Abstract

The sustainability of the Brazilian Supplementary Health System has been frequently debated, since the number of operators has decreased considerably in recent years after bankruptcy records. In this context, risk transfer mechanisms are presented as options for financial loss mitigation and asset protection. Reinsurance is one of them, but, due to legal understandings, its adoption has been restricted to insurance companies since 2009 and forbidden for other types of operators, such as cooperatives, self-management, and philanthropic enterprises. Using industry microdata and applying the collective risk theory, implemented by the classic ruin model (Cramer-Lundberg), this study aimed to counterfactually verify how reinsurance would impact operators solvency in a hypothetical long-term scenario in which all of them had access to these tools. By introducing quota share, with retentions of 60% and 80% of the aggregate expenses, and Stop-Loss treaties, with retention limits of 80% and 95%, it was verified that the ruin probability decreased in the first case by around 40% and 20%. However, the adoption of Stop-Loss for aggregate expenses increased the need for solvency capital, as a result of its higher premiums, becoming viable when directed to higher cost events.

Highlights

  • Health issues in Brazil are among the topics most addressed by the media and specialized agencies

  • This relevance derives from several factors, such as the quality of the services offered, and individual expenses with the supplementary healthcare plans

  • Using the whole health industry’s data, and with a more similar approach to Kasumo, Kasozi & Kuznetsov (2018), this paper aims to verify how reinsurance treaties can alleviate the need for capital in the supplementary health system and in which proportion they would reduce the probability of a company being ruined

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Summary

Introduction

Health issues in Brazil are among the topics most addressed by the media and specialized agencies. This relevance derives from several factors, such as the quality of the services offered, and individual expenses with the supplementary healthcare plans Demographic questions, such as the aging of the population, wave to a greater demand for healthcare and other evidence point to the overuse of hospital and outpatient services when there is an insurance contract (Maia, Andrade, & Oliveira, 2004; Layton, Ellis, McGuire, & van Kleef, 2017). The advance of these numbers concerns both health operators and regulators, generating discussions about possible structural reforms to the current system.

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