Court ruling throws Chile’s health system into disarray

Date: Wednesday, August 28th, 2024 by Michaela Hickson.

Decision by Chile’s Corte Supreme de Justicia would have seen the country’s private health providers have to return as much as $1.5bn to their members, which would make all of them financially unviable.

The country’s private health system requires urgent reform to ensure its financial and political viability in the long term.

The Chilean health system is comprised of a public network and a privately run health insurance system. On the one hand, the sole public health provider is the Fondo Nacional de Salud (Fonasa), the entity in charge of collecting, managing and distributing the resources for the public health sector. The funds come primarily from the mandatory contributions of workers and state contributions obtained through the collection of general taxes. It is estimated around 78% of the population in Chile is a beneficiary of Fonasa.

On the other hand, the private health suppliers are the Institutos de Salud Previsional (Isapres), which are privately owned insurance entities that offer health plans financed mainly through mandatory and voluntary contributions members of the system can make.

There are 10 Isapres at present, insuring close to 15% of the population and as of January 1, 2024 have 2.8million beneficiaries. However, according to figures from the Superintendencia de Salud (SdS), the body that supervises Fonasa and Isapres, the number of people transferring from the private to the public sector has grown for the past four years, in 2023 reaching a record of 360,876 leaving the private system. The loss of insureds from the private system is due in part to an increase in the price of private health plans and also to people’s poor economic situation.

In 2023 the Isapres as a whole made a profit of $8.2m, which allowed them to slightly reverse the losses incurred in 2021 and 2022 of $169m and $157m respectively. The previous year in which the system returned profits was 2020 with a profit of $94m. We can conclude from these figures the industry’s prospects were poor and there were fears for its financial viability.

Supreme Court ruling

However, the situation worsened substantially with a ruling by Chile’s Supreme Court, the Corte Suprema de Justicia, dated November 30, 2022, which established three principles for general application to Isapres.

First, it applied a table of factors prepared by the SdS in 2019 (this table considerably limited the differences by age groups and equalised risk factors between women and men); second, Isapres can charge for people who join a health plan already contracted but cannot charge for children less than two years old; third, as of 2019 only the SdS’s factor table can be applied. This means Isapres that charged premiums the following year calculated on other factor tables must adjust their charges (that is, return what was collected in excess or collect the difference in their favour from insureds, as appropriate in each case).

Finally, the court ordered the SdS to determine the exact amount to be returned to or collected from each insured by the Isapres.

It is necessary to mention the Corte Suprema’s ruling was applied to all Isapres, even though only two or three were part of the trial. As a result, the court failed to comply with Chilean legislation, which establishes the effect of sentences is limited to the parties of the respective trial; likewise, in the opinion of numerous jurists, the court gave itself powers that belong to Congress by establishing matters that are specific of law.

As expected, this ruling caused a stir among industry players, since in the opinions of experts, the Isapres would have to return to their affiliates amounts that could reach a total of $1.5bn, which would make all ofthem financially unviable.

A political problem

From that moment on, the problem also became a major political issue, since the bankruptcy of the private system would imply around 2.8 million people would become dependent on Fonasa overnight. As a secondary consequence the bankruptcy of the Isapres would also bring about the bankruptcy of numerous private clinics that are owned by or have relevant credits against the Isapres; when the clinics go bankrupt, the doctors who work in them would also suffer, since they are paid for surgical fees and other services once their cost is reimbursed by Isapres. In short, the chaos that would ensue would paralyse the health services in the country.

As a result, the incumbent government of Chile, which was elected on a far-left political platform including the promise to end the Isapres, has had to conduct what public opinion has dubbed a “rescue operation” of the private health system. Among the measures implemented, the government presented a bill to be approved by Congress, where government operators have had to force their coalition to vote in favour of the law, which can be said to favour Isapres.

The proposed law would allow the Isapres to present to their insureds with a reimbursement plan of up to 13 years – and in cases of seniors for up to five or two years, depending on the age. In addition, it allows them to increase the prices of health plans from 2025 to 2027 with a certain cap. Now all that remains is for the SdS to issue a regulation that will determine exactly how much the Isapres must return to their beneficiaries.

In summary, it seems the Isapres have survived for the time being, but no one doubts Chile’s private health system requires urgent reform to ensure its financial and political viability in the long term.

The situation has already claimed its first victim: United Health Group, a North American health insurance group and the sole shareholder of one of the main Isapres in Chile, announced it had decided to divest this asset. It remains to be seen if it will also sue the Chilean state through the International Centre for Settlement of Investment Disputes.

Patricio Prieto Larrain is a partner at Prieto Abogados, a member of Global Insurance Law Connect.

This article was first published in Insurance Day on 28 August 2024