Health care reforms to impact private sector
13 March, 2014
Health care reforms to  impact private sector
The foreseen exclusion of private insurance companies from the state health care insurance may lead insurance companies to bankruptcy while the state will be confronted with the task to renationalize a big part of hospitals in Georgia, both privatized earlier and newly constructed. The Institute for Development of Freedom of Information made this conclusion based on the sample financial research of the biggest Georgian insurance company Aldagi BCI.  
While inclusion of private companies in the state supported health care
program was not calculated when the state started health care reforms in 2006 and decided to include private insurance companies in the State Insurance Programs (SIP), similarly no scientific research was performed to calculate possible aftermath of the ongoing health care reforms that exclude the private insurance companies from the SIP completely by the end of 2014. This was underlined by Giorgi Khishtovani, an IDFI analyst, in his recent research entitled the Predicted Financial Impact of the Health Care Reforms on Private Insurance Companies between 2006-2013 in Georgia - the Case of „Aldagi-BCI“. To fill this gap, Khishtovani tried to analyze the effect of the change of hands of the state health care insurance programs from the private sector to the state again within the framework of the Overall State Healthcare program launched in 2013 and scheduled to get through by the fall of 2014.
Since 2006, reforms implemented in the health care system of Georgia were conducted with the active participation of private insurance companies. The Georgian government has provided a SIP that provides health insurance to Georgian citizens living at or below the poverty line, pensioners, children under six years and students. The private insurance companies were fully in charge of insuring participants and the program administration since 2008. As a result of their involvement in the program, the insurance market has grown significantly. Simultaneously, one of the main reforms implemented in the health care system over the last seven years was the hospital sector development project (HSDP). Similarly to SIP, the private insurance sector was actively involved in the process of its implementation.
The consequence of this project was that a large number of hospitals [around 150] was built or renovated between 2006 and 2013. Insurance companies built 49 new hospitals and around 42% of the total hospital assets in the country was accumulated in the hands of private insurance by the end of 2012 when power shifted. However, joining two programs’ management, such as SIP and the hospital sector, heavily encumbered insurance business and forced several market players into bankruptcy in 2012 including such big companies as Imedi L. Later on, Alfa left the SIP voluntarily, while Archimedes Global Georgia which was handling the health insurance, a major part of SIP, went bankrupt by the end of 2013. The new government shift focuses on introducing a universal health care system, exclusively administrated by different state agencies.
“Considering the fact that these initiatives imply the gradual replacement of insurance companies in 2014 and their full exclusion from each state insurance program from 2014 on, it is of critical importance to evaluate the tendencies and future perspectives of the financial development of the private insurance sector,” Khoshtivari states. He conducted a valuation of the largest Georgian insurance company, Aldagi-BCI, between 2006 and 2012 and came to the conclusion that after the modification of the SIP the economic value of the Aldagi-BCI has fallen by 35 % in 2013 and it is now less than an amount of equity in the balance sheet of a company. This case-study-based research signals that the existing private companies involved in the SIP will face huge financial challenges after full modification of it in 2014 and will probably be forced into bankruptcy.
On the other hand, Khoshtivari never rules out that the suffering private insurance sector will be forced to leave the hospital sector and the state will be confronted with the task to renationalize a big part of the earlier privatized or newly constructed hospitals in Georgia.
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