Armenia embarks on healthcare reform
Armenia embarks on healthcare reform with costs unclear
Details are sparse on how the government plans to pay for the reform, and how it plans to improve the quality of care in parallel.
Published by Eurasianet
Arshaluis Mgdesyan Mar 23, 2023
Critics say the plan is doomed as it does not address systemic inefficiencies and places additional financial burden on already struggling taxpayers.
The government approved the concept at a cabinet meeting in February covering all medical services besides dentistry and cosmetic medicine and intends to present a relevant bill in April.
It is to be implemented in stages starting in 2024, when the first group, public sector employees, would join the system. From 2025, pensioners would be enrolled at the state’s expense. In subsequent years, coverage would gradually spread to other groups. And in 2027 the system is to become mandatory for all citizens, by which time the government promises to comprehensively renovate or re-equip at least 50 medical centers.
Paying for it
The government promises an equitable system that citizens will pay into according to their means and that everyone, “regardless of social status,” will receive equal quality care.
In parallel, a standardized, nationwide electronic system will improve the quality of medical services across the board, according to Health Minister Anahit Avanesyan.
But many details remain to be worked out.
Samvel Kharazyan, an expert on health financing at the Ministry of Health, told Eurasianet that the new system will be funded in part by a fixed amount, based on income, automatically withdrawn (like income tax) from salaried workers’ wages. Kharazyan estimated that the cost of the plan would be “slightly more” than 200,000 drams (about $500) per capita per year.
No matter how equitably distributed those charges, they will likely put substantial financial strain on many Armenians. According to official statistics, 26.5 percent of the population live in poverty.
While unemployment stands at 11.6 percent, only about half of the able-bodied adult population have officially registered employment (the differential being the substantial number engaged in agriculture).
The amount of the healthcare fees to be charged to members of different income brackets will be determined, at least in preliminary form, in the draft bill due to come out in April. But ultimately those numbers will be informed by a universal declaration of income system to be introduced by 2025, Kharazyan said.
“Only after that will we be able to understand who has what kind of income in the country and in what amount the state should subsidize the insurance premiums of certain groups of citizens,” he said.
The proposed system has reminded some of a plan put forward by Prime Minister Nikol Pashinyan’s government in 2019 that envisaged a 6percentage point increase in the flat income tax rate, known at the time as a “health tax.” The proposal was unpopular and was shot down by the Finance Ministry.
“Achilles’ heel” of Armenian medicine
It is the confluence of high cost and low quality of care that experts call the “Achilles’ heel” of the Armenian healthcare system.
According to the World Health Organization, non-communicable diseases account for 93 percent of all deaths, compared to 71 percent worldwide. And the latest WHO data from 2016 shows that people in Armenia have a 22 percent chance of dying prematurely – that is, before the age of 70 – from four non-communicable diseases: cardiovascular disease, diabetes, chronic respiratory disease and cancer.
But at the same time healthcare spending accounts for around 12 percent of GDP, which is higher than in Israel (8 percent), Italy (10 percent), Finland (10 percent) and comparable to France (12 percent) or Germany (13 percent).
Haykaz Fanyan, the head of the Armenian Center for Socio-Economic Research, in remarks to Eurasianet, pointed to World Bank data from 2019 that found Armenians cover about 85 percent of healthcare costs out of pocket, which is almost twice as high as in neighboring Georgia.
Avanesyan, the health minister, acknowledged that “catastrophic healthcare costs” are keeping Armenians in poverty, noting that about 9 percent of the population devotes more than 25 percent of consumer spending to healthcare, one of the highest rates in the region.
And Kharazyan, the Health Ministry official, said much of this problem stems from people’s aversion to seeking preventive care.
“As a rule, people, due to scarce financial resources, put off dealing with health problems until they can no longer be postponed and urgent medical intervention is needed. In this case, you must use much more expensive services and it is often not possible to ensure a favorable outcome of treatment,” he said.
And it is for this reason that the proposed reform will focus on preventive care, requiring those insured to seek regular medical screenings, Kharazyan added.
Private insurers’ future uncertain
The government is proposing not only to overhaul the health insurance system but also to improve the admittedly poor quality of care in parallel.
Experts and businesspeople are skeptical that this can be accomplished, and also worry about the effect on existing private insurers.
The American Chamber of Commerce, one of Armenia’s leading business associations, has expressed concerns about corruption risks arising as both the collection and spending of insurance premiums are placed in the hands of a fund to be specially created. It also calls for state cooperation with private insurance companies to prevent the “monopolization” of the industry in the hands of the state.
But the government counters that involving private insurers in the program would drive up costs.
Kharazyan, the Health Ministry official, said that “as a rule, 20-25 percent of the cost of these [private insurance] packages cover administrative costs of the companies. But the state fund will be able to keep these costs at a level of 2 percent.”
So, if the proposed reform is implemented, what impact will it have on private insurers?
Arevshat Meliksetyan, chief executive of Ingo Armenia, one of the country’s largest insurance companies, told Eurasianet that his industry would initially be dealt a blow, but that ultimately the state will be forced to share the market with them.
“No government, no fund can cope with such a volume of clients. I am sure that in a few years the government itself will offer part of the insurance packages to private companies,” he said.