BUSINESS
Profit scheme of non-profitable social insurance
10 February, 2011

Georgian insurance companies enjoy about 60% of profit margin out of the state-financed health-insurance social programs, Chamber of Control of Georgia found out early this February. And only one-fifth of the target beneficiaries enjoy due insurance service as an aftermath.

Sector pundits say insufficient regulation and low level of awareness plus monopoly positions of insurance companies are the reasons of the lamentable situation in health-care system.

 

Georgian government yields what it has sown. Fears that handover of clinics and the granted insurance right

[over the state-supported consumer] to insurance companies could lead to market monopolization and violation of consumers’ rights came true.
“Alarming”  profit
Chamber of Control of Georgia (CCG) having implemented the preliminary research of the state-supported health-care social programs of 2008-2010 [with total state financing of GEL 284 million] aired  “alarming” conclusion on February 2, 2011 that insurance companies enjoy unbelievable profit averaging to 60% by financing the questioned state-programs, while their profit based  on insurance commercial sector makes about 4%.
According to CCG, out of GEL 284 million ten insurance companies winning the insurance right over the state-supported people spent just 45% on service of beneficiaries [that translates into GEL 114.3 million] and enjoyed 55% [GEL 169.7 million] as a non-taxed profit.
According to the CCG official preliminary research conclusion, the insurance sector is marked by the increased audit risks and deficiencies as following: lack of strict government regulation of the sector, dishonest actions of insurance companies, purposeful limitation of provision of complete medical service, provision of insufficient information to the participants of the program, and alteration and distortion of the database of the program participants.
As a result, only 40% of the state funds allocated for the program have been used and only 21% of the insured [or one in five] could benefit from it.
Giorgi Alasania, Head of Audit Department at CCG, stresses that the profit seems more unrealistic if we take into account that the target beneficiaries [about 900 thousand people totally] are socially vulnerable [including indigent pensioners, unsupervised children, and Involuntarily Displaced Peoples (IDPs) and artists] who need medical service much more freqvently than anybody else.
Companies disagree with the CCG conclusion however explaining that the high profit margin put out by CCG is not a net-profit but it is a non-taxed profit in fact and restrain from making comments till CCG gets through with a final audit result that is upcoming within a month approximately Alasania told Georgian Journal (GJ). Although he fears that the final audit figures very likely would be more scaring than milder.
Giorgi Kvirikadze, top official of GPI Holding insurance company enjoying 57.38% profit margin [by CCG paper], presented financial data of his company in the period of 2007-2010  on February 2, 2011. According to him, the total profit of GPI Holding in 2007-2010 accounted for approximately 6.8% that translates into GEL 6 million roughly. He stressed on trustfulness of the data by underlining that Big Four audit companies do audit of GPI Holding.  Alasania counters that similar Big Four firms experts worked for CCG research and the difference is made because CCG monitored 2008-2010 not 2007-2010, besides insurance companies’ auditors did not separate the state-financed and commercial projects, and CCG research focused on the state-programs alone. 
Success  Story  backgrounds
The 60%- profit-story traces back to 2007 however when under the pretext of discharging state budget from unreasonable expenses government launched reforms of the healthcare system and the state allocations earmarked on socially vulnerable citizens were diverted to the private insurance companies who had to provide target groups by unbelievably cheap [GEL 180 worth] insurance package per person yearly making GEL 15 per month. Meantime the cheapest health-insurance commercial package totaled GEL 25-30 of monthly payment per person and companies suffered of governmental crack-down to undertake the losing venture.
People below poverty level, IDPs, unsupervised children, military and law-enforcer structure employees as well as teachers and about 200 artists were covered by the state budget-based healthcare insurance programs. The number of beneficiaries increased from 750 thousand [in 2008] to 1.25 million in 2010 and the state had to pay GEL 225 million roughly.
Meantime the “volunteer” insurance companies participating in the social-health-insurance project got annoyed and quit. On the other hand the state hospital rehabilitation program failed. Government decided to solve both problems through insurance companies by a win-win deal this time. It divided the state-paid health insurance packages according regional lots and proposed insurance companies to bid for them. To add a lure to the deal government authorized tender participants by granted insurance right thanks to which beneficiaries had no right to change provider insurance companies for 3 years. On the other hand companies were enabled to buy hospital assets in regions and construct new clinics there till the end of 2011 and run them for 7 years. This provision could enable insurance companies to dictate their rules of game to consumer and balance their expenditures at their own discretion by restricting medical service to the clientele. Ten insurance companies came on deal.
Government saved at least GEL 45 million of the budgetary money and insurance companies secured the state-guaranteed premiums for more than million people for three years. However sector pundits have been warning that combining insurance business with the hospital one might lead to obvious interest conflict and monopolization of the market. The single loser in the win-win game seemed consumer since it has no choice right for three years. 
Profit scheme
And the fear came true. The CCG research that monitored only part of the state-financed health-insurance [including indigent people, IDPs, artist, and unsupervised children] is the most conspicuous evidence for it.
According to Giorgi Gigolashvili, Head of Georgian Insurance Institute (GII), a non-governmental watchdog protecting rights of insured people, insurance of the remainder part of social-target programs [specifically teachers] has much more in store.
Insufficient state regulation coupled with the lack of choice and awareness, as well as dishonest approach of some insurance companies led to unreasonable budgetary spending and violation consumers’ rights, Gigolashvili believes.  On the other hand insurance companies try to negotiate clients to get cheaper and riskier medical service instead of expensive riskless aid [recommended by professionals] and withhold with even approved financing for months.
“There is catastrophic situation from the point of view of awareness,” He told GJ. “About 70% of the insurance program beneficiaries do not know that they are insured and some companies take an advantage out of it. Companies are obliged to inform consumers of their rights and all possible service options but they do not, and frequently refuse consumer in provision of due service. And 99% of consumers abandons attempts to get due service after the first refusal. Situation is the most critical in regions as people from regions have to appeal to Tbilisi offices quite often that is extremely discomforting if take into account long queues at clinics and tricks of insurance companies who try to linger financing as much as possible from a month to 6 months, the law enables them so.”
And there is not state structure and strong regulation that can curb tricky policy of insurance business.  The state supported non-governmental Mediation Center together with GII and mediation center of the Association of Georgian Insurance Companies (AGIC) are responsible for protection rights of insured people, but only GII handles with the preventive measures. The Mediation Center handles with actual violations and AGIC center helps non-state insured people. Experts say non-governmental supervision cannot be comprehensive. Central Bank is responsible for financial state and figures of insurance companies but not more.
Ministry of Health-care is in charge with the state-supported insurance program and companies make monthly reports to it but for some reasons it did not notice any wrongdoing so far. Alasania promises to address to researching all the state-financed social programs in near future and dot all i’s and cross all t’s.
He stresses that based on international practice state-supported social-insurance is the most non-profitable business where the average profit margin varies within the 7% while it turned out the most profitable to Georgian companies.
“The unreasonable spending of the state budget is a fact and I never exclude that the final audit papers will be sent to General Prosecutors’ office if any criminal violations are found out,” he told GJ. 

 

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