Global Insight Perspective | |
Significance | Data from health regulator Supersalud suggest that AUGE, a government-backed health plan, is eroding the profitability of private plans. At the same time, the flow of users migrating from the private to the state sector is going into reverse. |
Implications | The two facts suggest that the private sector is raising its game, but reforms to industry legislation earlier this year are limiting its bargaining power. |
Outlook | The trend favours wider reimbursement of more basic healthcare products, including pharmaceuticals. However, strong macroeconomic growth points to an expansion in sales of higher-end products, while Chile remains a small market. |
The Diario Financiero newspaper reports that average profits reported by the Isapres—the private firms that insure some three million wealthier Chileans—halved in the years between 2005 and 2007. This trend is attributed to the arrival of AUGE, a state-funded minimum guarantees health plan provided through the government-run health service, FONASA. The so-called AUGE plan provides coverage—including many drug products—for 56 serious diseases; the scheme’s list features such diverse conditions as diabetes, schizophrenia, rheumatoid arthritis, seven of the most common cancers and chronic obstructive pulmonary disorder (COPD). According to the healthcare regulator Supersalud, AUGE is also 40% cheaper than the cheapest private plans, costing around US$15 per user per month.
Another Chilean Success Story?
It appears that AUGE has had some success in raising the bar for basic healthcare in Chile since it was introduced in early 2005. However, there is evidence to suggest that the knock-on effects of the programme and this year’s legal reforms have significantly deepened the changes in Chile’s healthcare industry. In fact, it seems that consumers increasingly prefer to have dual coverage in both the public and private sectors: the number of plans with “reduced coverage” has fallen by 95% in the past four years, according to Supersalud, and those with insurance are able to opt for private treatment in the case of some AUGE-covered conditions. Meanwhile, the private sector has reversed a decline in its client portfolio, with the total number covered rising 9.8% in comparison to 2004; over half of new beneficiaries added since the start of 2005 (which total some 120,627) have signed up in the past eleven months. Belying the widely-held view that Isapres routinely “cherry-pick” the healthiest and least risky clients, the number of women of childbearing age and retirees signing up has also respectively increased by 7.3% and 26.1% compared to 2004.
However, this good news story does come with the caveat that it largely results from tougher regulation. In February 2007, the law on Isapres was amended to include stringent new rules, most notably imposing a banding system for price rises and limiting the number of pre-existing conditions that can incur higher prices. An exclusion period was also introduced, whereby beneficiaries with a known illness are entitled to coverage under normal plans if no claim relevant to their condition is made within five years of taking out insurance. Insurers were also obliged to meet new minimum levels of solvency in order to ensure the system’s financial viability.
Not surprisingly, the private sector has responded to growing cost and compliance pressures by consolidating. There are now only seven major companies in the market; the leading firm is Banmédica, with a market share of 25%, closely followed by Consalud, which lays claim to around 24% of all beneficiaries (see Chile: 27 December 2006: Isapres in Chile Consolidate as Auge Plan Expands). Moreover, the confusingly large number of individual health plan products has collapsed in recent times. In January 2007, there were 1,899 private health plans available in Chile, compared to some 11,500 in 2003. This has been the result of a concerted drive by the government to impose minimum standards and eliminate potential loopholes in coverage, mainly by allowing only the minimum of variety in private health plans (see Chile: 11 January 2007: Private Insurers in Chile Recruit Clients as New Regulations Loom). Supersalud has announced that from 2008, consumers will sign a standardised “single contract” with insurers, and will be offered access to a searchable online database that compares the costs and benefits of the various health plans.
Outlook and Implications
From a consumer’s point of view these developments are encouraging, and the business environment benefits from a more transparent playing field. However, it is clear that the government calls the shots in the health insurance industry, both as a healthcare provider and as a regulator. The clear policy priority is to expand coverage to more people at a basic level; unfortunately, this will be hard to reconcile with the industry’s need to make more profit. For a business that was on the point of collapse as recently as 1999, and which notes that it is at least solvent, the time for Isapres to make better profits is approaching. It remains to be seen whether it is possible to keep quality standards high while remaining competitive with the state-run healthcare sector, as this will only be possible as long as the wider macroeconomic environment remains favourable.
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