The challenges posed to the healthcare systems in Latin America.
In the last 20 years, most countries in Latin America have endeavored to seek new formulas regarding the regulation, financing and provision of healthcare services, attempts driven by the dramatic changes experienced in economic, demographic, educational, political and technological conditions.
Most Latin American economies are themselves in a process of transition from low-income, agricultural-rural economies into industrial-urban ones. This economic transformation has set the ground upon which a growth in income is made possible, and this in turn increases the demand for medical attention. As a result, such economic growth has provoked a mass migration toward urban centres, and this urbanisation has led to an increase in the demand under two different aspects:
We have witnessed a revolution in many Latin American social security systems, where the common element has been a shifting of responsibility for the delivery of health services from governments to private providers. However, market forces dictate that the provision of the universal, equal, integral-cover seen under state-provision is lost.
Such a transference of responsibility, chiefly derived from the lack of financial resources on behalf of governments, has left the difficult roles of supervision and regulation in the hands of other non-governmental or new governmental entities.
Opportunities for insurance carriers
A number of countries have not been able to carry out healthcare system reforms for a variety of reasons including: shortage of resources; lack of quality of the services provided; inefficiency of the already scant resources; and inflation of medical service costs. Therefore, insurance carriers may be able to capitalise on the dissatisfaction of certain sectors of the population when proposing alternative programs to those provided by the State. However, such insurances have yet to reach significant volumes due principally to the fact that the household income of the general population is still low and therefore the segments with income sufficient to purchase insurance are still scarce. On the other hand, there are no fiscal incentives for those same covers, which ask for higher premiums, that may be paid in addition to the mandatory fees collected by the State-provided social security.
In contrast, the insurance companies in countries with the most advanced private healthcare in the Latin American region have developed health programs that do not directly compete with the State-provided social security systems. Instead, they offer complementary cover or cover enhancement programs, both in their breadth and their scope, thereby creating international plans with sums insured in US dollars that may use wider and better quality medical and hospital networks.
In Chile for instance, individual and group private healthcare programs are thriving, striving to cover a portion of the co-payments demanded by the ISAPRES plan. Such plans keep costs down as the control of claim costs and their clerical expenses remain in the hands of the ISAPRES, leaving to the insurers the sole role of administrative entities that compensate a portion of the co-payments.
In Colombia and Peru insurers have focused on covers for critical or high cost illnesses, the latter because the law compels them to reinsure such risks (also called high complexity conditions).
As the countries of the region progress with their healthcare reforms, new product and service opportunities will be created which may be best satisfied by insurance companies.
Features of profitable healthcare insurers
Insurers seeking favourable results in health insurance should understand that this line of business must be handled independent of other lines of business and forget about insurance packages where one line subsidises others, i.e. it should not be considered a service line of business.
Experience has also demonstrated that with the right skill set insurers are able to write profitable health business, making it a significant financial product. This implies an important change in the philosophy of the companies of the region. The insurer should have in place specialist personnel who are able to underwrite health business, who know the procedure and compensation of claims, the follow-up of those same claims through medical providers, as well as a technical department capable of understanding and creating statistical data on that line.
It is worth mentioning that the control of claims expenses is a key issue of this insurance. Such control must be supported by claims administrators both local and international, the latter being crucial for worldwide covers.
It is possible to commence a health insurance operation using the market's claims experience. However, the rates should be revised and modified according to the proper claims ratio of the company, which will accumulate through time. It is of crucial importance to translate any modification in the scope of the cover into associated costs in order to create rates that properly reflect the risk to be covered. It is not advisable to offer new covers gratis, as sooner or later the experience shows that avoiding associating costs to such covers leads to additional unexpected claims, with the consequence of deviating the claims ratio curve.
In the quoting models, there should be considered, in addition to the claims ratio, issues particular to the population to be insured, together with the environment where this cover should take place.
With regard to the target population for health cover, insurers should have in mind the natural ageing of this population; the fading of initial selection, i.e. the disappearance of waiting periods or absence of pre-existing conditions and such; the illness profile of the region or country; the potential or new diseases affecting the population; chronic ailments, which are becoming more common and may be controlled by programs for diabetes or hypertension, for instance; and the use of medical services, a direct function of the knowledge of and access to services the insured is entitled to.
Environmental issues would include inflation in medical services costs, which is usually more elevated than general inflation and is in certain countries broken down into medical components such as medicines, hospital expenses, doctors' fees, laboratory analyses and tests, among others, thus facilitating the quoting by means of modules; the inefficiency of services; the likely frauds that may be considered as a quoting element wherever it might unfortunately be present; newly available medical technology, which may imply a better quality and efficiency, but are always associated with higher costs due to the amortisation cost of those new technologies; and the regulation regarding medical legal liability that is gaining relevance in the countries of the region.
And lastly, in order to produce the statistical database which is indispensable in building premium rates, it is necessary to have a flexible system of administration that may allow for the manipulation of detailed data.
It is possible to identify tendencies that will dramatically change our understanding of future healthcare services. To begin with, biotechnology is a new discipline that opens unlimited opportunities combining chips with living beings, nowadays dubbed biological transistors.
The development of molecular biology will eventually lead to applications for the treatment of chronic or birth conditions. We now know the first deposit of mother cells, found in the blood in the umbilical cord of recently-born children which may be taken and frozen for future preparations of donor organs, not to speak of the deciphering of the human genome, that will undoubtedly lead to new therapies of medical attention and even to a new conception of health and disease. Upon this last matter, governments need to legislate in order to avoid conflicts in bio-ethics. An immediate repercussion on insurance may be felt today upon knowing the arguments originated in certain countries over the inclusion of a genetic analysis as evidence for insurability, as a risk of a stricter selection may leave without cover individuals with a critical illness background, codified in their genes.
Insurers should consider very seriously the tendencies formerly described to build health insurance that respects the rights of individuals to benefit from efficient, integral, effective and cost-effective healthcare services.
Note: This article includes concepts contained in the paper “Observatorio de la Salud” (“Health Observatory”) [Funsalud].