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Weekly UpdatesChile has often been regarded as a model for the rest of Latin America. With the highest human development index in Latin America according to the United Nations Development Program, Chile has emerged from the Pinochet years as a modern and stable middle-income country. The success of Chile has often been touted as a result of the "Miracle of Chile," the deregulation and neoliberal economic policies of the military dictatorship. Compared to countries with similar gross national product, Chile also has good health indicators, but questions remain if this was due to Chile's high economic growth rate and dramatic reduction in poverty or due to the privatization of its health insurance system in the 1980s. With the institution of the health reforms of President Lagos in 2004, Chile explicitly guaranteed health care for a list of conditions for the first time. Although neoliberalism has dominated the narrative of Chile, Chile's legacy of social protection may also explain the trajectory of its health reforms, and both narratives must be considered if Chile is to serve as an example for other developing countries.
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Strong History of Social Protection
Due to Chile's unique political history, its health system has been studied extensively for being the innovator in health reform in Latin America. The Chilean War of Independence marked the beginning of Chilean independence from Spain. What was a divide between the independents and royalists ended up in a full-fledged civil war in 1810, resulting in a formal proclamation of independence in 1818 and the surrender of Spanish troops in 1826. After the defeat of the Spanish, the Chilean Civil War of 1829 broke out, ending with the victory of conservative over liberal forces and the formation of a new constitution in 1833.
Two decades of war gave birth to the Chilean system of democratic representation. The constitution served as the expression of balance of forces in which all parties and their constituents obtained some tangible benefit from participating in the system. The strong role of the democratic government in Chile also allowed the legislature to be a central breeding ground for most of the reform measures.
From 1918 to 1938, the state took a paternalistic role in public heath beginning with the first Sanitary Law in 1918, establishing basic public responsibility for sanitation and public health programs. In 1924, the Social Security Law was institute to provide social services to workers and their relatives. In 1938, the reform concluded with the implementation of Law of Preventive Medicine establishing screening of syphilis, tuberculosis, cancer and cardiovascular disease to all blue and white-collar workers.
For the next decade, Chile implemented Bismarkian social interventions by utilizing tax revenues to provide a national system of public hospitals, clinics, sanitary and public health services. This formed as a result of National Health Services in 1952, which remained the major health care provider in Chile for the next four decades. The actual implementation of the National Health Service was a gradual process of consolidating existing hospitals and primary care clinics and posts around the country. Maternal health improved greatly in this period as the emphasis is placed on prenatal care and family planning. In response to the growing role of the state in health, the Chilean School of Public Health was established by a group of Chilean physicians trained at Johns Hopkins University and Columbia University.
In 1941, the Popular Front Government started a legislative battle when they advocated a unified public health system that united the management of all hospitals under a single government agency. The argument in favor of more state intervention is that after 20 years of modest state intervention, the figures of morbidity and mortality remained relatively high. In 1945, infant mortality was 184 per 1000 live birth. The Popular Front government was prone to socialist state intervention on the grounds of improving social welfare and income disparity. The proposal to socialize medicine was widely debated.
In the 1940s, white-collar workers from finance and manufacturing industries established their own health care system, National Medical Services for Employees (SERMENA), forming a private provider system with private physicians. During that time, Salvador Allende, then Minister of Health and later President of Chile, argued in favor of SERMENA by highlighting that infant mortality in the covered population was 20 to 25 per 1000 live births, while the uncovered population had information mortality rates 10 times as high. Allende subsequently proposed the creation of a "unified Health Service", abolishing private practice physicians. Although this proposal never became law, it pushed many physicians against government control of medicine.
Private preferred-providers gained power during this time with SERMENA allowing its beneficiaries, white collar workers, to opt out of the public system for private care and to have this covered by payroll tax insurance benefits. This created a private, albeit limited, private market with public collection of tax and channeling into a private system, a harbinger of the private insurance providers that continue to the present.
In 1973, General Augusto Pinochet staged a coup d'etat, overthrowing Allende's Socialist government. Pinochet recruited a group of market-oriented technocrats, later known as the "Chicago Boys," many of whom trained at or were influenced by the free market principles of the University of Chicago. These neoliberal principles were institutionalized in the health care sphere in 1979 with the reorganization of the public system into the National Health Fund (Fondo Nacioal de Salud, FONASA). Decentralization of tax revenues were allocated to 26 regional entities. Despite the free market attitude of the Pinochet regime, the constitution of 1980 still explicitly guaranteed health as a basic human right. The wave of decentralization further gained momentum in 1981, when operational authority of health facilities was given to the municipal governments. The private insurance market was established by allowing the social insurance tax to be utilized by private insurance companies, the ISAPREs (Instituciones de Salud Provisional), creating a dual public and private health financing system in Chile. The hoped-for impacts of these reforms were initially stymied by the economic recession after the coup, and most municipals were unable to sustain health services until 1988, when the economy turned around, furthering the myth of the Miracle of Chile.
Legacy of Privatization
When the Concertacion, the center-left coaltion that has dominated Chilean politics since the Pinochet era, was voted into office in 1990, its leaders found themselves with a health care crisis as a result of the neoliberal policies of the Pinochet regime. When President Aylwin took office, public hospitals faced a shortage of basic supplies, while health care workers were underpaid. The opening of the health care sector to the free market in 1981 resulted in a large transfer of funds from the FONASA system to the private ISAPREs. This transfer of funds caused the government to raise mandatory contributions to 7 percent of individual incomes from the previous 4 percent. In 1992 a Superintendency was created to regulate the private administration of the compulsory 7 percent monthly income contribution, but there were no explicit guarantees of health services. Despite these measures, the privatization of Chile's health care system increased in the 1990s with large profit gains by the ISAPREs. By 1995, enrollment in the ISAPREs had peaked at 26 percent.
Most significantly, the poor remained concentrated in the public FONASA system, with 85 percent of the lowest-income group belonging to FONASA and only 2.8 percent of the lowest-income group insured by the private ISAPREs. As ISAPRE beneficiaries aged and faced growing insurance premiums on top of the mandatory contributions, they often returned to the public system, resulting in adverse selection. According to the Third World Institute Social Watch, adult women pay up to four times more than men and adults over 60 face premiums up to eight times as high as those of young adults. Although, these risk-adjusted premiums are legal and make actuarial sense, the existence of the parallel FONASA system meant the costs of high-risk, high-cost patients were born by public financing, while private insurers risk-selected to ensure high profits. This resulted in a glaring disparity and inequity underlying Chile's improving human development index and progress in health indicators such as infant mortality and births attended by skilled personnel.
A recent study by the American Journal of Public Health underscored this disparity by discovering a clear mismatch between need and provision of services. Patients with public insurance coverage exhibited the highest prevalence of mental disorders but the lowest rates of consultation, while patients enrolled in ISAPREs had lowest prevalence of mental disorders but the highest rates of consultation. Moreover, a 2003 Ministry of Planning survey revealed that only 57.5 percent of FONASA members described their health as good or very good, compared to 80.6 percent of ISAPREs members.
Additionally, ISAPREs could refuse coverage to pre-existing conditions, forcing the sick to enroll in the public system. This has been described by Camilo Cid, an economist, as a "double inequity," as those who have not paid into the FONASA funds end up spending a large amount of public money. Although the creation of the Superintendency augmented regulation of the ISAPREs, the private insurers were still legally entitled to set benefit backages and premiums based on the risk of the insured, and coverage for catastrophic conditions did not exist until 2001.
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