Por Dentro da Saúde Suplementar - Healthcare expenditures growing faster than Consumer Price Index

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Healthcare expenditures growing faster than Consumer Price Index

Edition October/2017

One of the greatest challenges regarding the sustainability of the supplementary health system is the increasing per capita medical costs/expenditures, always above the consumer price index.

Between 2015 and 2016, health costs increase was 19,2%, about 2,8 times the Brazilian CPI.

2 ,8 19 ,2% 2016 2015/

PER CAPITA medical cost increase

TIMES above consumer’s inflation

Health Care costs are growing faster than general inflation, in Brazil and in other countries.

In the last year, the “inflation� spiral of private health care was driven, amongst other factors, by the increase in the amount of medical care services provided. It was the highest number ever recorded. The increase affects, mostly, individual plans consumers, contracting companies and makes it harder to achieve economic-financial balance of health plans operators and insurance companies. Between 2008 and 2016, this medical cost surge reached a 179.3% increase, while the IPCA (Brazilian CPI) variation in the same period was 72.5% (See Table 1).

TABLE 1

Per capita healthcare cost at supplementary health system, individual plans regulated price readjustments, consumer´s price index

Official price readjustement cap for individual plans

Consumer price index (IPCA)2

Per capita health cost (R$)3

Per capita health cost (%)

5,5

6,0

1.170,4

9,6

42,0

6,8

4,6

1.274,4

8,9

2010

44,1

6,7

5,5

1.337,4

4,9

2011

45,7

7,7

6,4

1.483,4

10,9

2012

47,1

7,9

5,7

1.675,0

12,9

2013

48,7

9,0

6,1

1.844,3

10,1

2014

50,0

9,7

7,0

2.103,3

14,0

2015

49,8

13,6

9,7

2.384,7

13,4

Year

Beneficiaries1

2008

40,7

2009

2016

48,2

13,6

7,0

2.841,8

19,2

20174

47,2

13,6

4,4

3.268,6

15,0

15,90

131,9

72,5

Cumulated variation 2008 - 2017

179,3

Source: ANS - Sistema de informações de beneficiários - SIB/ANS/MS - Tabnet. IBGE - Índice de reajuste ANS - disponível em http://www.ans.gov.br/. IBGE - Sistema Nacional de Índices de Preços ao Consumidor IPCA. Extraído em jul/17.

EXIBIT 1

Per capita healthcare cost at supplementary health system, individual plans regulated price readjustments, consumer´s price index (IPCA)

Per capita health cost Official price readjustement cap for individual plans

179,3

131,9

Consumer´s Price Index IPCA 72,5

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: ANS - Sistema de informações de beneficiários - SIB/ANS/MS Tabnet. IBGE - Índice de reajuste ANS disponível em http://www.ans.gov.br/.

IBGE - Sistema Nacional de Índices de Preços ao Consumidor IPCA. Extraído em jul/17.

Rising costs increase operators loss ratio In Brazil, individual health plans (contracted between individuals and the health plan operators) prices readjustments cap are regulated. In 2017, the readjustment cap (13,55%) was not enough to cover the increase in health costs expenditure. For example, Magnetic Ressonance Imaging prices increased nearly 20% between October 2015 and October 2016 on average, from R$ 485 to R$ 581.

At the same time, the number of MRI scans increased 8,8% in 2016 compared to 2015. In this case, the cost variation was above 30%, while price increased 20% on average. The cost surge is due not only to prices, but also to quantities.

Medical inflation and general inflation should not be compared General prices indexes must not be compared to health care expenditures increases nor the annual mandatory readjustment cap regulated by the Brazilian Health Plans Regulatory Agency. Price indexes are aggregate numbers surveyed within a region in a determined time window and represents the price variation of a certain basket of goods. Those indexes measure, therefore, just the average price variation of the products of a given basket. Different price indexes were created with different methodologies and ends and that is why any comparison may lead to misleading conclusions.

EXIBIT 2

Consumer price index IPC, health price index at IPC, Consumer’s price index IPCA, health’s price index IPCA and General Inflation IGP

Health price index at IPC

99,8%

Health`s price index IPCA

89,3%

General Inflation IGP

72,8% 72,5% 68,1%

Consumer´s price index IPCA Consumer´s price index IPC

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Source: FIPE: IPC - Índice de Preços ao Consumidor e IPC Saúde. IBGE: IPCA - Sistema Nacional de Índices de Preços ao Consumidor - IPCA e IPCA Saúde. IBRE/FGV: Índice Geral de Preços - Disponibilidade Interna.

Extraído em jul/17.

Healthcare costs increase above inflation While price indexes measure only price variations of the prices level, per capita health costs variation is the combination of price and quantity, or the variations of use of services. It is not a price variation index, but a value variation index. ANS regulated readjustment, for example, combines the variation of the frequency of use of health services, including clinical consultations, drugs, tests and the incorporation of new technologies and it’s prices incurred at the collective health plan market. Healthcare costs rising above inflation is not unique to Brazil. Several countries experience the same problem. The ever increasing health care costs is an issue for individuals, companies and government health budgets.

EXIBIT 3

Healthcare inflation index IPCA Saúde Cumulated Variation 2008-2017*

120,3% 113,7% 88,4% 86,9% 72,5% 66,7% 65,7%

Health Plans Medical and dental services Labs and hospital services Healthcare Consumer Pernonal hygiene Optical and farma products

Source: IBGE - Sistema Nacional de Índices de Preços ao Consumidor - IPCA Saúde. Extraído em jul/17.

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Notes: *Ano de 2017 projetado, sujeito a revisão.

In Brazil, health expenditure growths faster than in many countries Between 2004 and 2014, the aggregate variation was 80.2%, larger than Japan, 57.9%, United States, 47.6%, Canada, 43.6%, France, 38%, and United Kingdom, 31.9%. That increase is mostly due to the incorporation of new technologies with no assessment of cost-effectiveness. Besides that, increase in frequency of clinical consultations, tests, inpatient care, demographic shifts and waste are all to blame.

New drugs, imaging and diagnostic devices are redesigned and offered frequently.

These new technologies may have a significant role in longevity and better quality of life. Nevertheless, more often than not there are no evidences of cost-effectiveness to help doctors and patients to make a wise choice regarding testing and treatment. Many times that decision is based solely on the doctor’s previous experience. Another issue is the prevailing payment method in Brazil, fee for service, which induces the overuse of these technologies.

EXIBIT

Per capita healthcare expenditures

4

80,2%

57,9% 47,6% 43,6% 38,0% 31,9%

Brazil Japan United States Canada France UK

Source: Organização Mundial da Saúde (OMS). Extraído em jul/17.

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Notes: *Paridade do Poder de Compra - US$.

Historically, health care costs increases in a faster way than Consumer price index Health cost expenditure in private healthcare surmounts an increase of 179.3% between 2008 and 2017, while Brazilian consumer price index (IPCA) reached 72.5%. It is important to say that such a difference is not considered by the ANS when devising health plans readjustement cap. That explains the increasing trend of the health insurance loss ratio, specially within the medical-hospital segment.

Per capita health cost variation and consumer’s price index

EXIBIT 5

Annual and cumulated – 2008/2017

Consumer’s inflation IPCA Per capita health cost Cumulated Consumer’s inflation IPCA Cumulated Per capita health cost

179,3%

72,5%

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Source: ANS - Sistema de informações de beneficiários - SIB/ ANS/MS - Tabnet. Índice de reajuste ANS - disponível em http://www. ans.gov.br/. IBGE - Sistema Nacional de Índices de Preços ao Consumidor IPCA. Extraído em jul/17.

In US, between 2008 and 2017, healthcare per capita cost increased by 37,2% and the consumer’s price index increased by 13,8%, acording to the National Center for Health Statistics (NCHS) and the U.S. Bureau of the Census (Exibit 6). In 2009, under the economic crises effects, the healthcare per capita increase was 3,3%. The smaller variation observed since the begining of the data in 1960.

EXIBIT

Per capita healthcare expenditure (NHE) and consumer price index CPI

6

CPI Per capita NHE Cumulated CPI Cumulated per capita NHE

37,1% Source: NHE: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group; U.S. Department of Commerce, Bureau of Economic Analysis; and U.S. Bureau of the Census.

CPI: U.S. Bureau of Labor Statistics - Division of Consumer Prices and Price Indexes.

13,8%

*CPI e NHE projetados para 2017.

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Exibit 7 shows the rate of inflation (CPI) and the variatiobn of the healthcare expenditures in US between 1960 and 2017. Note that healthcare expenditures was above the CPI index in a long period except 2008 and 2011. One of the main drivers of the healthcare rising cost is the more expensive new technologies added to the market. Smith et.al. (2009) estimates shows than new Technologies was responsable by 27% to 48% of the healthcare cost increase in the US.

EXIBIT

Per capita healthcre cost increase and the CPI Cumulated variation 2008-2017

7

Consumer Price Index

2016

Source: NHE: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group; U.S. Department of Commerce, Bureau of Economic Analysis; and U.S. Bureau of the Census.

CPI: U.S. Bureau of Labor Statistics - Division of Consumer Prices and Price Indexes.

2014

2012

2010

2008

2006

2004

2002

2000

1998

1996

1994

1992

1990

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

1968

1966

1964

1962

1960

National Health Expenditures (per capita)

*CPI e NHE projetados para 2017.

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