Anti-selection in the Brazilian individual health insurance market

Anti-selection in the Brazilian individual health insurance market

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Speaker(s): Ana Carolina Maia (UNIVERSITY OF SÃO PAULO), Joao Vinicius de Franca Carvalho (University of Sao Paulo)

Anti-selection in the health insurance market can be a perverse and compromising phenomenon of insurance portfolio sustainability, when new subscriptions are not enough to guarantee risk redistribution. The possibility of anti-selection escalation due to regulatory mechanisms arises, above all, from the policy's guaranteed renewability and the establishment of mechanisms implementing cross subsidy between types of risks, whether in the beginning or during the contract term. This paper analyzes the current scenario of individual health insurance in Brazil regarding the discrimination of the types of risk and impacts on this segment of the introduction of a new product, called "popular plans". In Brazil, individual health insurance plans are contracts subject to guaranteed renewability, the establishment of a new ceiling of annual increase and the discrimination of premiums per pre-determined age groups (called intergeneration pact). Adhesions to these contracts are voluntary and the public system coexists through universal and free offer. In the new product, it is proposed: gatekeeper , high co-payments and deductibles, as well as price recomposition based on the past costs. The new alternative, if approved, must reflect on the mass of already existing contracts, with the possibility of auto-selection escalation because of the new configuration of the market. The empirical approach follows the formal model of Wei, 2010, and consists of the estimation of pure premiums and premiums with variation according to the intergeneration subsidy, with emphasis on the estimates of risk excess and the discussion of lapse rates. The database are from the Brazilian supplementary health insurance market.

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