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PROPOSED LEGISLATION WHICH FULLY OR PARTIALLY EXEMPTS HUNDREDS OF THOUSANDS OF LOW- AND MIDDLE-INCOME PENSIONERS FROM PAYING HEALTHCARE CONTRIBUTIONS

We are going to fulfill our government promise, starting with paying off a long-standing debt to our senior citizens, through a legislative proposal to eliminate or reduce, gradually and according to age and socioeconomic circumstances, their 7% healthcare contributions. SebastiĂĄn PiĂąera May 21, 2010

What does this legislation do? The proposed legislation fully or partially exempts, in a focused way, the neediest pensioners from paying healthcare contributions. Those eligible include all people who receive benefits from the Solidarity Pension System (Sistema de Pensiones Solidarias, or SPS): either the Basic Solidarity Pension or Solidarity Retirement Contribution for old age or disability. To receive benefits from the SPS, a person must be from a family that belongs to the lowest three income quintiles (60%) in the population. They must have a selffinanced pension that is lower than the maximum solidarity contribution pension, which will be 255,000 Chilean pesos starting on July 1, 2011 (it is currently 200,000 Chilean pesos). As a consequence of this law, those who will be exempt from the healthcare contribution, either fully or partially, are all pensioners from families that belong to the lowest three income quintiles of the population and who have a self-financed pension below $255,0001, even if they have never made contributions in the past. 1

According to the pension reform law, the amount will be automatically adjusted by 100% of the CPI variation between the

month prior to the most recent adjustment and the month in which the variation reaches or exceeds 10%.

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The benefit will be given gradually, according to the age and socioeconomic circumstances of the pensioner. Eventually, all pensioners from families in the poorest 40% of the population will be fully exempted from contributing. Who does it benefit and how? This law will benefit, fully or partially, all pensioners participating in the Solidarity Pension System created by the Pension Reform, whether they receive the Basic Solidarity Pension or the Solidarity Pension Contribution. Currently, according to Law N° 20,255, all beneficiaries of the Basic Solidarity Pension who lack resources are exempt from making the healthcare contributions. This group includes those pensioners who belong to the poorest 20% of the population, as determined by the score in their Social Protection Registration (Ficha de Protección Social). However, Solidarity Pension Contribution beneficiaries who lack resources are not currently exempted from paying this contribution. This legislation will not only correct this inequity, but it will also fully or partially exempt all pensioners who receive benefits from the Solidarity Pension System from paying the mandatory healthcare contribution. What does it mean that the benefit will be provided in a gradual and focused way? The benefit will be gradually implemented according to a schedule. It is focused because the benefit amount and date on which it goes into effect depend on the pensioner’s age and the income quintile to which their family belongs. The schedule is presented in the tables shown below.

However, if during the 12 months since the last adjustment the variation of the abovementioned index has not reached 10%, it will be adjusted by the percentage of variation that it would have experienced in that period, in which case this latter adjustment will replace the one described above. The adjustment will go into effect on the first day of the month following the month in which the variation described above is reached or the indicated amount of time passes, whichever applies.

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First Quintile Age

65 to 69 years 70 to 74 years 75 to 79 years 80 and older Under 65 (disability)

Percentage of health contribution to be paid (of FINAL PENSION) Currently October October October 2011 2012 2013 7% 3.5% 0% 0% 7% 3.5% 0% 0% 7% 0% 0% 0% 7% 0% 0% 0% 7% 3.5% 0% 0%

Second Income Quintile Age

65 to 69 years 70 to 74 years 75 to 79 years 80 and older Under 65 (disability)

Percentage of health contribution to be paid (of FINAL PENSION) Currently October October October 2011 2012 2013 7% 7% 3.5% 0% 7% 7% 3.5% 0% 7% 7% 0% 0% 7% 7% 0% 0% 7% 7% 3.5% 0%

Third Income Quintile Age

65 to 69 years 70 to 74 years 75 to 79 years 80 and older Under 65 (disability)

Percentage of health contribution to be paid (of FINAL PENSION) Currently October October October 2011 2012 2013 7% 7% 7% 5% 7% 7% 7% 5% 7% 7% 7% 5% 7% 7% 7% 5% 7% 7% 7% 5%

In other words, the benefit covers pensioners whose families belong to the three lowest income quintiles of the population, who correspond exactly to the universe which benefits from the Solidarity Pension System (receiving either the Basic Solidarity Pension or the Solidarity Pension Contribution for old age or disability). By the end of this government’s term, the healthcare contribution of the poorest 40% of pensioners will have decreased to zero. For the next 20%, who comprise the vulnerable middle class, the healthcare contribution will be reduced to 5%.

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How many people will benefit from this law? The number of beneficiaries of this reform, by year, is shown below: Benefit Coverage Year

Total coverage

2011

126,490

2012

377,156

2013

738,249

2014

773,053

2015

810,735

2016

854,020

2017

900,637

2018

950,369

2019

1,002,872

2020

1,057,874

Will beneficiaries who belong to Fonasa be able to continue to choose either the institutional mode or the free choice mode? Yes. The beneficiaries of this law will be fully or partially exempted from the obligation to make healthcare contributions. If the beneficiary belongs to FONASA, they will maintain the same situation as before. Therefore, if they used the free choice mode, they may continue to do so.

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7% HEALTHCARE CONTRIBUTIONS  

PROPOSED LEGISLATION WHICH FULLY OR PARTIALLY EXEMPTS HUNDREDS OF THOUSANDS OF LOW- AND MIDDLE-INCOME PENSIONERS FROM PAYING HEALTHCARE CONT...

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