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.

José Ossandón

12 Responses to “Economics and insurance in Chile: a one-way mirror”

  1. danielbeunza Says:

    Fascinating issue and very current issue — health. However, I am not sure whether what you mean by performativity is the same as what Callon and MacKenzie mean. They mean a situation in which a calculative tool, by virtue of its usage, makes the theory on which it was inspired a more accurate representation of the world. What would be the calculative tool in your case?

  2. […] See the original post here: Economics and insurance in Chile: a one-way mirror « socializing … […]

  3. joseossandon Says:

    Thanks Daniel, and that’s a really good and difficult point. I think that “the issue of performativity” can be seen from different angles here. First, there is performativity in T. Mitchell’s sense: economics has opened an “economic” domain within health that excludes other forms of expertise. Second, and more in tune with Callon’s 1998 paper, there is performativity because you cannot understand the creation and evolution of this industry without introducing (University of Chicago) economics as a main actor (and clearly today Chile’s health system looks much closer to an economic textbook case than before). And third, here the whole market is a device that has been developed to fulfill other ends (health security and efficient health expenses), this proved to be not very successful. In this sense it has been, like other experiments, a source for transformation in the theoretical toolbox that is used to understand and regulate this market.Which is perhaps more a case of overflowing, than performativity.

  4. danielbeunza Says:

    If that’s the case, I would then try to establish which of these three effects was, to you, most surprising. And then focus your theorizing around it… without feeling any need to fit your argument into the performativity frame. The events you are describing in Chile are fascinating on their own right. But the entire emphasis on values, politics, that the boys brought with them makes things sound more like institutional phenomena than actor-network. (At the same time, Allende and his macroeonomic control room are beautifully technological… see installation at Making Things Public about this).

  5. joseossandon Says:

    Yes, you are alright Daniel. This is a case of institutions (and even ideologies), and not a case with economics embodied in technological devices making a specific theory a more accurate representation of the world. And I really agree that there is no need to find sociotechnical assemblages everywhere. Perhaps it is better to keep the term performativity of economics to these types of cases alone.
    However, I think there is something else. In the case of the PHI there is a strong distinction between those that explain the institutions in which the creation of this industry was embedded and those that can say something about the actual shape of the market. I think Callon & Mackenzie are very important because they show that to explain the empirical evolution of a market the knowledge used to frame it is a very central actor (Callon), and that, sometimes, economics shape the thing traded itself. I.e.: in Mackenzie’s work: derivatives are not just the outcome of supply and demand, but also are part of a long chain of finance research. What shows this research, I think, is that the standardization of the insurance policy happened in the last years, has not just to do with market competition, but with a turn from freshwater to saltwater economics in the knowledge used to frame this market. Perhaps, then, we need a name, different than performativity, to label those empirical questions that attempt to connect the set of knowledge used to frame and regulate one specific industry and the actual shape of this market.

  6. danielbeunza Says:

    “What shows this research, I think, is that the standardization of the insurance policy happened in the last years, has not just to do with market competition, but with a turn from freshwater to saltwater economics in the knowledge used to frame this market.”

    That’s very interesting and thought-provoking.

    “connect the set of knowledge used to frame and regulate one specific industry and the actual shape of this market.”

    Agreed. I would say this goes back to the problem of revisiting the relationship between markets and politics (i.e., as in the Berkeley workshop from this summer), but looking now at the role of social science.

    I guess my question is, how would YOU call it?

  7. joseossandon Says:

    In this research I decided to take the “thing” that is traded in this market as my main “research object”. I use A.Mol’s concept of “enactment” to label this decision (actually the thesis is called: The enactment of the private health insurance in Chile). Social science (together with many other actors) enacts the insurance policy we all end up exchanging. And yes, I totally agree that it is very important to keep in mind the politics / market relationship. I think, works by A.Barry and T.Mitchell can be a good guide here (or more specifically the great work done by R.Ericson on insurance in Canada).

  8. insurance Says:

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  9. georginashenton Says:

    While selecting an affordable medical insurance plan that has great coverage can be a difficult task, especially in the current state
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  10. […] this exchange is embedded in wider processes. As discussed in a previous post, a long chain of events, including economists as main actors, had been relevant in shaping the form […]

  11. I’m planning my future studies. I’m going to study economics here in my country but i want to got to another country and to take a master degree on International Economics.
    At This Time I’ve Considered this universities:
    -Chicago University (this is the best at USA)
    -London School of Economics and… (The best in the world but probably i won’t go there)
    -Universidad de Santiago, Chile (The Best in economics in Latin America and a plus is the language)
    If there are other great universities in this field i would appreciate
    your answers.
    And Is there any great Economic School in France?

  12. Will home insurance rates rise in Concepcion, Chile due to a minor tremblor?

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