Chile’s diversified health system tested by economic, demographic changes

Private managed care groups have enrolled the best patients, leaving the public system to contend with the poorest and sickest as budgets are cut.

Chile shares with many of its Latin American neighbors similar health care problems, but arguably is dealing with those problems better than most countries of its size. There is a scarcity of specialists, limited resources and uneven distribution of the resources that are available. Chile’s challenges are compounded by its vast, rugged terrain, which prevents the advanced medicine available in its large central cities from reaching the widely scattered rural population, cut off from developed Chile by the Andes Mountains.

Fortunately, Chile’s leaders have long been aware of the nation’s unique problems, and for more than a century have invested in health programs to grapple with these challenges. In most respects, the government’s system has enjoyed success. Compared with its neighbors, the overall health of Chile’s 14 million inhabitants is good. The health care system, regarded as one of the more progressive in the region, continues to evolve to meet health care needs and improve health indices.

“By virtue of the length of time the Chileans have had to refine and adapt their system to their economic reality, it is probably more finely developed and closely regulated than those countries that have implemented reform under similar models,” said John Rooney, a Latin American health care specialist with the law firm of Rice Fowler in Miami. “In Chile they are looking at issues of fine-tuning and of expanding the base of coverage.”

Good indices

In 1992, the most recent data that are available, Chilean health indicators were much closer to those of industrial nations than to those of the developing world. The four leading causes of death in Chile are circulatory disease, cancer, accidents and respiratory illness. Medical visits average about 3.5 per person per year, or about 2 to 2.5 for the general population and 1 to 1.5 for maternity and child checkups. Life expectancy is 72 years and infant mortality rates have been on a steady decline for four decades.

Many improvements in health care statistics have been attributed to Chile’s progressive stance on privatization and free market competition in at least some sectors. Managed care organizations are popular in Chile, and can claim partial responsibility for improving the nation’s health and its health standards. However, the managed care providers, called Isapres, are also partly responsible for creating a strain on the public system.

“Chile’s health care system has sort of hit a wall,” said Rosemary Werret, editor and publisher of the Lagniappe Letter, a bi-weekly report on business issues in Latin America. “It was the first nation in Latin America to reform and privatize some of its health care system, and for a while it worked very well, because it brought a lot of private competition into the industry and gave people new availability for health care services. What has now happened, however, is that the private health care system has taken for its own the wealthiest people and the lowest risk people, and left the state system to deal with those that are poorest and often sickest.”

Efforts by the Isapres to select the “best” enrollees is undoubtedly driven by companies’ attempts to maintain profit margins in a lackluster economy. In March, the Chilean peso fell sharply against the U.S. dollar. Interest rates have stabilized recently, but industrial output and consumer spending has fallen significantly over the past year.

Long history of care

The Chilean government’s efforts in the health field began in 1890 with the creation of an agency in charge of public hygiene and sanitation. In 1924, with the establishment of a social security system, the state took an active role in providing health care to the population. Between the mid-1920s and the early 1950s, state-run programs for health care were organized around pension funds, but during the 1940s public health experts argued that the individual pension funds could no longer organize health delivery or provide comprehensive coverage to the whole population. This led, in 1952, to the creation of the national health service (Servicio Nacional de Salud or SNS), making Chile one of the first Latin American nations to adopt a comprehensive health policy.

The SNS worked well for several decades, but as migration from the countryside into the cities increased, changing demographics made the need for improved health services apparent. About 38% of the nation’s population currently lives in Chile’s capital, Santiago, and fully 50% of the population lives in the central part of the nation, which accounts for only 5% of the country’s total geography.

As population became centralized, so did the medical profession — perhaps even more so. A study conducted by the Catholic University of Chile School of Medicine on the use of telemedicine suggests that physicians are more centralized than the general population. Out of the 15,500 medical doctors working in Chile today, about 60% practice in Santiago, where about 40% of the population lives, while other regions are fairly underserved.

Although Chile’s ratio of doctors to population (there is about one doctor for every 908 inhabitants) is slightly higher than the Latin American average of one doctor for every 1,022 people, the numbers may be misleading because there are many more doctors in the cities than the countryside. In Santiago, there is one physician for every 624 people while in some of Chile’s rural provinces there is only one physician for every 2,113 inhabitants. Despite overstaffing, a 20% deficit in hospital capacity has been forecast for Santiago beginning next year.

Five components

Population shifts led to the development of the third generation of Chilean health care, in place since the 1980s. The modern health system contains essentially five components. The first is the main successor of the SNS, now called the Sistema Nacional de Servicios de Salud (SNSS).

The SNSS employs more than 60,000 people, including about 43 percent of the nation’s physicians. It is the largest of the five components, serving about 64% of the population, and handling nearly 90% of all hospital visits in the nation. Administration of the SNSS is decentralized into 27 regional units. Control of the public clinics and primary-care centers rests with the 340 municipal governments. The national government is the main source of funding for these units and controls their basic design, including staff size and equipment. SNSS funding comes from general state revenues and from a contribution of 7% of taxable income from the employed population. Access to the SNSS is open to everyone, free of charge in the case of indigents and of those whose income falls below a certain level. A variable percentage of the cost up to 50% is paid by those with higher incomes.

The second component of the health system is the Fondo Nacional de Salud, or Fonasa. Fonasa is part of the SNSS, except that those who register in the program may select their own primary-care physicians, as well as specialists, in exchange for slightly higher premiums. Like the SNSS, Fonosa is open to everyone. Fonasa affiliates direct their payroll or self-employment contributions to the fund. Pensioners of the state-run system may also choose to participate in Fonasa. The fund reimburses its users a variable portion of the cost of medical attention on presentation of vouchers for services that have been performed (an average 36% reimbursement in 1989). It serves about 18% of the population.

Security assistance institutions (Mutuales de Seguridad or MS) are the third element in the health system. These consist of hospitals that deal primarily with treatment of the victims of work-related accidents. As a result of their high degree of specialization, these institutions have emerged as some of the best trauma and burn centers in the country. The MS are financed out of employer contributions equivalent to about 2.5% of their total payrolls. About 2 million workers are eligible for this program. About 10% of eligible workers claim benefits annually. During any given year, the MS provides hospitalization and health care benefits for about 1.4% of all Chileans.

Isapres

Private insurance companies, those that are part of the Institute of Public Health and Preventive Medicine (Instituto de Salud y Previsional Prevención, or Isapre), constitute the fourth element in the health system. Participants enroll by directing their employers to forward their payroll health deductions to these companies, and some pay an additional premium depending on the specific insurance policy they select. Medical services are reimbursed to users at a percentage of cost. There are about 30 Isapres in Chile; however, experts predict that due to the recession, there will soon be a period of consolidation in which smaller Isapres will be forced to merge or face bankruptcy. In an effort to channel more money to the SNSS, the Chilean government is considering eliminating the US $60 million annual tax break it gives to employers who enroll workers in Isapres instead of the SNSS.

The Chilean Isapres system is based on a system of individual accounts that the worker owns. Deductions are made from the worker’s salary, and the deductions are paid ultimately to any care giver that the worker owes for treatment. Payments are made in the name of the worker. In this respect, the Isapres work like medical savings accounts.

In addition to cutting the tax breaks, the Chilean government is also considering rule changes that would make the Isapres responsible for 100% of the cost of emergency care. Currently, they are not; members must have funds already in their Isapres accounts in order to use the services of an emergency room.

Critics of the Isapres insurance companies noted that they did not help mitigate the nation’s highly regressive distribution of income because they channeled the deductions of many people with higher incomes out of the SNSS. Moreover, as private carriers, the Isapres exercise a high degree of risk selection. Companies may deny enrollment to those who are at higher risk because of serious illness or age, and they are prone to drop those who become excessive risks. Consequently, the SNSS must take up the burden of covering the health care of high-risk individuals.

Chile’s economic problems and the large number of Isapres that compete for a finite number of patients have severely affected their profitability and made the government’s problems more complicated.

“Chilean leadership must now look for ways to keep the private Isapres profitable so that more patients do not enter the already burdened public system, while solving the problems of what to do with the poorest, highest need patients in the SNSS,” Ms. Werret said.

Chile’s size may also limit the growth of the Isapres.

“Chile, although a relatively well-developed country, is still not so large,” Mr. Rooney said.

To solve the problem, the Chilean government has considered a plan that would establish a pool to tax everyone in the system and then use those funds to take care of high need patients in the public system. This, combined with the elimination of the tax break for the Isapres, might help the SNSS, but both plans remain controversial and neither has passed. Isapres advocates fear that elimination of the tax credit would hurt enrollment, but the government argues that without an injection of funding, the SNSS is destined to collapse.

“The plan to eliminate the US $60 million tax credit would seemingly put more money into the public system, but because employers would be less likely to offer Isapres enrollment to their workers, more people would be forced into the public system,” Mr. Rooney said.

Regardless of which plan is adopted, one system will likely suffer for the good of the other.

“There are likely to be fewer Isapres around at the end of the day,” Ms. Werret said.

The fifth component of the health care system is private medicine, which includes private hospitals and clinics where patients pay out-of-pocket for services. Most physicians, dentists, and ophthalmologists maintain a private practice even if they work for the SNSS or other systems. There are also private health insurers who do not form part of the Isapres structure because they do not collect their premiums from payroll deductions. These programs are typically reserved only for those with the highest incomes.

Domino effect

Mr. Rooney said as Chile’s health system evolves, it will face a few hardships, but in the end will likely emerge as among the best and strongest systems in the region. Unlike some of its neighbors, the Chilean model is in certain respects more receptive to change than other systems in the region. The continued growth of the Isapres system and of independent insurance companies may lead to better credential certification programs, which could improve consumer confidence and lead to increased revenue for the physician. Increased revenue allows for higher income and the ability to purchase better equipment, which ultimately benefits individual patients and the overall health of the nation, Mr. Rooney suggested.

“This could be analogized to changing the course of a river,” Mr. Rooney said. “My feeling is that ultimately there will be more money available for health care, but because the system will be highly regulated, there will be an increase in the quality of care provided because of the credential mechanisms. There will also be more money available to the provider in both income and for the purchase of better medical equipment. So in a few years this might evolve into quite an ideal environment.”

For Your Information:

• For information on the Catholic University of Chile School of Medicine report on telemedicine in Chile, contact José Badía, MD, or Beltrán Mena, MD, by e-mail at jbadia@puc.cl or bmena@puc.cl, respectively. Contact them by conventional mail at Catholic University of Chile School of Medicine, Marcoleta 352 Santiago, Chile; +(56) 2-686-3811; fax: +(56) 2-633-1457.
• For information on the Lagniappe Letter, contact Rosemary Werret at 159 W. 53rd St., New York, NY 10019-6050 U.S.A.; +(001) 212-765-5520; fax: +(001) 212-765-2927.
• John Rooney, Jr., can be contacted at the law firm of Rice-Fowler, 2222 Ponce de Leon Blvd., Penthouse Suite, Coral Gables, FL 33134 U.S.A.; +(001) 305-445-8881; fax: +(001) 305-445-6761.
• Donald G. Johnson, MD, can be reached at London Place Eye Center, 918 12th St., New Westminster, British Columbia V3M 6B1, Canada; ++(604) 526-2020; fax: ++(604) 521-5305.