition of the healthcare system.

State sharingthe Bismarck model which proved to be budgetary funding of medical field was also sharply successful in developed European countries [2].

reduced.

At the beginning of the 1990s, the share of Other factors included the search for and healthcare in the state budget decreased from mobilization of additional funds for health sector 13.2% (1991) to 0.54%.
In 1985-1994, the state and cost containment, demand for transparency healthcare expenditure per capita decreased from increase, search for sustainable funding, and $95,5 to$0,81 [8].

The state share in total healthcare limiting the policymakers' ability to divert the spending diminished to 4.9% in 1995.
In 1985, healthcare to other areas, as well as creating healthcare expenses per capita were 95,5 USD, in services that meet the patients' needs, and desire of 1990 – 13 USD, and by 1994, it dropped to 0.90 introducing market-mechanisms, related to the USD [9].

The funds allocated by the state for privatization of medical services.

The World healthcare financing were significantly lower than Health Organization and the World Bank have the minimum essential need for medical services.
recommended an insurance-based healthcare Following the economic crisis, the wages of the system in many countries [3].

The goal of the medical staff were so symbolic that the annual research is to study the peculiarities of the incomes have been less than the monthly development of social health insurance in Georgia.

subsistence level.
subsistence level.

Due to low wages and unstable The article is based on a documentary analysis, economic situation, many prominent specialists which included both official and non-official have been encouraged to quit their jobs and leave documents.

The official papers included legislative the country [10].

and othergovernmental documents.


All health As a result of meager state spending on policy documents that could be obtained from healthcare, people had to pay medical bills out of WHO/EURO, the Ministry of Health of Georgia their own pockets.

Informal out-of-pocket and regional health departments were included in payments were common.

The helpless population the study.

In total, 11 official papers were analyzed.


could not receive vital medical care due to the lack Non-official documents were the journal of funds.

The demographic picture was poor: the publications from major health databases morbidity rate increased, the birth rate decreased, (SCOPUS, MEDLINE, PubMed).

The articles and the proportion of socially dangerous diseases published from 1990 to 2021 were also used.

(tuberculosis, venous diseases) increased.


Average Results The Georgian healthcare context reorientation.

In December of 1991, after the collapse of the Soviet Union, Georgia became an of life expectancy decreased by 3 years.

Maternal and child health had deteriorated significantly since the early 1990s.

The healthcare system disruption, deterioration of sanitary-epidemiological situation and insuffi- Bull.

Georg.

Natl.

Acad.

Sci., vol.

16, no.


1, 2022 Development of Social Health Insurance in Georgia: Challenges and Lessons 129 cient implementation of preventive measures Health Organization, the World Bank, and the contributed to a significant increase of infectious governments of Japan, Germany, Sweden, and the diseases.

The situation was further complicated by United Kingdom.
delays in vaccination dates for children and The concept of the healthcare system adolescents, which led to an outbreak of diphtheria reorganization recognized the need of healthcare and other dangerous infections.

The disruption of system reform, defined political, economic and routine vaccination in 1991-1992 due to lack of legal components of the state policy strategy.The vaccine material led to a diphtheria epidemic.
There main goal of health system reorientation was to were 23 cases of diphtheria registered in 1993, 312 prepare and implement a healthcare organization in 1994 and 425 in 1995.

42 patients died.

and management model when switching to market- Tuberculosis morbidity and mortality rose sharply.

economic relations, which would be in line with the The main reason for the spread of tuberculosis was requirements of the country's political and the low detection rate of cases.
Cases of diseases economic development.

The country's scarce considered eradicated have increased, including financial resources in fact made the comprehensive malaria, visceral leishmaniasis and rabies.

medical care imposisble, making it necessary to The hard socio-economic situation in the balance the state obligations in the public health country brought the healthcare system to the brink sector with its capacities.
Under the new of collapse, making it almost impossible for Constitution of Georgia, the state, for the first time, medical institutions to function.

The state could no declared, that the burden of healthcare respon- longer fulfill its duty of providing medical services sibility was distributed among various entities of to the population.

Georgian medicine was the state and that the medical care was no longer essentially in a state of collapse.

free.
free.

The responsibility of the state was no longer Introduction of the Health Insurance System in Georgia In searching for a solution to the acute crisis developed in the healthcare sector, an issue of applying a principally new model for fundamental reorganization of a self-functioning field, being on the verge of destruction, had been on the agenda since the mid-1990s.
The beginning of fundamental reforms was preceded by the first public statement on reforms made in the Parliament of Georgia on March 3, 1994.

The Parliament was represented by the largest number of political figures in the history of independent Georgia – 24 parties.

Despite such a diversified composition of the Parliament, the Minister of Health was unanimously approved, thus supporting the launch of radical reforms in healthcare sector.
The process of structural and qualitative reform in the health sector was supported by the World Bull.

Georg.

Natl.

Acad.

Sci., vol.

16, no.

1, 2022 comprehensive and the obligations were defined by the state healthcare programs, as well as by field (regulation) management mechanisms.

The public had the right to have access to medical services provided by state health programs.

The difficult, painful and multi-stage process of healthcare system reorientation began on August 10, 1995.
Healthcare reform was one of the first state reforms implemented in the recent history of Georgia, with the key goal to restore thecollapse, self-sustaining healthcare system, establishing qualitatively new relationships in the system that would be in line with the country's political and economic development requirements [11].

In 1999, the National Health Policy of Georgia and the Strategic Health Plan 2000-2009 were developed.
The reform was aimed at improving equality and access to healthcare services for the population.

When creating a new financing system in Georgia, the choice was made in favor of the social insurance model.

Implementation of the social 130 Tengiz Verulava and Avtandil Jorbenadze health insurance model was driven by many establishing local health funds that receive factors: the introduction of market mechanisms in revenues from municipal budgets.
Contributions to the country; equal and fair distribution of health health funds were averaged per capita, based on the responsibilities between the state, employer and number of people living in the municipalities.
The employee; the desire to raise additional funds for Law of Georgia "On State Budget for 1997" the health sector; the search for sustainable stipulated that local governments were to receive at financing; cost containment; the demand for least GEL 2.5 per capita from the local budget and increased transparency; the successful emulation of at least 10% of municipal budget expenditures to the Bismarck model in developed European finance municipal health programs.
Municipalities countries; distrust of a tightly centralized state had the right to increase this amount if their budget system and interventions.

It is important that by allowed doing so.

The optimal model of municipal opting for a social health insurance model, Georgia health programs and their effective implementation followed the processes taking place in Eastern largely determined the maintenance and European countries.

improvement of public health in the country.


In 1995, the State Health Insurance Company Problems of Development Social Health consisting of 12 regional branches was established.

Insurance in Georgia The company enjoyed financial, managerial and As a result of the healthcare reforms, the contractual independence; under the law, the number and scope of compulsory state health highest advisory body of the company was the insurance programs, i.e.

state obligations to the Supervisory Board.


As in Georgia, single social population in the health field, increased on a yearly insurance funds were established in Croatia, basis, and covered a wider range of population.

By Hungary, Estonia, Poland, Latvia, Lithuania, 1999, the number of insurance policy holders had Slovenia and Bulgaria.

increased to 700,000.


Despite certain achieve- The source of income for the state health ments, the introduction of social health insurance insurance company was a social health insurance turned out to be more difficult than expected.

It was contribution of 3%, of which 2% was paid by the associated with a large share of informal economy employer and 1% by the employee.

By legalizing a in Georgia, high unemployment and severe health "tax" and then an "insurance premium", the macroeconomic constraints.
It took Georgia more so-called “insurance risk” was created.

The than two decades to achieve a level of indepen- insurance premiums were accumulated in the state dence of GDP per capita.

As a result, the basis for health insurance fund.

revenue increase was negligible.

In addition to health insurance premiums, the The healthcare system suffered from chronic source of income for the state health insurance fund funding shortage as the state often failed to finance was a transfer from the central budget.
The central its promised commitments.

As a result, in 1999 the budget was drawn from general government State Medical Insurance Company received only revenues.

The central budget transfer was mainly 64.2% of its approved budget.

Lack of public intended to finance state programs for those who funding had a negative impact on the funding of were not employed (the unemployed, part of the specific health programs.
The low level of funding disabled, the helpless, pensioners, children, and means that the policyholders under the state health IDPs).

insurance program will not be able to receive the In order to decentralize the health care system, guaranteed medical service.

Due to low state the burden of public funding was redistributed funding of healthcare system, the share of out-of- between central and local governments by Bull.

Georg.

Natl.

Acad.

Sci., vol.

16, no.


1, 2022 Development of Social Health Insurance in Georgia: Challenges and Lessons 131 pocket direct taxes in Georgia accounted for most to ensure the efficiency of public finances and to healthcare expenditures.

collect taxes.

The share of the state budget in GDP In the initial period of the reform, the was negligible (12% of GDP in 2004), one of the continuous deficit of state funding contributed to lowest in the entire post-Soviet space.
the spread of informal so-called “under the table” The state intended to implement further reforms taxes, which has become a major source of income in the direction of social insurance.

It aimed at the for many healthcare professionals.

Out-of-pocket integration of financial resources, in particular the direct payments prevent equal access to healthcare, pooling of funding streams into a single “channel”, creating negative incentives for physicians, posing i.e.
the pooling of health insurance contributions a problem to system transparency, and acting as a from central and local budgets.

The aim was to serious obstacle to reform [12].

The high proportion merge municipal emergency care programs and of out-of-pocket payments by patients in total national health insurance plans into a public health health care expenditure runs counter to the goals of insurance fund.
Combining the municipal and health care financing, as this time access depends insurance plans increased the number of people more on ability to pay than on medical need.

covered by the insurance system, which in turn An effective mechanism for regulating or made it easier for workers to register with the health formalizing informal payments is the introduction insurance fund.
of legal co-payments that can be used by physicians In addition to merging health funds, the reform and hospitals for service improvement [13].

As a included: a) integrating the registration and reim- result of reforms introduced in 1995, taxes on bursement mechanisms into insurance plans to certain health services not covered by the state create a universal guarantee; b) stabilizing the program were legalized.

Tax legalization has reduced informal payments by patients.
However, resources needed to finance the insurance plans; c) managing information systems and developing a due to the scarcity of state funding, informal out- communication network; d) structural develop- of-pocket payments still took place, often leading ment, increasing the role of regional offices of the to catastrophic financial consequences for families.
state health insurance company, in particular Due to constant economic crisis, the govern- entrusting them with information management and ment was unable to maintain the -balance between premium collection in addition to supervisory revenues and expenditures, leading to state funding functions.
reduction, the accumulation of large debts towards The main goal of the strategy of the further medical organizations, and an increase of out-of- reformation of the social insurance system was to pocket private payments.

Revenues from compul- reduce the central budget expenditure required for sory medical insurance contributions increased public health care, to shift the main financial burden from GEL 21 million in 2001 to GEL 36.3 million of medical expenses to the employer and the in 2003.
However, they accounted for only 5% of employee and to optimize the health care system of total health expenditures.

the state budget had a Georgia.

The implementation of the strategic plan deficit of $150 million in 1999 and $90 million in would make the health system more manageable 2003, with a domestic debt of $120 million.

The and efficient.
The and efficient.

main causes were a flawed tax code, failure to Following the “Rose Revolution” in November collect non-tax revenues, failure to receive grants 2003, Georgia underwent a change of political and loans from international donors, and the leadership.

Reforms implemented by the new territories of Georgia out of control of the national government led to fast and stable economic growth.

government.

In fact, the newly formed state failed Most importantly, the tax system was streamlined.

Bull.
Bull.

Georg.

Natl.

Acad.

Sci., vol.

16, no.

1, 2022 132 Tengiz Verulava and Avtandil Jorbenadze There was an expectation that the adjustment of the principles of insurance financing.

They have tax system by the new government would improve remained committed to a strategic plan for health the collection of obligatory health insurance reform, which rejected a more state-dominated premiums by the insurance fund.

In order to health financing system.


completely overtake the previous government, the new government sacrificed the initial germ of Conclusion developing a social insurance system in Georgia.

In 2004, Georgia refused to build a social insurance system (Bismarck model) and switched to the general tax financing (Beveridge) model.

The same continued in 2012, when a new political party, “Georgian Dream – Democratic Georgia”, came to power.
Although the new government introduced the principles of universal health care and the state universal health care programme came into force, the general tax financing (Beveridge) model did not change and health care funding from the state budget generated from general tax revenues continued with inertia.
A comparison of the healthcare system reforms in Georgia and in Eastern European countries evidences that the decision-making regarding reforms in Georgia is mainly related to the change of governments in the country.

In many Eastern European countries, unlike Georgia, the social insurance system has not been replaced by a general tax system despite the change of government.
These countries have not yet abandoned the Given that the social insurance system is the best way to mobilize additional funds and hence to ensure sustainable financing of the health sector, it is advisable to promote social insurance.

The study shows that the health sector, which is meant to ensure human health security, needs a consistent, continuous, successive, and systematic approach to reform and cannot be subject to endless constant fluctuations.
A country should have long- term strategic objectives and a vision for health system reform that promote effective and coherent health system development.

A broad range of stakeholders should be involved in the strategy development process.

Formulating a long-term health policy is a topic and consensus of higher- level stakeholders.
Despite the changes in governments, the strategic direction should not change dramatically in the long term, and achievements should not be denied by changes in the political situation.

Bull.

Georg.

Natl.

Acad.

Sci., vol.

16, no.


1, 2022 Development of Social Health Insurance in Georgia: Challenges and Lessons 133 ეკონომიკა სოციალური ჯანმრთელობის დაზღვევის განვითარება საქართველოში: გამოწვევები და გაკვეთილები თ. ვერულავა* da ა. ჯორბენაძე** * კავკასიის უნივერსიტეტი, მედიცინის და ჯანდაცვის მენეჯმენტის სკოლა, თბილისი, საქართველო ** ჩაფიძის სახ.
გადაუდებელი კარდიოლოგიის ცენტრი, თბილისი, საქართველო (წარმოდგენილია აკადემიის წევრის ვ. პაპავას მიერ) საქართველოს ჯანდაცვის სისტემის რეფორმის პერიოდში, რომელიც დაიწყო 1995 წელს, და- ფინანსების ახალი სისტემის შექმნისას არჩევანი შეჩერდა სოციალური დაზღვევის მოდელზე.

ნაშრომის მიზანია საქართველოში ჯანმრთელობის სოციალური დაზღვევის განვითარებას- თან დაკავშირებული გამოწვევების შესწავლა.
სოციალური დაზღვევის სისტემა უფრო მეტად არის ორიენტირებული საბაზრო მექანიზმების დანერგვაზე, სადაც პასუხისმგებლობა ჯანმ- რთელობაზე თანაბრად და სამართლიანად გადანაწილდება სახელმწიფოზე, დამქირავებელსა და დაქირავებულზე.

მიუხედავად მიღწევებისა, ჯანმრთელობის სოციალური დაზღვევის და- ნერგვა მოსალოდნელზე რთული აღმოჩნდა.

ჯანდაცვის სისტემა განიცდიდა დაფინანსების ქრონიკულ დეფიციტს.
2004 წლიდან სოციალური დაზღვევის სისტემა შეიცვალა ზოგადი გადასახადებით დაფინანსების მოდელით, სადაც სახელმწიფო დომინანტურ როლს ასრუ- ლებს და ჯანდაცვა უმთავრესად ფინანსდება სახელმწიფო ბიუჯეტიდან.

იმის გათვალისწი- ნებით, რომ სოციალური დაზღვევის სისტემა ყველაზე უკეთ ახდენს ჯანდაცვის სექტორი- სათვის დამატებითი სახსრების მობილიზებას და, შესაბამისად, მდგრად დაფინანსებას, მი- ზანშეწონილია ქვეყანაში სოციალური დაზღვევის განვითარების ხელშეწყობა.
ჯანდაცვის სფერო საჭიროებს რეფორმირების თანმიმდევრულობას, უწყვეტობას და მემკვიდრეო- ბითობას.

Bull.

Georg.

Natl.

Acad.

Sci., vol.

16, no.

1, 2022 134 REFERENCES Tengiz Verulava and Avtandil Jorbenadze 1.

Oreskovic S. (1998) New priorities for health sector reform in central and eastern Europe, Croat Med J, 39: 225–33.

2.

Saltman R., Busse R., Figueras J.

(2004) Social health insurance systems in western Europe.

Maidenhead: Open University Press.


European Observatory on Health Systems and Policies.

3.

Mossialos E., Dixon A., Figueras J., Kutzin J.

(2002) Funding health care: options for Europe.

Maidenhead: Open University Press, European Observatory on Health Systems and Policies Series.

4.

Papava V. (2003) Financial globalization and post-Communist Georgia: global exchange rate instability and its implications for Georgia, 1-62.

5.
5.

Papava V. (2005) Necroeconomics: The political economy of post-communist capitalism, 1-212.

6.

Papava V. (2012) Economic reforms in post-communist Georgia: Twenty years after.

Nova Science Publishers Inc., New York.

1–141.

7.

Papava V. (2021) Becoming European: Challenges for Georgia in the twenty-first century, 1-216.

8.

Gamkrelidze A., Atun R., Gotsadze G., MacLehose L. (2002) Health care systems in transition – Georgia 2002, Copenhagen: European observatory on health care systems.

9.
9.

Schaapveld K., Rhodes G. (2004) Observations on health financing reform in the Republic of Georgia, 1996– 2002.

Appl Health Econ Health Policy 3: 127–132.

10.

Kalandadze T., Bregvadze I., Takaishvili R., Archvadze A., Moroshkina N. (1999) Development of State Health Insurance System in Georgia, Croatian Medical Journal; 32: 122-134.

11.
11.

Gotsadze G., BennettS., RansonK., Gzirishvili D. (2005) Health care-seeking behaviour and out-of-pocket payments in Tbilisi, Georgia, Health Policy and Planning, 20(4): 232–242.

12.

Balabanova D., Falkingham J., McKee M. (2003) Winners and losers: The expansion of insurance coverage in Russia in the 1990s.

Am J Publ Health, 93: 2124-30.

13.

Kutzin J.

(2003) Health expenditures, reforms and policy priorities for the Kyrgyz Republic.

Policy research paper 24.


Bishkek: MANAS Health Policy Analysis Project.

Received January, 2022 Bull.

Georg.

Natl.

Acad.

Sci., vol.

16, no.

1, 2022