Economics and insurance in Chile: a one-way mirror
January 31, 2010
One year ago I met Daniel Beunza in an economic sociology event at Goldsmiths. He told me that I could post sometimes here. The same January I had my PhD thesis viva, and since then I have been quite busy by teaching and writing a research fund application to follow the consumer credit industry in Chile. Now before being overwhelmed by this new research I’m finally trying to write some articles out of my PhD thesis. The thesis attempted to understand how the private health insurance in Chile ended up having it actual shape. There are a couple of ideas connected with this case, but I think also of more general interest, that I would like to share here and in two other posts.
Perhaps one of the main issues in social sciences in Latina America in the last decade or so has been the “ubiquitous rise” of economists and economics in the sub-continent. Said very simple, this literature has aimed to explain their role in three main phenomena: the technocratization of governmental elites, the institutional isomorphism centered on market liberalization, and the production of a sharp boundary between economy and those elements that are within the reach of direct government intervention. Of course, existing research combines these elements in different forms, some of my favorites are: Babb, Cárcamo-Huechante, Fourcade&Babb, Mitchell, Neiburg, and Valdés. The case of Private Health Insurance (PHI) in Chile, I studied in my PhD research (and particularly in a chapter that I would be happy to circulate), touches few elements from these different types of questions, however, it also illustrates another dimension of the multiple parts played by economists in Latin America recent history, that I would like to highlight here.
The creation of PHI in 1981, in the context of the Chicago Boys reforms in Pinochet’s Chile, followed one basic assumption: a combination between free choice consumers and competition between insurers would produce insurance policies that would optimize efficient health expenses and good protection to users. However, talking with economists experts in this system today, it is easy to realize that this equation turned to be quite problematic. Just to mention three of the most controversial issues: (i) ten years after it was created most of health policies were covering highly probably but not very expensive events, leaving users finally unprotected; (ii) risk screening -and the exclusion of pre-existing medical events- in new insurance policies made an important group of users unable to actually choose between the available goods; and (iii) the amount of choices in this market is so large that rational calculation is almost impossible. In order to solve these problems different solutions had been figured out: today each insurance policy includes a catastrophic coverage, contracts are aimed to be long lasting, and there is agreement that the range of insurance policies in this market needs to be simplified.
Economists see this story as a matter of lack of knowledge. When the system was created the sub-section of economics particularly interested in this type of issues (health economics) was not very developed, and concepts that are today so influential in framing this type of discussions (such as moral hazard, adverse selection) were not widely available. In other words, there is now new information that would allow a better market design. I think, however, this is also a very particular case of performativity of economics. Perhaps, economists would agree that when the PHI was developed members of very few professions would imagine a new market as a solution for health policies, but, at the same time, the role played by this expertise would decrease together with the development of this industry. Nevertheless, after the unexpected consequences of this development, there is a consensus on that the PHI market needs to be regulated to fulfill its original aims: efficient health administration and protection. Regulation, here has specifically meant that the thing traded in this market – the insurance policy- has been standardized, and, competition today is less about singularizing each policy, and more about the prestige –or other properties – of the insurers.
Borrowing a metaphor used by Harrison White in his book on markets, I think there is a one-way mirror in this case. The shape of the product exchanged is not just the outcome of the interaction between supply and demand – and other elements highlighted by economic sociologists such as political struggles or networks – but it also reflects economics. However, those who represent this market – and are those who almost exclusively regulate it – economists, cannot see the role their knowledge play in the development of this industry. I believe this case shows the relevance to expand the discussion about economists and economics in Latin America to analyzing their role as market makers, but at the same, that it is also needed to increase the attention to the dynamic relationship between economics and the economy in those markets that has been created as a form of policy making.