global analysis of health insurance in latin america · of health insurance in latin america. 1...

Global analysis of health insurance in Latin America

1 | Global analysis of health insurance in Latin America

The prospects for health care insurance in Brazil and MexicoThe health insurance industry must embrace and deliver more innovation to capture a bigger piece of the middle market in Latin America’s key economies, Brazil and Mexico. Combating cost inflation by health care providers will remain a major focus, and the challenging macroeconomic and political climates are unlikely to improve the sector’s profile in the near term.

Just a few years ago, the economic outlook for Brazil and Mexico was buoyant, as strong energy and commodity prices and rapid development in manufacturing seemed to be gaining momentum.

The last two years have witnessed something of an unraveling, however, as Brazil was damaged by political uproar, leading to the impeachment of the president, while Mexico’s outlook was made cloudy by the election of Donald Trump and his threats to rip up the North American

Free Trade Agreement, or NAFTA, which helped bolster Mexican industrial growth. While long-sought privatization in Mexico is moving forward, the decline in oil prices also dampened growth.

When it comes to health insurance, moreover, both countries have undertaken major investments to provide universal health care for their citizens. But difficulties in implementing these goals create opportunities for private carriers serving a rising middle class. Today, only about 8% of Mexico’s population is covered by private health insurance, while in Brazil, about 25% of the population pays private carriers for health coverage, making it one of the largest markets in the world.

Source: Oxford Economics/Haver Analytics

2Global analysis of health insurance in Latin Amrica |

Health insurance in Brazil


The health insurance market in Brazil is highly regulated, and there have been few new or innovative private health insurance products created for the mass market in recent years. In large measure, this is because health care costs have risen faster than the price increases the government permits insurers to pass on to their clients.

Brazil offers its citizens free health care through the Unified Health System (SUS). And while Brazil is often touted as the “only country in the world to have a system of free and universal public health,” there has not been sufficient investment by the government to make the system work effectively. Indeed, a June 2014 survey conducted by Brazil’s Federal Medical Council showed that 93% of respondents consider Brazil’s public and private health care systems to be either very bad or mediocre. Yet 75% of the country’s 202m people depend on free care from SUS.

As a result, private insurance carriers cover about 25% of the overall population, making Brazil one of the world’s largest markets for

private insurance. Indeed, the provision of private health coverage is one of the benefits most valued by workers in the private sector. It is estimated that more than 60% of workers acquire health insurance through their employers.

Naturally, private health insurance is more expensive, limiting access mainly to those who receive it from their jobs or are wealthy enough to shop for private policies.

The Brazilian insurance market remains fragmented, with the top insurers representing less than a third of all beneficiaries. Because of rising costs and concerns over fraud, the sector is naturally ripe for consolidation to bring back office efficiencies to scale. In 2012, UnitedHealth Group, Inc., the giant, US-based health insurer, purchased Brazil’s biggest private health insurer, Amil Participações, for US$4.9b, and in March 2014, Bain Capital LLC, a US private equity group, acquired Brazilian health insurance operator Intermedica for US$851m.



Between 2006 and 2010, as the economy flourished, private health providers made substantial gains in converting out-of-pocket spend into health insurance payments. Indeed, the share of private health insurance as a percentage of total private spending rose from 37% in 2006 to 48% in 2010. However, the growth plateaued and has been very stable since, perhaps suggesting that eroding standards of living have reduced affordability. Moreover, the government’s financial situation means there is little hope that additional government monies will be allocated to expand health care in the near term.

Spending by the Brazilian Government on health care fell by over 20% in dollar terms in 2015 versus the previous year, largely a reflection of the collapse in the value of the Brazilian currency, the real, against the dollar. Looking ahead, a rebounding currency will translate into increased spending in 2017, but with growth constrained by fiscal austerity thereafter. In dollar terms, total government spending on health will still be just below 2014 levels in 2021 and around half of total health spending in the economy.

Consumer spending should grow faster though, as a recovering economy will boost job growth. The Oxford Economics forecast is for consumer spending to grow by around 5% per year in nominal dollar terms from 2017 to 2021 (although a large part of this again reflects the one-off appreciation of the real in 2017). Nevertheless, in dollar terms, both consumer and government spending will remain well below 2014 levels by the end of this decade.

While health insurance premiums grew about 16% by volume in the past year, insurers are challenged to provide patients with the same quality of care with lower costs. As a result, more data analytics and robotics are being introduced to review claims and help rein in rising medical costs. Large employers also are seeking to limit the rise in their insurance premium costs for employee coverage in a stagnant macroeconomic environment.

Brazil — composition of total health spending

Forecast

Source: Oxford Economics/Haver Analystics

US$b

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Goverment Private health insurance Out-of-pocket

0

50

100

150

200

250

Brazilian health care spending

Oxford Economics has built a forecast that assumes this trend will persist, forecasting 6.6% annual growth in premiums from 2017 to 2021. But growth could accelerate if providers can find ways to convince more private households that they are better protected with private health coverage that is provided at a reasonable cost. They expect to see insurers invest more in process efficiencies and some wellness applications. Already, some private insurers are moving aggressively to develop mobile applications to help schedule visits to doctors or specialists.

Insurers that try to target small and medium enterprises with affordable health plans could develop a major growth opportunity.

Brazil private health insurance premiums

US$m

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 20210

100

200

300

400

500

600


Figure 1: Brazil — composition of total health spending

Figure 2

Forecast


A snapshot of Brazil

-3.1%

-2.9%

-2.3%

-2.4%

4.3%

Growth rates, per annum

Spending, US$b

2011–16 Forecast of 2017–21

2010 2016 Forecast of 2021

Total population

Population 65+

Consumer spending

Total health spending

Total government spending

Government health spending

Private health insurance

Government

Out-of-pocket

Private insurance

Total health

4.5%

5.3%

5.4%

2.5%

3.9%

83.7

52.5

46.6

182.8

72.2

39.6

39.1

150.9

87.5

54.6

53.9

196.0

6.6%

0.9%

0.7%

-2.0%



Health insurance in MexicoThe Mexican of Social Security Institute (Instituto Mexicano del Seguro Social, IMSS), the largest social security institution in the country, provides coverage to Mexicans employed in the formal economy and is funded by contributions from the federal government, the employer and the employee. IMSS serves patients below retirement age. Seguro Popular was created for those over retirement age and the poor. In both instances, the government owns the facilities and employs the people working there. The oil

sector also maintains a health insurance program for workers and their families.

However, private insurance has been making steady inroads into the out-of-pocket share of medical insurance spending: the 8% penetration rate today represents a significant rise from 5% in 2000. Overall, Mexico’s health spending is evenly split between government provisions and out-of-pocket spending, which has, for some time, contributed to around half of the total funds spent.

Mexico’s health care spending

Health insurance premium forecast for Mexico

In common with Brazil, Mexico’s currency has had a turbulent few years, which has a major effect on the analysis of spending in US dollar terms. The peso depreciated by close to 20% in both 2015 and 2016, and the Oxford Economics forecast a further 12% fall in 2017. This has been driven by a combination of weaker oil prices, US monetary policy tightening and, most recently, concerns over the impact of President Trump on Mexico’s economic prospects. The fall in the value of the peso, in turn, has caused the price of private health insurance to skyrocket, since the costs of treatments, including pharmaceuticals, have surged.

Rate increases by providers, as well as economic volatility, have kept many who want private insurance from being able to afford it. The rate of penetration slowed markedly from 2011 onward, and it is this slower trend that Oxford Economics has factored into its forecast for future growth.

Based on this forecast, where it was assumed personal health insurance represents about 10% of total private spending on health by 2021, they expect private health premiums to total US$3.7b in 2021, up from US$2.7b in 2016. However, if private insurers regain their

momentum and reprise their success in gaining market as they did in the decade ending in 2010, the amount collected in premiums could rise by another US$500m, to equal US$4.2b.

Mexican consumers are not satisfied with their health care choices, so room for major expansion does indeed exist. One factor limiting the growth in private health insurance, however, is the lack of transparency in pricing, which makes it difficult for insurers to standardize rates. There is little sharing of information between hospitals and insurers, making it difficult for private insurers to develop competitive health insurance offerings. Likewise, there is a concern that those who have private coverage frequently are subjected to overtreatment, and fraudulent claims remain a real concern. So, investments in cloud systems and big data analytics could help insurers lower their processing costs.

Obesity and diabetes are major concerns across Mexico today, so entrepreneurial efforts to engage patients, manage their care and improve wellness should attract a major cluster of new patients. A major health care reform is necessary, but with a presidential election looming in 2018, short-term prospects are not promising.


US$m

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

0

Mexico — composition of total health spending

Forecast

Source: Oxford Economics/Haver Analystics

US$b

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Goverment Private health insurance Out-of-pocket

0

10

20

30

40

50

60

70

80

90

100

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500


Figure 1: Mexico — composition of total health spending

Figure 2

Forecast


A snapshot of Mexico

1.0%

1.0%

3.5%

Growth rates, per annum

Spending, US$b

2011–16 Forecast of 2017–21

2010 2016 Forecast of 2021

Total population

Population 65+

Consumer spending

Total health spending

Total government spending

Government health spending

Private health insurance

Government

Out-of-pocket

Private insurance

Total health

1.4%

1.2%

4.4%

5.0%

5.3%

4.2%

4.5%

32.6

31.9

2.7

67.2

34.5

28.7

2.8

66.0

43.0

38.6

3.9

85.5

7.3%

1.1%

0.2%

-0.3%



Contacts

Shaun CrawfordEY Global Insurance Leader+44 207 951 [email protected]

Rohan SachdevEmerging Markets Global Insurance Leader+91 226 192 [email protected]

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