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Uruguayan Government Pushes Through Radical Shake-Up of Public Healthcare

Published: 10/12/2007
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The Uruguayan government has succeeded in obtaining approval in the country’s Senate for a radical overhaul of public healthcare. The reform will raise contributions and greatly centralise government control over the healthcare system.

Global Insight Perspective

 

Significance

The Uruguayan Senate has approved the last of three laws reforming the public healthcare system, which will now extend to at least 1.4 million Uruguayans and increase direct spending.

Implications

Although health coverage and chronic care will improve, some insurers justly fear a major expansion in state control over the health system. Nevertheless, the expansion of primary care is positive for pharmaceutical firms.

Outlook

Introducing tougher regulation and flexing its financial muscles, the government could make the private insurers—which cover half the population—highly dependent on state finance. As a result, high-value services could end up being the province of a tiny wealthy minority.

Root-and-Branch Reform

The Uruguayan Senate has passed what is considered to be one of the most important laws ever formulated by the administration of President Tabaré Vázquez: the reform of the public healthcare system. If approved in its entirety in the lower house, the legislative package will create the so-called Integrated Healthcare System (SIS), which is expected to begin working from 1 January 2008. The government’s objective is to improve the quality of Uruguayans' health through a comprehensive, equalitarian and integral system. The reform, which enjoys the full support of the ruling Broad Front (FA) coalition but not the other political parties, has four main components: expanding coverage, reform of public insurance, increasing targeted assistance programmes and institutional changes. The main points are summarised below.

Expansion in Coverage: The government aims to have 1.4 million people covered by a newly-created National Health Fund (FONASA) next year. This means that the total publicly insured population will grow threefold, to include informal sector workers, over 50,000 children under 18 years of age whose parents are already contributors, 25,000 public officials and 12,000 low-income pensioners. The reform allows the government to allocate, per member in the system, a monthly allowance for health coverage of 600 Uruguayan pesos—double the current allowance of 280 Uruguayan pesos. In addition, individuals will be able to freely choose between not-for-profit healthcare providers (known as mutualistas in Uruguay) or the health ministry-run State Health Services Administration (ASSE). The police, the army and health ministry officials will retain their existing separate health schemes.

Lifetime insurance: The new system transforms the old state health insurance system, known as DISSE, into a lifetime contributory framework that will extend coverage beyond retirement age, provided that workers continue to make the corresponding payment deducted directly from their pension. This would also include spouses and any children under 18.

Assistance programmes: The Vazquez administration strongly believes in complementing basic healthcare coverage with prevention and primary care programmes. The government aims to start providing optician services, dentistry and mental health services, which are not included under the current regime. The authorities hope to build on existing direct programmes that target specific segments of the population such as children, mothers and senior citizens.

National Health Board: The creation of the National Health Board (Junta Nacional de Salud - JUNASA) is probably one of the most controversial components of the law. It creates a national health regulator which will be non-independent from the ministry of health, although it will nominally represent workers, firms and citizens. JUNASA will have three main objectives, the first of which will be determining how each organisation is reimbursed for services. In addition, JUNASA will also be able to add new providers to the SIS, and thus it will be able to sign contracts, allocating their respective responsibilities and commitments to the system. The new agency’s second objective is to manage FONASA, and make payments. The rationale behind this approach is to establish healthy competition between providers, but with an emphasis on service quality rather than on favouring the lowest-price bidder. The third objective is overseeing that contracts are upheld. This last responsibility will be executed jointly with the ministry of health, and has two elements that are paramount for the government: regulation and supervision. Health officials claim that regulation was neglected during the 1990s, and will now be one of the core elements of JUNASA. There is also a great deal of concern over low efficiency and lack of supervision in the current system.

Industry Weighs the Consequences

The new state insurance system replaces the contributory regime for salary-earners, DISSE, and could directly compete with mutualistas—the not-for-profit collective insurers that are the dominant form of private healthcare in Uruguay. At present, it costs some 1,000 Uruguayan pesos (US$44.6) per month to sign up with one of these providers, meaning that a single parent household with three children under 18 years of age typically pays 4,000 pesos per month. However, if income is greater than 4,200 pesos, it is possible that payments under the new scheme would actually exceed the mutualista benchmark premium of 1,000 pesos, probably causing some consumers to question the value of paying extra for private care. If private firms continue to ask for supplementary payments that consumers are entitled to under the reformed state system, incentives to sign up to private care could diminish further.

Uruguay: Payroll Deductions under the Healthcare Reform

 

Income less than 4,200 pesos

Income more than 4,200 pesos

Active worker

3%

4.5%

Active worker with children

3%

6%

Retired worker

3%

6%

In general terms, the reforms constitute a major conceptual change from the previous arrangements, whereby state provision constituted only a basic minimum of care, especially for citizens in lower-income groups. As can be seen from the table below, more than half of all Uruguayans are privately insured, and the private sector also accounts for around half of all contributions to the health system, but fully 75% of spending. However, the reform will change the relationship between the public and the private sectors, mainly by laying the foundations for an eventual system of national health insurance. At present, around 20% of social security provision is contracted out to not-for-profit providers, but the reform will certainly increase the state’s direct share of funding of services provided by the mutualistas. Many of these companies have already expressed grave reservations over the quid-pro-quo arrangements that this will inevitably bring (see Uruguay: 18 May 2007: Uruguayan Private Health Insurers Fear Expanded Public Sector).

A Snapshot of Uruguay’s Health System

Public Sector

Source of finance

Key institutions

Principal providers

Share of total spending

Share of population covered*

General taxation

Health Ministry (ASSE) and local governments

Public hospitals; Hospital de Clinicas Montevideo

21.9%

48%

Social security

DISSE insurance system for active workers; Banco de Prevision Social injury fund; army and police force

Public hospitals and sub-contracted mutualistas

25.4%

20%

Public companies

ANCAP national oil company

Public hospitals

2.3%

n/a

Public sector - total

-

-

49.6%

50%

Private Sector

Source of finance

Key institutions

Principal providers

Share of total spending

Share of population covered*

Private insurance

Mutualistas (IAMCs), for-profit insurers

Private hospitals and clinics

32.4%

43%

Out-of-pocket private spending

(consumers)

Private hospitals and clinics

18%

 

Private sector - total

-

-

50.4%

50%

Source: ADUR, 2004 data *Includes persons covered by multiple schemes

By creating FONASA as a central funding pot for public healthcare, the system’s finances are likely to become much less fragmented. For example, the remit of the Banco de Previsión Social, which operates a fund for accidents and injuries as well as for managing pensions, will be refocused on financial benefits for retirees. In this way, the government hopes to arrive at a clear separation between the currently overlapping healthcare and pensions systems in Uruguay. As such, the country is not unlike many of its South American peers—notably Colombia—in attempting to separate these two major financial burdens on the state’s coffers.

Outlook and Implications

At first sight, there are several positives for the private sector. Firms in general will continue to pay the same 5% share of worker salary under the new system, meaning that the reform is not obviously more expensive. With government officials, retirees, private sector wage-earners and their dependants now covered, the marketplace will be significantly expanded by 150,000 people (50,000 of whom will be children) to more than 1.35 million people. This was an essential consideration, given that service quality in the public sector dramatically declined in the wake of the economic crisis in 2002, as privately insured Uruguayans who were no longer able to pay flooded into the public sector. At the same time, there is scope for an expansion in private provision, as those consumers who have the means decide to turn away from the new one-size-fits-all public sector health service. In terms of policy priorities, the government has also emphasised a new commitment to primary care by pledging universal diabetes treatment, as well as free-of-charge screening for breast and prostate cancer.

For insurers, however, the major challenge will be the onset of serious competition from the state sector across the full range of services. As supplementary payments for services are relatively common in the private sector, a state sector that does not levy these additional payments represents an obvious threat. Moreover, insurers can expect a tougher line from JUNASA, which will be tasked with drawing up contracts for any participating institutions, as well as setting their performance targets. In the pharmaceutical arena, the government has promised to reduce out-of-pocket patient co-pays on pharmaceuticals but, worryingly for innovative firms, officials are also set to create a specialist unit tasked with regulating “high-cost” medicines. A centralised procurement unit, UCAMAE, has already succeeded in driving down average drug prices in Uruguay to the lowest levels in Latin America in 2006.

The changes amount to a major increase in the bargaining power of the state over the healthcare system, through a combination of regulation and financial clout. Although several mutualistas will undoubtedly be kept afloat by the higher spending and government contracts, the scope for providing high-value services will narrow to just a few wealthy individuals. This would be a strange outcome for a reform that has been based on egalitarian principles. Moreover, the reform is expected to add up to 0.8% of GDP (more than US$200 million) to public healthcare spending, raising the overall share of public health spending to more than 6% of national wealth. It therefore remains to be seen whether the changes turn out to be as affordable as hoped.
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