“Intra and Intergenerational Transfers in the Public Health System in Chile” Mauricio Holz, UN-ECLAC Jorge Bravo, UN-Population Division Presentation at the 7th Global NTA Meeting: Population Ageing and the Generational Economy, Honolulu, Hawaii, 11 and 12 June, 2010
Goals of the presentation • Explain how the structure of the health insurance system in Chile affects the NTA profiles of benefits (Inflows), payments (Outflows) and net balance (Net Transfers) in the public health insurance. • Using NTA profiles by level of income, present an estimate of the intra and intergenerational transfers that occur in the public health insurance system. • Using those NTA profiles and population projections, show a forecast of the aggregate Net Balance (Net Transfers) of the public health insurance, based on assumptions on the growth of per-capita benefits, contributions and taxes.
The Health Insurance System • In Chile, the health system is composed of two subsystems: a publicly funded and managed one (FONASA), and another that is privately managed and operates with a free-market logic (ISAPRES), with some restrictions. • Subscription is mandatory for formal workers and retirees, which must choose to contribute to either the public or the private systems. • The mandatory contribution rate is 7% of the monthly salary or pension before taxes, except for low income workers, who are automatically covered by the health public insurance.
Rate of Participation in Health Insurance System Chile 2006
Ot
he rS ys te
m
ry ilit a M
sy s te m No n
an ce eI ns ur
Pr iva t
lic I Pu b L IS
Pu b
lic I
ns
ns
ura
ur a
nc e
nc e
50,0% 45,0% 40,0% 35,0% 30,0% 25,0% 20,0% 15,0% 10,0% 5,0% 0,0%
The Health Insurance System • The public system (FONASA) offers a uniform benefit plan for all subscribers, regardless of their age, sex, and income level of the subscriber and their dependents • In the private insurance scheme (ISAPRES), age, sex, and income determine the coverage of benefits that the 7% contribution can buy, i.e., insurance premiums vary by age, sex, income
Balance (Net Transfers) between payments (Outflows) and benefits (Inflows) in the public insurance, Chile 1996-2007 (% of GDP) -1.37% -1.29% -1.28% -1.33% -1.33% -1.39% -1.58% -1.52% -1.57% -1.46% -1.34% -1.28% -2.0%
2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 -1.0%
0.0%
Contributions
2.35% 2.24% 2.25% 2.30% 2.35% 2.42% 2.49% 2.38% 2.39% 2.22% 2.07% 2.00%
0.97% 0.95% 0.97% 0.97% 1.02% 1.03% 0.91% 0.86% 0.82% 0.77% 0.73% 0.71% 1.0% Benefits
2.0% Balance
3.0%
Balance between payments and benefits in the public health insurance • The public health insurance has displayed a structural imbalance (deficit), that averaged 1.4% of GDP between 1996 and 2008. • Why does the public health insurance generate a structural deficit?
Segmentation by observable risk and income level • Under the current law, private insurers can (and do) charge differentiated premiums to subscribers of different “risk” of using health services, i.e., more to women than men, more to older than younger adults (under principle of “individual choice”) • Private insurers therefore keep a pool of lower risk / high income subscribers, while the higher-risk / lower income segment is selected/shifted out to the public insurance, which spreads out the costs and benefits across the entire population of subscribers (under principle of “solidarity”)
Determinants of the observable risk of morbidity and of using medical services • Sapelli and Vial (1998), using logistic regressions, report a higher probability of morbidity in the last 30 days for older individuals and for women; they did not observe a significant effect of the level of income • A more recent study by Sapelli (2007) of the determinants of use of medical services (given that the person is ill), concluded that use of services increases with age, and that there is a significant relation with income level only in the fifth income quintile
Determinants of the observable risk of morbidity and use medical services • Thus the distribution of affiliates by age and sex in each sub-system will be relevant for the aggregate cost and use of health services, but the distribution of income of subscribers does not appear to be as significant
Determinants of the selection between insurance system • Torche and Sapelli (1997) show that age is a significant explanatory variable, that positively affects the probability of affiliation to the public health insurance • That study also showed that income level is very relevant for the choice of affiliation between the two insurance systems. The higher the income, the lower the probabilty of being affiliated to the public health insurance
Distribution of health insurance affiliates, by sub-system, age and income level in Chile, 2007 (CEPAL, 2010) I Quintile
II Quintile
III Quintile
IV Quintile
V Quintile
PUBLIC
PRIVATE
PUBLIC
PUBLIC
PUBLIC
PUBLIC
0-20
92.20
1.60
85.80
6.60
73.50
15.20
53.80
32.00
26.20
61.10
21-50
89.00
1.70
82.60
6.20
72.50
12.90
55.30
26.80
31.10
52.10
51-64
91.60
1.10
90.70
2.30
82.40
6.50
70.60
14.10
44.5 >
40.60
65 +
93.20
0.80
93.70
1.00
90.20
1.70
82.20
5.60
58.7 >
22.00
PRIVATE
PRIVATE
PRIVATE
PRIVATE
Per-capita health payments and benefits by age, using NTA methodology, Chile 2007 500,000 450,000 400,000 350,000
250,000
Payments Benefits
200,000 150,000 100,000 50,000 0
04 510 -9 --1 15 4 -1 20 9 --2 25 4 -2 30 9 -3 35 4 -3 40 9 -4 45 4 -4 50 9 -5 55 4 -5 60 9 -6 65 4 -6 70 9 -7 75 4 -7 80 9 -8 85 4 -8 4 90 +
Pesos
300,000
Per-capita payments and benefits for health by age, using NTA methodology, Chile 2007 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0
II Quintile 700,000 600,000 500,000 400,000
Payments Benefits
10 --1 4 20 --2 4 30 -3 4 40 -4 4 50 -5 4 60 -6 4 70 -7 4 80 -8 4 90 +
300,000 200,000 100,000 0
04
Benefits
Pesos
Payments
10 --1 4 20 --2 4 30 -3 4 40 -4 4 50 -5 4 60 -6 4 70 -7 4 80 -8 4 90 +
04
Pesos
I Quintile
Benefits
700,000 600,000 500,000 400,000 300,000 200,000 100,000 0
Payments Benefits
0 10 -4 -20 14 --2 30 4 -3 40 4 -4 50 4 -5 60 4 -6 70 4 -7 80 4 -8 4 90 +
Payments
Pesos
700,000 600,000 500,000 400,000 300,000 200,000 100,000 0
IV Quintile
0 10 - 4 -20 14 --2 30 4 -3 40 4 -4 50 4 -5 60 4 -6 70 4 -7 80 4 -8 4 90 +
Pesos
III Quintile
Per-capita health payments and benefits by age, using NTA methodology, Chile 2007 V Quintile 700,000 600,000
400,000
Payments Benefits
300,000 200,000 100,000
90+
80-84
70-74
60-64
50-54
40-44
30-34
20--24
10--14
0
0-4
Pesos
500,000
Per-capita health payments and benefits by age, using NTA methodology, Chile 2007 some conclusions: • Benefits (Inflows) in the public health insurance have a strong age pattern in all income groups • There are no sharp differences in the level of benefits (Inflows) by age among income groups • Payments (Outflows) also show a strong age pattern in every income group • There are important differences between income groups in the level of payments (Outflows) by age
Per-capita health payments and benefits by age, using NTA methodology, Chile 2007 more conclusions: • The age and income pattern of benefits (Inflows) creates an Intra and Intergenerational tranfer within the public health insurance • Transfers flow mainly from high-income affiliates to the elderly and low income affiliates • However, these transfers are not sufficient to cover the deficit. To bridge the gap, the government must turn to general taxes
Bridging the finance gap: Taxes by age and income • In Chile, a large share of tax revenues comes from value-added and income taxes, levied on mainly working-age adults • The per-capita VAT incidence follows closely the age profile of private consumption (not necessarily that of income), while income taxes are clearly progressive
Per-capita payments, taxes and benefits by age (based on NTA estimates), Chile 2007 500,000 450,000 400,000
Payments Taxes+Payments Benefits
Pesos
350,000 300,000 250,000 200,000 150,000 100,000 50,000 0
4 9 4 9 4 9 4 9 4 9 4 9 4 9 4 9 4 4 + 0- 5-- --1 --1 --2 5 -2 0 -3 5 -3 0 -4 5-4 0 -5 5 -5 0 -6 5-6 0-7 5 -7 0 -8 5 -8 90 10 15 20 2 3 3 4 4 5 5 6 6 7 7 8 8
Per-capita payments, taxes and benefits by age, I and V quintiles, Chile 2007
Benefits
V Quintile
Payments Payments+Taxes Benefits
700,000 600,000
500,000
500,000
400,000
400,000
300,000
300,000
200,000
200,000
100,000
100,000
0
0
04
600,000
90 +
Payments+Taxes
0 10 -4 --1 20 4 --2 30 4 -3 40 4 -4 4 50 -5 60 4 -6 4 70 -7 4 80 -8 4 90 +
Pesos
700,000
Payments
10 --1 4 20 --2 4 30 -3 4 40 -4 4 50 -5 4 60 -6 4 70 -7 4 80 -8 4
I Quintile
Intra and intergenerational transfers in the public health system, Chile 2007 Outflows Payments
Inflows Benefits
Net Transfers. Deficit
Outflows'. General Taxes
Total Net Transfers Agg Net Transfers=0
Income Groups I
-22,378
194,718
172,339
-12,182
160,157
II
-47,341
162,960
115,619
-15,678
99,941
III
-68,853
153,999
85,145
-21,570
63,575
IV
-95,746
126,045
30,298
-34,991
-4,692
V Age Groups 0-19
-147,716
76,823
-70,893
-248,265
-319,157
-3,490
99,075
95,585
-13,838
81,748
20-49
-106,183
119,531
13,347
-90,069
-76,721
50-69
-136,108
204,477
68,369
-113,239
-44,870
70-89
-89,977
339,396
249,419
-51,758
197,661
90+
-87,041
399,491
312,450
-51,825
260,625
*Chilean pesos 2006
Intra and intergenerational transfers in the public health system, Chile 2007
• High income and working-age taxpayers transfer resources to low income, young and old people affiliated to the public health insurance in Chile
The health deficit (net aggregate transfers) in the long run Two phenomena could influence the size of the deficit in the long run: 1. Demographic Transition Changes in the age distribution of the population creates an increase in the ratio of older to workingage adults (Saad, 2006) 2. Transition towards health expenditure patterns of high-income countries Increase in per-capita health spending of middle income countries towards the levels that we are seeing today in high income countries
Public health benefits in Chile compared to high and middle-income countries (from Miller, Mason and Holz, 2009)
0.25
High Income Countries Middle Income Countries Chile 2006
0.20 0.15 0.10 0.05
Age
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0.00 0
Benefits relative to GDP per worker
0.30
Projection of the Deficit Dt = GDP t
Px , t b x ,t ⋅ ∑ P20 , 64 ,t x=0 90 +
90 + Px ,t − ∑ c x ,t ⋅ x=0 P20 , 64 ,t
Where the deficit (as % of GDP) is equivalent to the difference between the sum of benefits across ages (Inflows), and the sum of P payments across ages (Outflows), with P population aged x in year t is relative to working age population, aged 20 to 64
x ,t
20 − 64 , t
Projection of the deficit b x ,t
E x ,t = Px , t
GDP t P20 − 64 , t
c x ,t
C x ,t = Px , t
GDP t P20 − 64 , t
• Where bx ,t is per-capita benefits by age (Inflows) relative to GDP, per working age population • and c x , t is the percapita payment by age relative to GDP, per working age population.
Assumptions of the projection model Px ,t
• Changes due to demographic transition
P20−64,t
bx ,t c x ,t
• Change in relation to increase in GDP of the country, at a rate which is estimated from crosssectional data from all NTA countries. GDP grows at 2,5% per year • Remains constant under the assumption that the coverage by age remains constant and the contribution per affiliate grows at the same rate that GDP per working age population
Projection of the aggregate public health deficit, Chile 2008-2050 (of GDP) 8,0% 7,0% 6,0% 5,0% 4,0% Deficit % GDP 3,0% 2,0% 1,0%
20 29
20 26
20 23
20 20
20 17
20 14
20 11
20 08
0,0%
Projection of the aggregate deficit (% of GDP) • The deficit of the public health insurance would grow from 1.5% to 4.1% of GDP in 2050 (based on demographic projections of CELADE, assuming that increases of benefits per-capita relative to GDP per working age population depend on economic growth, that the coverage by age remains constant, and that the payment per affiliate grows at the same rate as GDP per working age person)
• This projection must be seen as an illustrative example of a plausible scenario
Conclusions • The dual structure of the health insurance system in Chile generates a segmentation with a high participation of old age people and low income workers in the public health insurance. • As a result, a structural deficit must be financed by general taxes, which generates intra and intergenerational transfers • These transfers flow mainly form high income working ages taxpayers to young and old adults from all income groups and low income persons form all ages
Conclusions • An illustartive projection shows a significant increase in the deficit which might increase also the intra and intergenerational transfers from taxpayers to affiliates in the public health insurance • We need to generate more longitudinal data to better understand and forecast the deficit and the implied transfers
