Predicted Financial Impact of the Health Care Reforms on Private Insurance Companies between 2006-2013 in Georgia - The Case of „Aldagi-BCI“

News | Research | Economics and Social Policy | Good Governance | Publications 25 February 2014

Author: Giorgi Khishtovani

Predicted Financial Impact of the Health Care Reforms on Private Insurance Companies between 2006-2013 in Georgia - The Case of „Aldagi-BCI“ (Geo) 

Since 2006, reforms implemented in the health care system of Georgia were conducted with the active participation of the private insurance companies. So, for instance, the Georgian government has provided a state insurance program (SIP) that provides health insurance to Georgian citizens living at or below the poverty line, Georgian retirees, children under 6 years and students. The private insurance companies were fully in charge of insuring participants and administration of the program 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 in the last 7 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 the large number of hospitals were built or renovated between 2006 and 2013. After the many-faceted reform attempts of the previous government of Georgia, processes in the health care sector has been made especially interesting by the initiatives of the new government elected in October 2012. It is noteworthy that the initiatives outlined in the program of the new government instigate the idea of introducing the universal health care system administrated exclusively by the different state agencies. Considering the fact that these initiatives imply the gradual replacement of insurance companies in 2014 and their full exclusion from each of state insurance program from 2014, it is of critical importance to evaluate the tendencies and future perspectives of the financial development of the private insurance sector. 
 
In the framework of the presented paper I have conducted a valuation of the largest Georgian insurance company (“Aldagi-BCI”). Using the example of the main beneficiary of the previous reforms between 2006 and 2012, paper seeks to predict the consequences of the newly modified SIP on the private insurance companies involved in the initial program. Within the framework of the paper I have applied a “case study” method and the valuation of “Aldagi-BCI” is undertaken by Residual Income Model. The outcomes of the study suggest that after the modification of the SIP the economic value of the “Aldagi-BCI” has fallen by 35 percent in 2013 and it is now less than an amount of equity in the balance sheet of a company. Conducted research signals that the existing private companies involved in the SIP will face the huge financial challenges after full modification of it in 2014 and probably will be forced into bankruptcy. It also cannot be ruled out that the suffering private insurance sector will be forced to leave the Georgian hospital sector and the state will be confronted with the task to (re-)nationalize a big part of earlier privatized or newly constructed hospitals in Georgia.    
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