Argentina aims to control health costs, maintain coverage

Ten years ago, the nation’s health finances were in shambles. With help from the World Bank, a strong recovery is in progress.

Few would argue that from a medical standpoint, the quality of health care available to patients in Argentina is among the best in the region — truly world class, in many respects. Unfortunately, health care in Argentina is also the most expensive in Latin America, and in recent years, has become increasingly difficult for the nation’s health ministers to fund. In response to the chronic deficits in the health care finance sector, Argentina’s government, in cooperation with several international agencies, embarked on an aggressive reform plan that is now showing early signs of success.

For decades, and with little federal or provincial oversight, Argentina’s medical establishment quietly went about acquiring some of the best, and often the most expensive, technology available. But several years ago the nation’s health system seemed to reach a point of diminishing returns in which its ever-increasing costs stopped improving health indicators, and just barely maintained status quo health standards for Latin America. A regional economic recession — touched off by the collapse of Mexico’s peso in 1994 — exacerbated problems in Argentina’s health care finance sector and prompted the government to look hard at how exactly the nation managed to spend US$20 billion annually on health care. A probe found that a combination of bad funding decisions, inadequate staff and massive bureaucracy were driving costs out of control. Since 1996, leaders have initiated a number of changes designed to restructure the system and reduce spending.

"At the present time, Argentina faces one of the largest challenges it has ever faced in regard to health care," said Roberto Zaldivar, MD, an ophthalmologist in private practice in Mendoza. "We must ration medicine to limit costs, but we must also maintain high quality."

Larger than necessary

The Argentine health system, the World Bank said in a 1997 report on reform initiatives, is too large and far too costly for the country of 34 million. Funding, staffing and organizational problems threaten its stability. The large numbers of physicians and hospital beds, and lack of provincial or federal controls on the purchase and use of medical equipment and technology, put Argentina at the top of the list for per capita health care spending among major Latin American nations. Although expenditures are being reeled in as a result of ongoing reforms, the country still spends about US$500 per person on health care, compared with US$250 annually per capita in Chile or US$124 per capita in Uruguay. Despite Argentina’s larger per capita expenditure compared with its neighbors, Chileans and Uruguayans are likely to live longer and experience significantly lower infant mortality rates, a fact that the World Bank suggests are symptoms of "gross inefficiencies" in Argentina’s health care finance system.

Three markets

Although Argentina spends about 7% of its GDP on health care, the nation’s two major health care financing institutions — the Instituto de Seguridad Social para Jubilados y Pensionados (INSSJP), an insurance fund that covers 4 million elderly and disabled people, and the 300 obras sociales, profession- or union-based social insurance funds for 10 million active workers and their families — are both in deep debt. In 1995, the INSSJP had operating deficits of $600 million, while the obras were in debt more than $450 million. Reforms have stemmed the debt tide to a degree, but deeper cuts could mean compromising standards, and that is something few Argentines would be willing to support.

The obras and the INSSJP, despite the debt, seem to accomplish their goal of providing beneficiaries with quality care. A World Bank report on Argentina’s health care system describes it as "highly developed … particularly by developing world standards." Though shorter than those of some neighboring countries, Argentine life expectancy at birth is 71 years — above average for both Latin America and for all countries of similar per capita income. Since 1970, infant mortality has fallen 45% and the availability of health services tends to be good at all levels of the system. A broad range of both preventive and primary care is available everywhere in the country, and because more than 85% of Argentina’s population lives in urban areas, access to care is less a problem than in other Latin American nations.

The obras sociales are compulsory for most people and the backbone of the public insurance sector. Obras are funded by mandatory payroll contributions of 3% paid by employees, plus an additional 3% to 6% paid by employer.

In addition to the trade union-based obras, there are also obras for each province, covering 5 million public sector employees and their dependents.

Argentina boasts a diverse set of health care providers, including both a large public and private sector. The patient-to-physician ratio is about 283 to 1, or about 30 physicians for every 10,000 people. In all, there are about 120,000 physicians in the country.

There are 4.5 hospital beds for every 1,000 residents in Argentina, the second most per capita in the region (Uruguay has 4.8) and much more than the United States, which has 3 beds for every 1,000 people. The teaching hospitals of Buenos Aires, the nation’s capital, are perhaps the most advanced in the region, and again comparable to many large western European, American or Japanese institutions.

According to the Pan-American Health Organization, Argentina’s public sector, which includes the obras and the INSSJP, provides coverage to about 74% of the population. In terms of infrastructure, very little of the public system is actually owned by the federal government or the nation’s 23 provinces. Because it has few facilities of its own — only 10% of hospital beds in Argentina are publicly managed — instead of maintaining its own buildings, the obras and the INSSJP contract with private clinics, hospitals, pharmacies and physicians for delivery of almost all medical services.

In addition to the public markets, patients who can afford private insurance or private care are free to choose.

Argentina’s sizable private sub-sector serves some 2 million of the 26% percent not covered under the public system. It consists of two major groups: Independent professionals who provide services to private patients affiliated with the obras sociales or private pre-paid health plans and health care establishments under direct contract with the public social security system. Argentina’s private insurance sector is the largest in Latin America outside Brazil, comprising about 200 private, pre-paid insurance funds.

Lack of containment

World Bank analysts note that the Argentine health care system shows the effect of the absence of cost-containment incentives or policies. In terms of per capita spending and health care spending as a percentage of its GDP, Argentina is virtually unrivaled. Policies have recently been adopted that will control spending, but large deficits and budget gaps are still a problem.

The high-cost system has achieved a high level of satisfaction among patients and providers, however. With the exception of isolated protests by senior citizens’ groups who depend entirely on the INSSJP for coverage and an occasional threat by medical providers to cut off service unless they are reimbursed more promptly, the system has been spared widespread criticism. And the government would prefer it to stay that way. Lawmakers have set about identifying problems and developing solutions that might cure the system of its chronic deficit.

Uneconomic size

Argentina’s Ministry of Health and the World Bank say the key problems are related to the fact that the system is just too big for its own good.

A World Bank document says the "uneconomic size" of the obras, combined with generally weak organization and management, have contributed to excessively high administrative costs. Computer systems in place to keep tabs on spending tend to be outdated, and those that do meet current standards lack trained personnel to effectively operate them.

The system also employs far too many people. The agency responsible for administering the public insurance programs doubled in size between 1988 and 1995 with no appreciable increase in Argentina’s population or in the demand for medical services. An efficiency study by a government panel charged with restructuring the system concluded that the INSSJP could shed 4,000 of its estimated 14,000 employees. Some cuts have already been made.

Obras reform proposals

Some have suggested that a dramatic expansion in the private insurance sector in Argentina could solve many of the system’s problems, but that is unlikely to happen. Argentines take the notion of universal coverage to heart, and are generally proud of the fact that everyone in their country receives good quality, free health care. Growth of private insurance companies would mean a higher level of risk selection — more denial of coverage — than most Argentines are comfortable with.

By limiting infrastructure investment and obtaining certain practical and management services from the private sector, Argentina may reduce some costs, but resolving federal spending issues as they relate to obras sociales is likely to prove more complex. In cooperation with the World Bank, which provided Argentina with a loan package designed to get its reform program off the ground, the government embarked, in 1996, on a six-point reform plan designed to do several things:

• Introduce consumer choice of obras and stimulate competition for membership among the obras. Under this proposal, the government would give workers a choice of insurer. It would maintain universal coverage while stimulating competition between the obras. For example, under this scenario, the obras for accountants would be opened to coal miners, and vice versa. The government had been reluctant to adopt this reform because for it to work a number of key elements would need to be in place ahead of time. Trying to decide, for example, the contents of a standard, universal benefits package — essential if obras are to compete with one another for business — was particularly difficult.

• Legalize competition between some obras and Argentina’s private pre-paid health plans, known locally as pre-pagas, in the market for voluntary health insurance. Allowing the obras and the pre-pagas to compete would allow programs that combine the best aspects of both public and private insurance to be developed. Currently, this proposal is stalled.

• Require a standard package of health benefits from all 300 obras, to replace currently widely different benefit plans that still tend to be priced similarly. Without standard packages, one or two obras would be likely to attract nearly all potential enrollees, then collapse under the strain. Under the proposal, in addition to a standardized package, obras would be allowed to sell additional coverage to interested participants.

• Create a central redistribution fund that would compensate obras for differences in members’ incomes and health risks. Such a program would allow the obras to take both high- and low-risk enrollees, and ensure that universal coverage would not be lost under new rules.

• Develop an improved regulatory system and an effective regulatory agency for health insurance that would enforce minimum standards of financial and medical conduct. The system for managing the obras has developed a reputation for not being well-equipped or staffed properly.

• Provide special loan financing to qualifying obras and INSSJP organizations that would enable them to make cuts in staff, restructure finances and improve organization and management. The World Bank contends that if changes are made without proper financial support, a large number of obras could fail, leaving hundreds of thousands of people without health insurance. Although the lapse in coverage would likely be short — only as long as it would take for patients to be transferred from a failed obra into one that is financially viable — the government has made it clear it is not interested in incurring such risk. By extending financial and technical support to the obras during the transition period, potential failures become increasingly unlikely.

The reform panel also recommended that the obras divest themselves of businesses outside health insurance. Many obras own financially questionable ventures such as health and recreation centers. Few turn profits, and they are often blamed for further draining the system of capital that could be put to better use elsewhere.

There is frequent grumbling stemming from that fact that the participants in the obras earn different levels of annual income, yet must subscribe to a one-size-fits-all health plan. Most Argentines, according to the World Bank, appreciate the fact that both very poor and very wealthy obra members are entitled to the same benefits. Some obras, however, are far less costly than others to maintain. An obra that serves accountants and office workers, for example, deals with fewer health risks than one that covers coal miners. Insurance rates for miners would tend to be higher on average, but because workers have traditionally not been allowed to go elsewhere for public insurance, rates could be kept higher than necessary.

INSSJP Proposals

The obras’ smaller counterpart, the INSSJP, is also targeted for reform. According to the World Bank, there are at least three distinct options for INSSJP’s future ownership and governance. All three future scenarios remain consistent with the idea that payroll taxes would continue to finance health care for the elderly.

The first option calls for the current INSSJP to be dismantled. A standard amount of money per beneficiary would then be transferred to an obra, possibly of the patient’s choosing, or to a private insurer. Either the obra or the private company would then be responsible for providing the patient with a standard package of benefits. All future payroll contributions would be divided among the obras or the private companies based on the number of former INSSJP patients enrolled. Although this option has gathered some support because it would make the obras and private companies compete for the business of the senior citizen population, it is opposed by many because the INSSJP’s primary clientele — the elderly and the disabled — have special health needs and are considered higher risks.

The second reform option calls for maintenance of the status quo via semi-privatization. The INSSJP would remain intact and in its current form, but management would be hired from outside the government.

The third option allows the INSSJP to remain a public agency, with managers appointed by a board of directors that would have the power to implement internal changes and to raise efficiency and service quality at their discretion. The board’s primary responsibility would be to bring the INSSJP into financial equilibrium. This and the second option seem more feasible than the first, because for option one or option two to be successful, it is essential that the government negotiate a kind of performance contract with a board or private managers, and set specific targets for coming years. Failure to set specific goals might encourage private concerns to maintain the system as it is while still taking profits from the system

Private reform

Because they are privately administered, and deal only with private patients, the pre-pagas have come under the least amount of scrutiny. Because several possible obra and INSSJP reform plans call for the private system to play a greater role, the government is considering several reforms plans that would make the pre-pagas more accountable. The World Bank wrote that the government needs to establish in the private sector a regulatory framework with a clear and enforceable set of ground rules to improve the market for private health insurance and to protect consumers’ rights. Most pre-pagas, it should be noted, oppose regulation, arguing it would cause bureaucratic interference in what, until this point, have been autonomous and generally profitable operations.

Accomplishments to date

For its part, the government has listened closely to calls for reform as well as ideas about how changes should be handled. So far it has acted on a good many recommendations.

Several years ago, Argentina asked the World Bank for financial and technical assistance in implementing a reform plan, and by mid-1996 the congress had approved legislation enabling the federal government to restructure the public health finance sector. The task of reform is a daunting one, but to date Argentina has accomplished a number of major goals.

• In January 1997, Argentines enrolled in obras sociales were allowed to choose their own provider. Each obra offered a standard package of benefits and obra coverage became portable.
• The board charged with operation of the obras and the INSSJP was dismantled and a new panel was created to oversee and regulate all health insurance in Argentina.
• In early 1997, a national enrollment database was implemented to accurately track the number of patients in the obras, the type of claims they file and the costs of coverage. Many old computers have been replaced.
• Cost-cutting measures at the INSSJP, including layoffs of 3,300 employees, have reduced monthly expenditures by some $20 million.
• There has been what the government calls full participation and cooperation of 80 obras and their 7 million beneficiaries in the restructuring program.

Single market obras

The reforms underway are designed to create a single market among the union-based obras, and in many cases are a compromise between privatized, non-governmental control and ownership of health care and publicly owned, single-payer socialized medicine.

Under current reforms, the larger health market will remain segmented between the obras, the INSSJP and the pre-pagas, with only limited competition among the subgroups. Risk selection, wrote the World Bank, would need to evolve before true competition is possible between the sub-markets, but risk selection means larger numbers of patients could be dropped by the health care system, and that is a scenario most Argentines are uncomfortable with.

Report Card: Argentina

Population	34 million
Annual total health care spending	US$20 billion
Annual per capita health care spending	US$580
Number of physicians	120,000
Number of hospital beds per 1,000	4.5
Number of ophthalmologists	3,200
Number of new ophthalmologists annually	80
Number of excimer lasers	65–70

For Your Information:

• Roberto Zaldivar, MD, is in private practice in Mendoza, Argentina. He can be contacted at the Instituto Zaldivar, Ave. Emilio Civit 685, Mendoza 5500, Argentina. +(54) 61-293-222; fax: +(54) 61-380-350. For information on the World Bank’s work in Argentina point your Web browser to www.worldbank.org or write The World Bank, P.O. Box 960, Herndon, VA 20172-0960, U.S.A.