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Latam Briefing: Health insurance in Brazil

Nurse registering patients using a digital tablet in a vaccination center

Almost 50 million Brazilians have private health insurance plans, a number that sounds big, but only covers just over one fifth of the country's population. It's no coincidence, therefore, that Brazil has long been identified as a market full of potential for health insurers.

But this promise has to some extent failed to deliver. Growth has stalled in recent years, and health plan operators struggle to post positive results in a country where the economy has stuttered for the best part of a decade. The number of health plans sold in the country dropped between 2015 and 2020, before posting a Covid-19-driven recovery.

The reason for the slow pace of growth is that the health of the sector is closely linked to the performance of GDP. A large majority of health plans sold in Brazil are paid for by companies or other organizations, and volumes tend to expand or shrink as they hire and fire employees. According to regulators ANS, more than seven in ten holders of health insurance policies benefit from collective plans paid for by their employers, while 13% buy their policies with the support of cooperatives or other associations. Only 18% of all polices are purchased directly by individuals, and the number is dropping by the year.

“Health plans in Brazil are mostly paid by employers,” says Adriano Londres, a São Paulo-based consultant. “If the economy is not doing well, the number of beneficiaries drop.”

Back in 2014, when the Brazilian economy was firing on all cylinders, the number of health insurance beneficiaries reached more than 50.5 million, the highest level so far. By March 2019, as the country was mired in a long recession, the sector had lost more than three million customers. The Covid-19 pandemic has helped health plans to regain some ground, breaching the 49 million threshold in the first quarter. But there are doubts whether the gains will me maintained in the near future, as inflation is on the rise in Brazil, closing May at more than 12% a year, and unemployment hovers around 10%.

“The growth curve is flattening, and in my view it will slow down even further," Londres says.

But the long-term view for the health insurance in Brazil could be more sanguine than the somewhat disappointing present. Although the country benefits from an extensive and public health service that showed some resilience during the Covid-19 pandemic, middle class Brazilians tend to avoid it as much as they can, to the benefit of private providers.

“With the pandemic, it has never been so clear how important it is to have a health plan in Brazil,” says Thomas Menezes, the CEO of broker It’sSeg. “If the private healthcare system stops working today, Brazil will go broke. The public system has no means to absorb an extra 50 million users.”

Surveys show that having health insurance ranks among the highest aspirations of upwardly mobile workers, and companies invest heavily into offering the best collective plans they can afford in order to attract and retain talent. Competition among insurers and other operators is fierce, especially because the market is incredibly decentralized. Mercer Marsh estimates that around 700 companies offer health plans in Brazil, most of them limited to a small geographic area or restricted groups of professional activities.

In practice, however, there are fewer than a dozen operators with the nationwide reach and wide range of services required for the largest corporate clients, which constitute the market’s juiciest segment for insurers. In general, the market sells three main kinds of plans – basic, intermediate and executive. The covers are similar for all of them, as they are defined by ANS, the regulatory body. But packages differ from each other by providing access to hospitals of higher quality and reputation, luxury accommodation, international coverage and other such advantages.

“When they buy their health plans, companies want to show that they are competitive, compared to their rivals. They will not be able to hire someone from another company that has an executive plan if they only offer a basic package,” says Mariana Dias Lucon, the head of Benefits at Mercer Marsh in Brazil. “So insurers offer extra perks like the quick reimbursement of payments as they compete for clients. But the final decision is always primarily influenced by cost.”

That is another reason why the health insurance market is going through a complex time right now in Brazil. The sector had a bumper year in 2020, as the Covid pandemic slashed claims by keeping people aways from hospitals unless they could not avoid it. But since last year, policyholders started to go back to scheduling elective procedures and other non-urgent work that had been supressed by the pandemic. Claims have rocketed as a result.

To compound the challenges, medical inflation is running high, and so is economic inflation, but insurers are struggling to move higher costs to their clients in an economy that is lukewarm at best. Rates of corporate health insurance plans can be negotiated freely between insurers and clients, and brokers have noticed a degree of reluctance to push up rate hikes too far.

“Insurers have striven to retain their clients with views of recovering profitability in the future,” Menezes points out.

Cost control is a major concern for all participants in the Brazilian economy. The misuse of medical facilities by policyholders is common, and physicians and labs are often accused of overcharging insurers for their services. In Londres’ view, there are plenty of inefficiencies in the system that contribute for making everything more costly than necessary, to the detriment of final users, who end up forced to paying higher prices for their plans.

“Brazil’s healthcare model is focussed on hospitals. Patient information is scattered around the system and is not shared,” Londres says. “There is also an incentive to work with volumes. Hospitals make money with diseases, physicians make money by making surgeries. Corruption and fraud are real issues too. Companies who pay for plans have failed to understand that they must demand more transparency from the system.”

Some providers are trying to deal with such factors by verticalizing their operations in order to have more control over the whole process. These large groups are purchasing hospitals, clinics, labs and other assets and integrating everything into the same operation.

The most aggressive operators following this strategy have been Qualicorp and GNDI, which have recently merged. In February, Rede D’Or, a big hospital chain, purchased SulAmérica, an insurer, in a deal that, according to analysts, has similar objectives. The largest companies have raised money in capital markets via debt or equity to purchase smaller rivals in key regional markets, a trend that should continue apace, in the view of market observers.

Pure insurers, however, are prevented by law from owning hospitals and other medical facilities. Their strategy, therefore, is to negotiate with healthcare providers in order to offer bundles of services while keeping costs under control.

“Nowadays, many insurers are packaging services with the main hospitals," says Thomas Ishikuza, a superintendent at Mercer Marsh in São Paulo. "It does not matter if someone goes to a hospital for an appointment, or for an appointment and other services, the rate paid is the same. Telemedicine has also helped insurers to tackle this problem as people do not need to go to the hospital all the time.”

But brokers note that insurers have a better reputation in the market exactly because they have traditionally focussed on reimbursements of payments made by the users, allowing policyholders to choose the physicians, hospitals and laboratories that they trust. That is why pure insurers have a strong presence at upper echelons of the market.

With all that said, is there room for new players to get into the Brazilian healthcare market? Dias Lucon noted that the current trend of concentration in the market may reduce competition in the long run, which is not good news for buyers. On the other hand, international companies that have tried their luck in the country have struggled to deal with the challenges presented by the ups and downs of the Brazilian economy. Sompo sold its health insurance unit to SulAmérica in December, and there are rumours in the market that UnitedHealth is trying to offload its Brazilian unit, Amil, which it bought in 2012.

“Brazilian healthcare is a complex market,” Londres says. “Newcomers will need to have a long-term vision, a focus on assistance, and a lot of money to invest.”