Health Insurance

The Utopia of Universal Health Insurance

Zurab Chiaberashvili
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On 26 August 2012, the Kaiser Health News webpage published an article entitled "Hospitals Look To Become Insurers, As Well As Providers Of Care" by Roni Caryn Rabin. The article described a process whereby the traditionally separate health insurance and health care sectors are formed into a single sector – a trend which is picking up in hospitals in the US.

Under a standard health insurance scheme, private insurers or state/municipal programs of health insurance reimburse a medical institution for every single service provided to each insured person/program beneficiary.

A constant increase in the number of patients consulting medical institutions and, consequently, in the amounts needed to be covered, forced private insurers and state/municipal health insurance programs to start thinking about alternatives to the standard scheme.

It proved to be more cost-effective for both the private and state/municipal health insurance sectors to shift towards a rule of capitation payments. Under this rule, instead of paying medical institutions the cost of treatment for a specific patient, the insurer (private or state/municipal) and the medical institution agree on a fixed payment totaling the average cost of treatment of one enrolled patient.

To make this clearer: if an insurer "provides" a hospital with a guaranteed 1,000 potential patients for 300,000 GEL that means that the treatment of any potential patient costs 300 GEL on average. Irrespective of how many patients receive medical services – a single one or all 1,000 patients, or what the cost of treatment of each such patient is, a hospital knows that any cost exceeding 300,000 GEL is its own personal risk.
Under such an arrangement, a hospital, assuming that it has a smoothly running and well qualified management, starts thinking, step-by-step, in three directions:

First, it tries to optimize treatment costs, provided that the protocols for the treatment of specific illnesses are not violated in the process.

By the way, a report assessing the efficiency of the health care system published in January 2013 under the signature of the Minister of Health, Labor and Social Affairs of Georgia, Davit Sergeenko, states (on page 33): "As regards the average cost per hospitalization, this has shown a downward trend since 2009, which may indicate a tendency of rationalizing hospital costs as a result of the incidence management system established by insurance companies."

Indeed, over the period of the past three years, health costs covered from the state health program for 900,000 state insurance beneficiaries (including socially vulnerable people, teachers, employees of the Interior Ministry and the Defense Ministry) decreased from between 15 to 25 percent, owing to the optimization of costs by private insurers and medical institutions.

If the object of our care is the patient, then let the Health Ministry explain to us why its policy is better when a Tetritskaro patient will have to travel to Tbilisi to receive medical services and why the UNM's policy, under which that same patient was able to receive care locally, was worse.

After depleting the resource of optimization, the owner/manager of health institution then starts thinking in a second direction: if any amount exceeding 300,000 GEL is my own risk, I will thus manage these risks myself, i.e. I will not only be a health service provider, but an insurer too. This is exactly the trend that Roni Caryn Rabin discussed in her article, using the example of the largest hospital network in New York, the North Shore-LIJ Health System (comprising 16 hospitals and more than 300 outpatient centers).

(Here I will not dwell on the significant difference that is implied in a hospital acquiring insurance functions, on the one hand, and their formation into a HMO (health maintenance organization) type organism, on the other. This is not an essential distinction for this article's discussion.)

The health care model created during the rule of the United National Movement (UNM) is exactly the one which the modern, developed and ten-times richer world is heading towards because of a need to optimize the increased costs in the health care sphere.

More important is the third direction, the move towards which begins when a hospital owner/manager-turned-insurer realizes that nothing would optimize costs better than investing in preventive medical care. The best way for a medical institution to cut costs, when it bears the risk for the health of 1,000 potential patients, is to "prevent" a patient from going to hospital.

This phrase must not, of course, be taken literally in a system where relevant regulations (established by the state, or in the best case, by professional associations of doctors) ensure that patients' rights are not breached. This phrase means that the development of primary health care, the support of preventive medicine, the promotion of healthy lifestyles or the early detection of diseases are not merely just good intentions or issues associated with costs, but become things that ensure profit and increase the motivation of everyone involved in the health care system.

For example, as a financial institution, an insurance company does not care whether its client visits hospital for a general consultation once every six months or whether he/she takes a general blood test. But when the insurer is simultaneously the health care provider and the insured person's failure to pay due attention to his/her health causes a backlash with higher associated costs, the likes of the development of a complicated form of illness, the insurer may then even introduce certain sanctions to prevent a person skipping regular consultations with a doctor.

The reform implemented during the UNM's rule was not only a step towards the modern insurer/medical institution model, but also towards the integration of family/village doctors into this model. From what I have already said about the development of primary health care, the support of preventive medicine, the promotion of healthy lifestyles and the early detection of diseases, it should not be difficult to understand that the development of the family/village doctor institution also falls within the scope of the (financial!) interests of private insurance companies.

However, the media reports quite the opposite: "district doctors are preparing for a strike," the Guria News edition reported on 25 July, noting that the insurance company Alpha no longer pays the half of doctors' salaries that it is supposed to pay (the other half is paid by the state). The Health Ministry did not answer the phone calls of the article's author.

Unfortunately, I now have to raise a rhetorical question: when both before coming to power and throughout the 10 months of being in power the government threatens insurance companies with punishment, sanctions, and bankruptcy, how can the government then force even a single company to stay involved in the state insurance program and to continue fulfilling the terms of a contract signed with the state?
Here is yet another important piece of news: "A clinic of the Tertritskaro district is left without maternity and surgery units." This clinic belonged to the Geo Hospitals network. According to my information, the Chiatura clinic in this same network has also closed down its maternity unit.

In order to best analyze these facts we should first try to see the complete picture. On 10 June 2013, the International Monetary Fund mission released a concluding statement with regard to the health care and social policy of the Georgian government: "The takeover of key services from existing private health insurers by a public entity, the Social Service Agency, will reduce the market for private insurance significantly."
The report assessing the efficiency of the health care system, published in January 2013 under the signature of the Minister of Health, Labor and Social Affairs of Georgia, Davit Sergeenko, provides a chart titled "Shares of Beneficiaries of the State Insurance Program and the Total Number of Health Insurance Policy Holders in the Total Population of the Country."

This chart clearly shows that, along with an increase of state insurance beneficiaries, the number of those insured who pay for health insurance out of their own pockets also increased. This increase started in 2007, when the state first began to insure certain groups of society by using public monies.

How will the universal health care program of the Georgian Dream affect the trend shown by the chart?

Insurance companies will lose their corporate foundations, i.e. the opportunity to develop and expand, because up to 2.2 million people will know that they are beneficiaries of the universal health insurance program and will thus no longer purchase decent health insurance, even if they can afford it. (I will not discuss the strengths and weaknesses of the treatments guaranteed under the universal health insurance here). If the state (i.e. the Social Service Agency) provides the service to each and every state-insured person – the socially vulnerable, old age pensioners, children under six years of age, students, teachers, employees of the Interior Ministry and the Defense Ministry, and people with conspicuous disabilities – then the insurance companies will lose the foundations that they stood on.

This is exactly what the statement of the International Monetary Fund mission meant when speaking about a significant reduction of the private insurance market.

Consequently, in the current atmosphere of complete uncertainty existing in the health care and health insurance systems, insurance companies have begun optimizing costs (which was unjustified from the standpoint of the state and the patient), have stopped paying salaries to some village doctors, and have downgraded some hospitals to outpatient centers. Having resorted to threats, the state is helpless in its demands for these companies to operate normally.

The International Monetary Fund Mission is concerned (as am I) about the fate of insurance companies because it is on their smooth functioning that the Georgian health care system and, consequently, the fate of every real or potential patient, stands. The current government thinks that the problems in the health care sector stem from private insurance companies. However, these problems:

- On the one hand, result from a historical legacy – inexperience in hospital management, a lack/weakness of continuous education, the underdevelopment of professional associations; these all existed before the UNM came to power. The reforms implemented made such weaknesses in the health care system even more conspicuous;

- On the other hand, say nothing about the strengths or weaknesses of the modern model implemented by the UNM in the past few years. This model, which the Georgian Dream coalition is methodically pulling down, certainly has its flaws, not because the model is bad but because it emerged in a situation riddled with problems.

We merely have to be able to distinguish whether these problems stem from an incorrect insurance system (however, the International Monetary Fund Mission was not unhappy about the system developed by the UNM) or if they are caused by problems with its introduction, implementation, and performance. If the latter is true (and I think that we are dealing with the latter case), then everyone – the state bureaucracy, insurance companies and medical personnel may be misbehaving equally in this case. Therefore, putting the entire blame on only one link of this chain – the insurance sector – seems unjustified, especially given that this move has already resulted in the loss of many jobs and, as the example of Tetritskaro shows, this process is now shifting towards the health care sector.

The Georgian Dream coalition has instilled a myth that the "vertical integration" of insurers and hospitals is bad. However, as I have said, the current tendencies of the modern world indicate the opposite.
However, is "vertical integration" good if the administration of health insurance (in the form of a state insurance fund that the current government intends to establish) and medical services (transferring private hospitals to come under municipal and state ownership, as the current government also intends to do) is in the hands of one entity when that entity is the state?

The path for hospitals getting their management up and running effectively, for doctors and paramedics to be constantly improving their qualifications, and the process of issuing regulations and certifications for the medical sphere shifting from the state to professional associations, runs along with the very same model which New York's largest hospital network, the North Shore-LIJ Health System, is moving towards today.
Finally, if the object of our care is the patient, then let the Health Ministry explain to us why its policy is better when a Tetritskaro patient will have to travel to Tbilisi to receive medical services and why the UNM's policy, under which that same patient was able to receive care locally, was worse.

I am not denying that someone may be dissatisfied with the quality of surgeries carried out in the surgical unit of Tetritskaro hospital and/or the qualifications of the doctors working there. But, would it not be better for the Health Care Ministry, instead of undermining the financial basis of the model created by the UNM, to take care of improving doctors' qualifications, arranging a referral hierarchy for clinics, introducing more protocols in hospitals and developing an electronic system for the healthcare system?

As soon as private insurance companies leave the health insurance market and the state insurance fund emerges as a monopoly, or almost a monopoly, in the insurance market, it will start dictating prices to medical institutions and will force them to lower prices for medical services. This will seem beneficial for patients in the short term, but in the long term it will 1. worsen the quality of healthcare services; and 2. put medical institutions in a very grave condition, leading them to decreasing the number of staff employed and/or cutting or, at least, freezing the rate of salaries.

Because of the stereotypes established by the Georgian Dream coalition, a segment of the medical community looks at the prospect of being freed from the "yoke" of insurance companies with hope. A stereotype exists that a patient without health insurance fills the coffers of a hospital better than a patient whose costs of treatment are covered by an insurance company after, of course, the submission and checking of all required documents.

This stereotype is fed with nostalgia for an "uncontrolled" life: indeed, for some, state-owned hospitals were better, with their deficient budgets always balanced at the expense of the state. I fear being freed from the "yoke" of insurance companies will be followed by a heavier burden being placed on medical institutions by the state.

P.S. This article was already written when a newly established service for the supervision of insurance (led by a former advisor to the current health minister) appointed a temporary administrator to the insurance company Archimedes Global Georgia. This insurance company renders its services to state insurance beneficiaries in Tbilisi and in several districts of the Kakheti and Samegrelo regions. According to the service, the financial state of the company gives rise to doubts. Unfortunately, this is the most tangible result of the governance of the Georgian Dream.

Moreover, the government will use this fact as an illustration for its multi-month-long campaign against private insurance companies to show that insurance companies fail to perform to the terms of the state programs and the state must, therefore, take responsibility for managing those programs. Even though the MP Koba Davitashvili has left the ranks of the Georgian Dream coalition, his socialist ideas continue to be preached inside the coalition.

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