high under-coverage rate as well as a considerable leakage rate compared to other countries using proxy means test for targeting.<sup>19,20,21</sup> Despite some issues regarding estimating consumption quintiles under the HUES study,<sup>22</sup> the finding suggests the proxy means test did not target the poor well and needs further improvement. One solution is to combine proxy means test targeting with other targeting schemes, such as community targeting. Improving the accuracy of the proxy means test and minimizing leakage errors are essential to MAP targeting and should be a policy priority.

Second, the inclusion of outpatient care in the MAP benefits package would reduce incentives for using inpatient care and promote rational use of primary health care, which is important in a culture where people rely heavily on specialist and hospital care. However, the current MAP does not cover outpatient pharmaceuticals, which is one of the major health care costs. Coverage of essential medicines under the MAP would certainly benefit the poor, given that 49% of household expenditures on health are for drugs and medical supplies at retail pharmacies (MoLHSA 2007) Third, the government has been considering MAP’s expansion. The cost of the MAP was relatively low as shown by Chanturidze, et al (2007): program expenditures over a six-month period in 2006 amounted to 7.4% of total government expenditures on health.<sup>23</sup> The budget for the MAP has increased from 36 million GEL in 2007 to 75 million GEL in 2008, in anticipation of higher utilization rates and medical costs.<sup>24</sup> There are two alternatives for expanding the MAP. One is to expand its population coverage, either by lifting the proxy means test score for eligibility so as to include more poor or by including other vulnerable/special population groups such as the elderly, teachers, the police force, the army or veterans. Another possibility is to broaden the benefits covered. Currently, the government has decided to expand similar insurance programs to teachers and other groups such as military and law enforcement personnel. This study indicates that more poor can benefit by raising the cutoff point and expanding MAP eligibility. However, the accuracy of the proxy means test needs to be assessed and improved before such an expansion. For any expansion, simulations and cost assessments are necessary to determine budget implications and financial sustainability as this study shows that the “marginal” impact can be large.

Fourth, under the current design, the MAP does not require either a deductible or co-payment, which are cost control instruments to avoid notorious moral-hazard problems (Arrow 1963; Feldstein 1973). Whether or not the program should include cost-sharing schemes for inpatient care is still under debate. During the initial stage when demand tends to be inelastic and the poor are more likely to seek the most necessary care first, cost-sharing is probably not needed. The

> 19 Grosh, M.  and J. Baker. 1995, Proxy means test for targeting Social Programs: simulation and speculation.” LSMS working paper 118, World Bank, Washington DC.

> 20  Narayan, A, Vishwanath, T, and Yoshida, N, Sri Lanka Welfare Reform.

> 21 Hou X. “Challenges in targeting the bottom ten percent– Proxy means test for welfare reform in Pakistan”.

> 22 The HUES uses the consumption quintiles from the Integrated Household Survey, which have various issues regarding measurement of household consumption.. See the HUES report, December 2007.  Ministry of Labor, Health and Social Assistance. December 2007.

> 23 Chanturidze, N. T. Chitashvili, et al (2007) “Evaluation of Medical Assistance Program for Population below the Poverty Line” Ministry of Labor, Health and Social Affairs of Georgia.

> 24 Based on the information authors received from MoLHSA in October 2007.

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