Main Story

Ben Shankland

Data released by Brazil s National Agency for Supplementary Health (ANS) suggests that uptake of private health plans has improved in recent years, but the industry continues to face tough price controls and consolidation is under way.

Data from the National Agency for Supplementary Health (ANS) the regulator for the Brazilian private insurance market suggests that the country s private insurance market continues to enjoy a respectable rate of growth. In the past six years, a further 10.2 million users have joined the system, bringing the total number of private plan beneficiaries in Brazil to 44.7 million. Growth has been especially rapid in the past three years, with coverage now equivalent to 23.9% of Brazil s population.

Worth some US$21 billion in 2006, Brazil s private health plans industry is substantially bigger than anywhere else in Latin America, including Mexico, where private plans cover little more than 5% of the population. Unfortunately, observers cited by the Folha de São Paulo newspaper have stressed that growth remains highly uneven, with wide variations in uptake between the various regions of Brazil, the types of plans on offer and the kind of providers involved. For example, it is estimated that two-thirds of all health plan users live in Brazil s relatively prosperous south-east.

Some Are More Equal Than Others

Clearly, some of the market s approximately 2,000 firms are performing better than others. The ANS reports that entities that offer collective contracts for workers so-called Group Medicine firms or Medical Co-operatives have expanded at twice the rate of the rest of the market since 2000, with the number of beneficiaries growing by more than 60%. The Medical Co-operatives segment comprising collective insurers that contract health services from private sector service providers is dominated by Unimed, an alliance of regional health co-operatives that manages nearly one in three health plans in Brazil. The company is officially the world s biggest healthcare co-operative, but it is currently in recovery after a series of financial problems that led to the liquidation of its biggest unit, the São Paulo branch, in the late 1990s.

Group Medicine firms, which also offer collective health plans but which are also linked to specific hospitals and clinics, account for an even larger share of beneficiaries and turn over more than 12 billion reais (US$6 billion) each year; revenues in this sector grew 10.2% in 2006. The remainder of the market is accounted for by specialist health insurers that offer reimbursement up to predefined limits, charities and self-managed company plans. Last year, these sectors respectively notched up revenue growth rates of 10.6%, 7.2% and 9.8%.

This would amount to a solid performance, were it not for the fact that tight regulatory oversight continues to irk even the most profitable firms. Abramge, the group that represents group medicine providers, reports that the ANS has repeatedly failed to allow above-inflation increases in health plan charges. This has left firms shouldered with very high legacy costs from Brazil s currency devaluation in 1999, when the cost of imports and other services soared.

In view of the tight regulatory environment, providers have been obliged to hunt for new growth opportunities where they can. In particular, small company or collective plans that are not regulated by the ANS have shown strong growth, mainly due to a decline in the uptake of individual plans and in formal working habits. Dental plans have also performed positively, with membership tripling since 2000 to more than 7.8 million. Firms offering these types of pre-paid service, often at very low prices, have proliferated in recent years, and not all of them are legitimate. In particular, growth has been very strong among Brazil s lower middle class, the so-called C and D socio-economic groups. This demographic has historically relied on Brazil s state-run health service, the Unified Health System (SUS), but has seen a solid expansion in real wages, most notably under the present administration of President Luiz Ignacio Lula da Silva (see Brazil: 4 April 2007: ).

Tough price controls and economic empowerment at the lower end of the social scale have had a number of effects on the industry. One has been industry consolidation. A number of Group Medicine firms have merged in recent years; leading player Amil acquired Blue Life earlier in 2007, and newly-floated entity Medial has acquired rival Amesp Saude for some US$121 million. The latter deal was aimed at strengthening Medial s own treatment facilities and, hence, its control over costs. Further down the service chain, DASA Brazil s biggest diagnostics lab has embarked on a buying spree since its initial public offering (IPO) in 2004.

Outlook and Implications

What this adds up to is not exactly a rosy situation, but it does imply that private health plans will be better positioned to offer economies of scale in future. However, Brazil s government is unlikely to relax its grip anytime soon, despite a slight improvement in the annual price increases allowed in recent years. This is partly because the sector prompts strong political sensitivities. For example, the law that reformed private plans in 1998 and allowed foreign insurers into the market left a number of beneficiaries of old plans without access to services that are enjoyed by beneficiaries who took out plans after that time. These vulnerable customers amount to around a third of all private healthcare beneficiaries, and were left facing high treatment costs, such as those arising from new regulations on the notification of pre-existing illnesses that were introduced under the reform.

And in ambulatory care at least, the chance of drug reimbursement ever being included in private plans appears to be very slight. This is bad news for those that argue that out-of-pocket medicine costs are excessive in Brazil. Nevertheless, the good news is that the industry is at least arriving at a position where it can deliver on its promises.

Related Articles15 May 2007: 18 April 2007: 13 March 2007: 22 February 2007: 

June 5, 2007