Public-Private Alliances Increase Access to Healthcare

Mexico holds the dubious honor of having the second-lowest investment in healthcare as a percentage of its GDP among OECD countries. The country spent just 5.5 percent of its GDP in 2018 on healthcare, combining the efforts of both public and private healthcare institutions, according to the OECD. This percentage has remained unchanged since 2016 and is the lowest investment for the entire decade, even though the population and its health problems continue to increase.
Conversely, the country’s per capita expenditure on healthcare has steadily increased since 2010. That year, every Mexican was estimated to spend MX$6,988 in healthcare according to the OECD. By 2018, that number had increased to MX$10,410, led mainly by out-of-pocket costs, which are also the second-highest out of all OECD members. The reason is that about 68 million Mexicans do not have social security, which leaves them unable to access public healthcare services and forces them to head to private institutions and pay out of pocket. In 2018, the Mexican Association of Insurance Institutions (AMIS) explained that 52 percent of health expenditure is made by the public sector and the rest is paid out of pocket and by private insurance.
“The worst way to finance healthcare is out of pocket because this only makes healthcare services more expensive,” says Eduardo Lara, Head of Health, Latin America at Reinsurance Group of America. A low investment in public healthcare has led to long wait times for medical attention and medication shortages at public hospitals. This, in turn, has led many to turn to private alternatives to finance healthcare services and medications.
This problem will only worsen as Mexico’s population ages due to the growth of chronic diseases. The current overweight and obesity epidemic, for example, affects 72 percent of the population and individuals are beginning to gain weight earlier. Today, IMCO says one out of every three Mexican children and teenagers is overweight. Obesity is linked to several chronic diseases including diabetes, cardiovascular diseases and several types of cancer. Altogether, these three diseases were responsible for almost half of the annual deaths in Mexico in 2017. As a chronic disease is a lifelong issue, it places a huge burden on the patients’ pocketbook, their family and the healthcare sector. In 2017, treating obesity-related diseases cost MX$240 billion (US$12.43 billion) and this figure is expected to increase to MX$273 billion (US$14.14 billion) by 2023, according to the Ministry of Health.
The country is also facing a population shift. Modern medicine has reduced infant mortality rates and deaths from infectious diseases, allowing individuals to live longer. In 1970, only 5.6 percent of the population surpassed 60 years of age. In 2017, this number nearly doubled to 10.5 percent. This complicates finances for the healthcare sector because healthcare expenses increase sharply with age. In its Focus on Health Spending report, the OECD explained that healthcare costs increase steadily as an individual ages but rise sharply after 55 years of age. The organization states that those between 65 to 69 years of age can represent from 10 to 16 percent of all healthcare costs, while those over 85 years old can represent from 15 to 67 percent of these costs depending on the country.
As a result, a growing number of seniors might impact the finances of an entire economy. “In developed countries, retirement systems are collapsing. In Japan, the system almost collapsed last year. There are simply too many elderly people and the government does not have the money to take care of them,” says Leonardo Alves, CEO of Plan Wealth Management. While the private healthcare sector may help, only 4 percent of those over 60 years of age have a major health expenses policy, according to AMIS.
PRIVATE ALTERNATIVES
To fill gaps in public healthcare services many individuals are turning to the private sector. However, most of those who do so prefer to pay out of pocket for every procedure and very few invest in an insurance policy because they consider it to be too expensive. “Private health insurance is too expensive for most Mexicans, so these products often target medium and high-economic population segments: A, B and C+,” says Lara.  
While the value of the healthcare insurance market increased by 63 percent between 2000 and 2017, the growth in coverage is significantly smaller at 34 percent, according to AMIS. “Insurance penetration in Mexico is below 7 percent due to the lack of flexibility of the current product offering,” says Paulino Decanini, Executive President of SiSNova. In 2017, there were only 8.62 million people with health insurance, according to AMIS. Of those, 6.04 million had an individual policy and the rest had a collective policy from work or family.
The problem holding private insurance back may be an incorrect approach to the Mexican market. “We believe there are serious problems with the business model of many insurers, which offer complex products that do not properly address the underlying morbidity of the insured population,” says Decanini. In Mexico, 44.5 percent of healthcare costs are paid out of pocket and only 3.5 percent are paid by private insurance, according to AMIS, which points to a significant percentage of the population that can and needs to pay for healthcare but has not found a product that addresses their needs. “Many companies have shown interest in targeting the C and C- segments but they have not developed specific solutions that meet the needs and budgets of such segments yet,” says Lara.
Mexico has two types of healthcare insurance: major medical expenses and healthcare service coverage. “The former is associated with accidents and severe diseases whereas health plans also include preventive healthcare,” says Juan Pablo González, CFO of Plan Seguro. Healthcare coverage is comprised of 97.4 percent major medical expenses and 2.6 percent of healthcare service coverage, according to AMIS. Since the insurance penetration rate has kept steady for the past few years, some insurers have developed alternatives that sacrifice the number of covered diseases to reduce costs. For instance, several insurers, including Mapfre, Prevem Seguros, Sura and Inbursa Seguros, have introduced insurance policies exclusively for cancer.
Others call for a restructuring of the insurance sector. “The key to effective health insurance is not just paying the medical expenses covered but to make this sustainable, while managing the type and quality of treatments received by the patient, as well as their cost. To perform all these activities, insurers require better health management services, provider network infrastructure, cost-management processes and specialized IT systems,” says Decanini.
INSURTECH
A growing trend that is slowly penetrating local insurance companies is InsurTech, defined as the use of technological tools to increase efficiency and reduce costs of insurance operations. An increasing number of developers are beginning to turn to the development of these solutions. For instance, Willis Towers Watson says the field had received US$1.41 billion in investment just in the second quarter of 2019, a 273 percent increase over the same quarter in 2018.
InsurTech allows companies to use data analytics, artificial intelligence, blockchain and machine learning to reduce risks for both policyholders and insurers. Moreover, InsurTech platforms can be used to transform customer engagement and eventually increase patient retention. These technologies can also be complemented through the use of wearables and mobile health apps to collect critical data that can help a patient identify a disease or make lifestyle changes. This information can also be analyzed by insurers to create specialized products that better address the needs of specific patient populations.
While the benefits are many, Mexican insurers have been slow to adopt InsurTech practices. “Even though the Mexican insurance industry has been very traditional and cautious to adopt changes, now it is understanding that digitalization could be a fast way to improve the relationship with the end consumer,” says Lara.
As Mexico’s population increases in number, age and weight, existing gaps in the healthcare systems will only grow wider. For that reason, innovative strategies implemented by both the public and private sectors to finance healthcare services will be necessary to continue providing efficient access to services and medication. “No sector can do this alone; alliances are vital for complementing and supporting each other,” says Decanini.