The FINANCIAL — The state health programme, which was established to improve the insurance system in Georgia, has turned out to be unprofitable for insurance companies, experts say.
Overall health insurance premiums given to insurance companies consisted of GEL 153 million in the two quarters of 2012 according to the National Bank of Georgia. Out of this number the amount of compensation stands at GEL 106 million, which means that the level of loss comes to 69 percent so far.
As for 2011, the premiums were at GEL 200 million, compensation at GEL 175 million and loss at 87.4 percent. In 2010 the premiums were GEL 245 million, compensation – GEL 158 million, and loss – 64.4 percent. The statistics show that the loss index is increasing.
Standard Insurance Georgia had the highest loss in 2011, which amounted to 565.1 percent as the number of compensations was higher than the number of premiums. The second and third places went to Aldagi BCI and Alfa insurance companies respectively. That year the minimum loss experienced was by Ardi insurance company, with only 16.7 percent loss.
Today the state health programme is being financed with GEL 136 million from the state budget. However the health insurance system is still not working properly, experts worry.
“The reasons for why the state health programme is unprofitable are inflation, increased prices at medical institutions and increased number of people visiting doctors,” said Giorgi Gigolashvili, President of the Insurance Institute of Georgia. “All of these have led to increased expenditures for insurance companies. State health insurance policy costs about GEL 10. Some programmes cost as little as GEL 5. These are quiet low prices. The government announced at the tender that those companies which offered the lowest prices would win. That was a mistake. Given such a situation the question arises – will the insurance companies be forced to find other ways to reduce the costs or make up different reasons for not spending money?” said Gigolashvili.
Gigolashvili explains that in the past the same programme was quiet profitable as the number of people visiting doctors was very low, about 40 percent in 2008-09. After the implementation of a new state insurance programme on 1 September, 2012, the number of insured people reached 2.4 million, which led to the number of people visiting doctors increasing by 200 percent, according to Zurab Tchiaberashvili, the Minister of Labour, Health and Social Affairs of Georgia. As he explained, more than 12,000 insured people visit medical institutions every day. According to Aldagi BCI, the increased number of insured people is noticeable in the regions as well and about 1,000 citizens insured at Aldagi BCI visit clinics every day. “This means that the insurance sector is going to experience catastrophic loss,” claims expert Levan Alapishvili.
“For every GEL 100, the insurance company pays GEL 95 for medical services. This means that the company gets only GEL 5 profit for its management, administration and everything. This amount of money is negligible,” said Devi Khechinashvili, Head of the Georgian Insurance Association. “In total GEL 10 million is the profit on the market so far and out of this amount GEL 3 million belongs to Aldagi BCI. This means that the companies are getting stuck,” he added.
“After becoming involved in the state health programme Imedi L took out large loans to build hospitals as it was one of the conditions of the programme. Building the hospitals cost about USD 150 million throughout Georgia when only GEL 350 million is attracted on the total market. Insurance companies invested a great deal of money and it is now very difficult for them to pay for their loans. Due to this reason many insurance companies are having financial problems. The same happened with Imedi L and that is why it was bought by Aldagi BCI,” said Gigolashvili.
Devi Khechinashvili also shares the opinion that Imedi L had financial problems due to the state health programme. Lasha Nikoladze, one of the former directors of Imedi L, commented to The FINANCIAL that the state health programme was not the reason for the company’s bankruptcy however. Nikoladze did not give the real reason why Imedi L was forced to sell its shares to Aldagi BCI though.
“According to the data of the last three months, right now IC Group has 95 percent losses,” said Tamuna Tskitishvili, Head of the Sales Department at IC Group. “The increased availability of medical institutions in the regions led to increased numbers of doctors’ visits which in turn caused the insurance companies’ losses. Another reason is that prices at the hospitals have increased as well because the clinics are equipped with the most new and modern technologies, all meeting European standards. The quality (and cost) of service has been improved accordingly. Our expectation is that the state health programme will be unprofitable for insurance companies and for IC Group this year as well. In such case the state should conduct monitoring, the loss should be investigated for balancing and offering the right prices in the future. Today the price of the state health programme is very low,” she added.
“As for the advantages of the state health programme, it is useful on the whole as health insurance is now available for people below the poverty line, for students, for children and retirement-age citizens. Because of bad economic conditions, many people could not afford to visit the doctor before whereas now it is possible for those people to do so. Also, insurance companies see profit as their customer base has increased significantly due to the state health programme,” Tskitishvili added.
“The loss index has sharply increased in 2012. The level of the premiums cannot balance out the level of loss. Moreover, we are very pessimistic about return on investment,” said Tina Stambolishvili, PR at GPI Holding.
“If we do not consider the construction of new hospitals, we can say that, on the contrary, the state insurance programme was profitable,” said Nino Kobakhidze, Managing Director at Gras Savoye Georgia. “Some insurance companies were involved in the state health programme without attracting additional investments. Starting construction with just state insurance premiums was the wrong decision for insurance companies. The losses of insurance companies were caused by the large realization of a concrete insurance product, in this case health insurance,” she added.
State insurance programmes began in 2007. The new state insurance programme covers health, an insurance programme for all age pensioners and children aged 0-5.
