Por. saúde suplementar. Dentro. Healthcare expenditures growing faster than Consumer Price Index. Edition October/2017

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1 Por Dentro da saúde suplementar Healthcare expenditures growing faster than Consumer Price Index Edition October/2017

2 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. 2015/ 2016 PER 19,2% CAPITA medical cost increase 2,8 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).

3 TABLE 1 Per capita healthcare cost at supplementary health system, individual plans regulated price readjustments, consumer s price index Year Beneficiaries 1 readjustement cap for Official price individual plans Consumer price index (IPCA) 2 Per capita health cost (R$) 3 Per capita health cost (%) ,7 5,5 6, ,4 9, ,0 6,8 4, ,4 8, ,1 6,7 5, ,4 4, ,7 7,7 6, ,4 10, ,1 7,9 5, ,0 12, ,7 9,0 6, ,3 10, ,0 9,7 7, ,3 14, ,8 13,6 9, ,7 13, ,2 13,6 7, ,8 19, ,2 13,6 4, ,6 15,0 Cumulated variation ,90 131,9 72,5 179,3 Source: ANS - Sistema de informações de beneficiários - SIB/ANS/MS - Tabnet. IBGE - Índice de reajuste ANS - disponível em IBGE - Sistema Nacional de Índices de Preços ao Consumidor IPCA. Extraído em jul/17. 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 Source: ANS - Sistema de informações de beneficiários - SIB/ANS/MS - Tabnet. IBGE - Índice de reajuste ANS - disponível em IBGE - Sistema Nacional de Índices de Preços ao Consumidor IPCA. Extraído em jul/17.

4 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 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. 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 Health`s price index IPCA General Inflation IGP Consumer s price index IPCA Consumer s price index IPC 99,8% 89,3% 72,8% 72,5% 68,1% 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.

5 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. 3 Healthcare inflation index IPCA Saúde Cumulated Variation * 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. 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.

6 4 Per capita healthcare expenditures 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. 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. 5 Per capita health cost variation and consumer s price index 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% Source: ANS - Sistema de informações de beneficiários - SIB/ ANS/MS - Tabnet. Índice de reajuste ANS - disponível em ans.gov.br/. IBGE - Sistema Nacional de Índices de Preços ao Consumidor IPCA. Extraído em jul/17.

7 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 Per capita healthcare expenditure (NHE) and consumer price index CPI CPI Per capita NHE Cumulated CPI Cumulated per capita NHE 37,1% 13,8% 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. *CPI e NHE projetados para Exibit 7 shows the rate of inflation (CPI) and the variatiobn of the healthcare expenditures in US between 1960 and Note that healthcare expenditures was above the CPI index in a long period except 2008 and 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. 7 Per capita healthcre cost increase and the CPI Cumulated variation Consumer Price Index National Health Expenditures (per capita) 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. *CPI e NHE projetados para 2017.

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