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Out-of-pocket in the Caucasus

Owen Smith's picture

I am partway through a trip to the countries of the South Caucasus (Armenia, Azerbaijan and Georgia), where winter is settling in—snow in Tbilisi and Yerevan, and a raw wind on Baku’s seafront.

It is a diverse region at the proverbial crossroads, but one common trait is a bleak health financing environment. All three countries rely on out-of-pocket (OOP) expenditures for about two-thirds of total health spending, well above their peer groups, including other countries of the former Soviet Union or middle-income countries around the world. As a result, the incidence of “impoverishing” and “catastrophic” health spending by households—both common indicators of financial protection—are among the highest in the world. Besides costing some households dearly, OOP expenditures also keep many others away from the hospital or clinic: Utilization rates are among the lowest in Europe and Central Asia.

How did the Caucasus become such OOP outliers? The proximate causes are clear enough: large formal or informal payments for health care and high prices and overconsumption of pharmaceuticals. Many of these issues, in turn, can be traced to low levels of government spending on health, around 1.8% of GDP in all three countries, roughly half the regional average. Health spending is low as a share of government budgets, as well. As a result, providers recover costs directly from patients, and can have more latitude to engage in rent-seeking in the absence of stronger pooling and purchasing mechanisms.