Does financialization provoke increasing prices? The case of Brazilian private health insurance 

Since the Brazilian Regulatory Agency for Supplementary Health’s (ANS) creation in 2000, health insurance inflation has grown at a much greater pace than general inflation. Indeed, after eighteen years the private health insurance price index was close to double the official inflation index, with its 382% (see here). 

The upward course of prices can be interpreted as a response to the problems arising from the escalating costs. Baumol (2012) calls this phenomenon “cost disease”, designating that labor relates differently to production: in the case of the goods, work would be incorporated into the product; in the case of services, labor would be the product being exchanged, making difficult to substitute factors.

This blog post cautions that the relationship between demand and supply for private health insurance should not be only assessed according to traditional criteria. Even economists in the mainstream of the field already point out that the health marketplace has distinguishing characteristics, such as (i) demand is inelastic; (ii) supply creates its own demand; and (iii) information is asymmetric (agent/principal conflict: moral hazard and adverse selection) (Cutler and Zeckhauser, 2000).

However, at first glance, it seems that the growth of financialization also impacts rising prices. According to Lavinas (2020), health companies’ assets are purchased by investment funds or by foreign investors to win dividends and resale shares afterwards in the stock exchange. In this scenario, health insurance premiums are overdetermined by speculative movements by shareholders, who wish to increase expected average profit rates, a key variable to attract investors in the healthcare area under globalization.

The turmoil with rising health prices is also at the center of debate in other countries (Ferreira and Mendes, 2018). This situation has long alarmed Brazilian consumers and employers and recently led the ANS to change the methodology used for annual adjustments in individual and family health insurance premiums (ANS, 2021). Fiscal austerity has led to persistent underfunding of the Brazilian public health system, and the middle class is driven to buying private health insurance.

In the face of a price explosion during the Brazilian economic crisis in 2015-2016, given the institutional context favorable to enlarging free markets in health care, which led to the exclusion of three million health insurance users, ANS approved a new formula for calculating the annual premium adjustments of individual insurance in December 2018, calibrated by productivity and age group. 

One could argue that the quest for higher profits from monopoly price and risk selection (cream skimming) is still part of standard market behavior. So, the question arises: will this new formula better measure costs in the sector, and thereby have the potential to prevent further price increases? 

The  economic mainstream based on principal-agent problems does not adequately explain the evolution  of costs and prices of private health insurance in Brazil. These variables  are influenced by interest rates (opportunity costs); exchange rates (dependence on imports of medical supplies and equipment); incorporation of technology (pressure of the medical-industrial complex); low mobility of private factors of production (non-tradable services); and transaction costs (time spent to find both quality network and doctors and hospitals with reputation) (Ocké-Reis and Cardoso, 2011).

At last, but not least, as indicated above, financialization sponsors a pattern which favors market concentration, high consumer prices, production chain verticalization and practices associated with managed competition in the health systems. Despite advances in telemedicine,  robotics and  artificial intelligence, which could lead to increased productivity and efficiency, the market does not offer competitive prices, comprehensive coverage, or even quality in medical care. 

No doubt, the healthcare industry’s ‘mission’ detaches itself from clinical and epidemiological targets to focus on becoming platforms for the accumulation of wealth by financial investors.

References

ANS. Agência Nacional de Saúde Suplementar. https://www.gov.br/ans/pt-br. Accessed 8 April 2021.

Baumol WJ. The Cost Disease. Why computers get cheaper and health care doesn’t. New Haven, USA: Yale University Press; 2012.

Cutler DM, Zeckhauser RJ. The anatomy of health insurance. In: Handbook of Health Economics. Vol. 1A. Amsterdam, Netherlands: Elsevier; 2000: 563-643.

Ferreira MRJ, Mendes AN. Commodification in the reforms of the German, French and British health systems [in Portuguese]. Ciênc. Saúde Colet., 2018; 23(7): 2159-2170.

Lavinas, L. The collateralization of social policy by financial markets in the global south. In: The Routledge International Book of Financialization. New York, USA: Routledge; 2020: 312-323.

Ocké-Reis CO, Fiuza EPS, Coimbra PH. Inflation of health plans – 2000-2018 [in Portuguese]. IPEA Technical Report 54, 2019; Institute of Applied Economic Research.

Ocké-Reis, CO, Cardoso, SS. Pricing regulation of Brazilian private health insurance. Brazilian Journal of Political Economy (BJPE). 2011; 31 (3): 455-470.

Phelps C. Health Economics. New York, USA: Routledge; 2016.

Carlos Octávio Ocké-Reis is a researcher at the Institute of Applied Economic Research (IPEA), Rio de Janeiro, Brazil.

Aquilas Nogueira Mendes is a professor  at the Faculty of Public Health, São Paulo University (USP), São Paulo, Brazil.

Photo: GSK employees, working on the production of medicine, Brazil. Source: GSK.

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