Covid-19 and health insurance reform in Azerbaijan

The outbreak of the COVID-19 pandemic in early 2020 forced Azerbaijan to postpone the rollout of nationwide Mandatory Health Insurance (MHI) for 1 year. Launched in 2017 as a pilot in three districts, MHI was conceived as a way to tackle the underlying problems in health care financing and as a means to improve health service provision to the population. When the pandemic struck, the piloted MHI did not cover much of the country including the greater Baku area with a population of over 2.3 million inhabitants (out of the country’s total population of 10 million). Lack of health insurance left a large part of the populace uninsured during a major health crisis, though the government did provide a temporary social assistance through a generous fiscal relief package. Although the government adopted the Law on Medical Insurance in October 1999 (Mehtiyev, 2021), MHI was introduced nationwide only in April 2021. While the initial shock of the pandemic delayed the rollout of MHI, COVID-19 also revealed underlying weaknesses of the health system, prompting the authorities to speed up the introduction of MHI. This supports the view that COVID-19 encouraged incremental policy changes that were already under way before the coronavirus emergency rather than having opened a window of opportunity for a more structural reform in the health system (Bali et al., 2022).

Over the past decades, Azerbaijan has taken steps to reform its social protection and health systems. A well-designed Targeted Social Assistance (TSA) program introduced in 2006 provides cash transfers to low-income households. Due to cash transfers and other social assistance programs, poverty levels dropped from 45% in 2003 to 6% in 2020. The government undertook a major overhaul of social policies in 2019, expanding the coverage of social assistance, increasing the minimum wage and pensions, and improving the delivery of social services through digitization and better information management (Johansson De Silva et al., 2023).

Despite these achievements, public expenditures on social assistance and health remained insufficient and some vulnerable groups – such as those without formal jobs – were left uninsured. This relates to the government’s overall policy priorities. Despite its oil wealth, Azerbaijan has generally prioritized infrastructure investment and military spending (due to the decades-long conflict with Armenia) over investment in human capital. Public spending on social welfare and health care are lower than in comparable countries. In Azerbaijan, health expenditure as a fraction of total government expenditures has been unusually low, which indicates the government’s ‘historic low commitment to and prioritization of the health sector’ (Garnett, 2022: 1). In 2019, government spending on health amounted to 3.85% of total government expenditure. The country has one of the highest levels of out-of-pocket (OOP) payments on health care as a percentage of total health care expenditure, which means that patients must bear the bulk of the costs associated with medical care (Garnett, 2022). In 2019, Azerbaijan’s OOP payments were as high as 68% of total health spending.

In response to the outbreak of COVID-19, the government of Azerbaijan took a range of measures to mitigate negative social impacts. With the first case reported on 29 February 2020, the government introduced a strict nationwide special quarantine regime starting on 24 March.

On 4 April, the government adopted a fiscal relief package worth AZN 3.3 billion (US$2 billion) (IMF, 2021), which included partial coverage of salaries (AZN 215 million), support to microentrepreneurs (AZN 80 million), and lump-sum payments (cash transfers) of AZN 190 (US$110) covering 600,000 unemployed and low-income citizens (Guliyev, 2021). Lump sum cash transfers were given to only one member of a household irrespective of the size or needs of the family, and the total amount allocated to lump sum cash transfers was AZN 450 million (US$265 million). Low social benefits and neglect of those informally employed raised questions regarding the efficiency of these measures. While the oil-boosted fiscal capacity played a key role in enabling the government to devise a quick policy response, the long-delayed structural health system reform constrained a more institutionalized – rather than an ad hoc – government response to the health crisis. Like in some other countries in the Global South (Dorlach, 2023), Azerbaijan’s approach to tackling the fallout of the pandemic was one of a temporary fix or ‘stopgap measures’. Once the spread of the coronavirus was somewhat contained and partly due to the onset of war with Armenia in the autumn of 2020, the government terminated all COVID-19-related social spending and tax relief by the end of 2020 (IMF, 2021).

In 2006, at the beginning of a second oil boom, a small fraction consisting of 2.90% of the total population of Azerbaijan was covered by health insurance (Scheil-Adlung, 2014). Although the National Law on Health Insurance was adopted in 1999 (Law of the Republic of Azerbaijan on Medical Insurance, 1999), it took the government many years to actually implement health sector reform related to health insurance (Mehtiyev, 2021). Since around 2016–2017, the government embarked on health reform focused on the introduction of MHI which was to be implemented in stages. In 2016, President Ilham Aliyev decreed to establish the State Agency on Mandatory Health Insurance (SAMHI). Most public health care facilities were transferred to the newly created Administration of the Regional Medical Divisions (TABIB) tasked with managing these medical facilities and providing health care services. MHI was first piloted in three districts (Mingachevir, Yevlakh, and Agdash) in 2017–2018 and was gradually rolled out to cover the entire population from 1 April 2021 (Johansson De Silva et al., 2023).

A combination of an oil-induced exogenous shock (in 2015–2016) and worsening domestic social conditions accelerated the introduction of MHI. First, the oil price plunge from mid-2014 to early 2016 and its pernicious socio-economic effects (Mehtiyev, 2021) raised the government’s fears of social unrest and provided a stimulus for taking action to improve health financing (Garnett, 2022). Second, the Semashko-type of national health system inherited from the Soviet era has proven to be inefficient and prone to corruption. The Semashko model (named after the first Soviet minister of health Nikolai Semashko) was a heavily centralized health system that relied on state-owned medical facilities to provide ‘comprehensive, qualified medical care available to everyone in the population free of charge’ (Heinrich, 2022: 36). Low public health expenditures coupled with pervasive informal payments encouraged patients to use informal, OOP payments and ‘informal gifts’ to medical providers, a tradition that has persisted to this day (Garnett, 2022). Under this system, medical services are in theory fully state-funded, but in reality, side payments are ubiquitous (Bonilla-Chacin et al., 2018).

Experts highlight the role of powerful vested interests in holding back on MHI reform. This includes power play between the Ministry of Health and other government bodies ‘directly and indirectly involved in the allocation of funds from the state budget’ (Mehtiyev, 2021).

The new MHI provides all citizens access to a basic benefits package. The Insurance Fund is funded partially by the government and partially from mandatory payroll contributions split between employee and employer (Garnett, 2022). Sums of insurance contributions are calculated differently for the oil and government sectors, on the one hand, and for non-oil and non-government sectors, on the other hand. For employees in the oil and government sectors with monthly salaries of up to AZN 8000 (US$4705), 2% contributions are paid each by the employee and the employer. For those whose monthly salaries exceed AZN 8000, insurance fees are levied in the amount of AZN 160 [US$94] plus 0.5% for the amount above AZN 8000 from both employees and employers. For the non-government and non-oil sectors, MHI contributions are paid at 1% of the monthly salary up to AZN 8000 in 2021, 2% from 2022, and 0.5% for salaries above AZN 8000. Individual taxpaying entrepreneurs pay a health insurance fee of 4% of the minimum wage, that is, AZN 14 per month. (The current minimum wage is AZN 345 [US$203].)

In sum, the outbreak of COVID-19 in 2020 exposed pre-existing health system weaknesses in Azerbaijan (Garnett, 2022). Although Azerbaijan dealt relatively well with the initial response to the health crisis, its long-delayed reform of the health system restricted the government’s preparedness and more robust response to the pandemic. Although the COVID-19 crisis contributed to the eventual MHI reform without further postponement, it remains to be seen how effectively it will strengthen the resilience of the health system to future health emergencies.

Author biography

Farid Guliyev is a Lecturer in Comparative Politics at the Department of Political Science and Philosophy at Khazar University in Baku, Azerbaijan. Before joining Khazar University, he was a Postdoctoral Fellow at Justus Liebig University (JLU) Giessen in Germany, a Fulbright Visiting Scholar at the George Washington University in Washington, DC, and served as Assistant Professor at ADA University in Baku. He earned his PhD in Political Science from Jacobs University Bremen, Germany, and holds a Master’s degree from Central European University.