Why do health care costs continue to rise in Latin America?
How is the price of health insurance calculated?
Through an equation between the risks assumed by the insurance contract and the forecasts of claims or expenses.
In each launch of a new product, insurance companies rely on their previous experience to establish the criteria mentioned above, hence the importance of signing a contract with an experienced and specialized insurer.
Important: We must be very careful; cheap solutions can hide a hook strategy and in the medium term the product can disappear completely or prices can become exorbitant.
The other key point is the turnover; a small business will be much more vulnerable to costly claims that will jeopardize their other solutions, while a large business dealing with high volumes can spread their bottom line over thousands of contracts.
Where do the increments come from?
We have just seen that they are related to the loss experience of the product, that is, the expenses incurred by all the insured.
Of course, the older we are, the more frequent and higher the expenses will be, so premiums logically increase with age (the last five years of life represent 50% of total health spending).
Important: Attention! Not all insurance products offer lifetime products, so be very careful. Some cancel contracts at 65 or 70 years.
In this case, without taking into account the main risks of loss due to old age, your rates will be more attractive!
The other reason is the rising cost of health care at all levels, where various criteria come into play.
In fact, on the American continent, our policyholders go exclusively to the private sector, which is not subject to any rate regulation, contrary to what happens in France. Doctors apply the fees of their choice, as do hospitals, which leads to costs up to 15 times higher than in France and increases that depend on the goodwill of health professionals.
We also see overconsumption of medical procedures, including C-sections, MRIs, specialist visits (since you don’t need to visit a general practitioner first).
You also need to understand local contexts and how national economic situations can affect health insurance premiums.
For example, the largest economies in Latin America face rising inflation: 11.3% for Brazil against 7.45% in Mexico in 2022. Both saw their currencies slide lower against the US dollar, caused by a rise in the prices of medical imports. From the beginning of 2020 to the beginning of 2021, the Mexican peso depreciated 7% against the dollar.
This last reason, in particular, can explain the costs of insurance in Latin America that exceed inflation. Insurers are using these increases as a way to not only offset current costs, but also protect themselves from future increases.
Finally, both countries have similar lifestyles that also contribute to skyrocketing healthcare costs. In the report, Global Medical Trend Rates 2017, published by consulting firm Aon Hewitt, some family issues become apparent.
In 2020, Mexico registered a 5.6% increase in health spending, which reached 5.8% in 2021. In Brazil, the situation has worsened even more, with an increase in health spending of 8.1% against inflation of 11.3%.
The health problems that affect the entire world are particularly serious in Latin America. Some of them are obesity, sedentary lifestyle, cardiovascular diseases and cancer. These conditions disproportionately represent the majority of medical consultations, related to hypercholesterolemia, obesity, hypertension, stress and lack of physical activity.
Monica Ham, deputy manager of claims and employee benefits at Aon Mexico, blamed “the poor decisions people make in relation to their lifestyle, which include smoking, unhealthy diets, physical inactivity and alcohol.”
While personal responsibility is important, the choices facing consumers in Mexico and Brazil are not the same as those in France or the United States.
About 14% of Mexican adults have diabetes and 64.4% of the population is overweight. In France, these same conditions reach 5.4% and 40%, respectively, and although they are still high percentages, they are significantly better.
It is very easy to blame people for their decisions. Nutrition campaigns, physical exercise in schools, green spaces and time to relax are more frequent in developed economies. Take Mexico City as an example.
The French have a 35-hour work week, while Mexicans work an average of 43 hours, the most in the OECD. In Mexico, the average commute time to work is 81 minutes, leaving little time for exercise. In schools, the importance of physical education is minimal and only 33% of children play sports regularly. Insecurity in the Mexican capital is also an important factor and in French cities it is far from reaching the same level.
This multitude of problems contributes to rising health care costs and will continue to do so unless significant steps are taken to address them. And if healthcare costs go up, health insurance costs will go up too.