(Bloomberg) -- With his plan for health-care reform stuck in Colombia’s congress, President Gustavo Petro’s administration has happened upon another way to put more of the industry under state control.

Some of the nation’s biggest private health insurers say Petro is both transferring less per user than required and hasn’t paid accumulated debt, leaving the businesses out nearly $2.2 billion. The administration says it’s fulfilling all its payment obligations.

If the companies buckle under the losses, users would be transferred from one defunct insurer to the next until they all eventually end up under the public system, said Ramon Abel Castaño, a Bogota-based health-care consultant.

Assuming the government can’t persuade congress to pass a new health law, “plan B is quite clear: make the system collapse,” Castaño said.

The insurers, known as entidades promotoras de salud, went public with their complaint in July. In a joint letter to the health minister, EPS Sanitas, EPS Sura and Compensar — which together account for about a quarter of users in the nearly $20 billion-a-year health system — warned they face a dire financial situation that threatens their viability.  

Health Minister Guillermo Alfonso Jaramillo, however, argues that other than some outstanding transfers from previous administrations, insurers have received all the funds they’re owed. He also questions the assertion that transfers are insufficient. The ministry didn’t reply to repeated requests for comment.

‘Capitalism Equals Death’

Petro’s plan for health care is part of a broader effort to transform Colombia’s conservative economic model into one in which the government plays a bigger role. Pension reform is another priority.   

“They have an idea of a very large state,” said Ana María Vesga, who leads ACEMI, the industry group that represents private health insurers. Some 90% of medical services are currently carried out by private companies, she said, adding that the government’s interest in directly managing health care resources “is clear.” 

A former minister who was ousted from cabinet over his objections to the health reform puts it in starker terms. For Petro “capitalism equals death,” Alejandro Gaviria said in an interview, adding that electricity and housing are other targets for the president’s push to expand the state.

Petro, Colombia’s first leftist leader, was elected in 2022 promising transformational change. In a speech to the United Nations in New York that year, he blamed capitalism for climate change, saying it can lead to the destruction of humanity. 

While Colombian assets have rallied recently with investors seeing little chance that Petro’s radical reforms will win legislative approval, Gaviria warned against complacency. “The government has more room to maneuver than is being assumed,” said Gaviria, who was replaced as education minister in February. 

The main shareholder in EPS Sanitas, which is part of health group Keralty SAS, is Spanish multimillionaire Joseba Grajales. Representatives for Sanitas declined to comment.

EPS Sura is a subsidiary of financial holding company Grupo de Inversiones Suramericana SA. Representatives for EPS Sura also declined to comment. 

In its latest earnings report, the insurer posted $56 million in losses through the third quarter. EPS Sura cited insufficient government transfers and a boost in insured events as contributors to increased uncertainty that the company said was creating “substantial doubts“ about its ability to continue as a going concern.

Sanitas, meanwhile, has been in the spotlight after a drug provider said it would limit the medication it dispenses to the insurer because of outstanding bills. While it was able to reach an agreement with another provider, Sanitas called it a temporary solution given the cash crunch it faces. 

The company pegs the cost of providing drugs that aren’t part of the basic plan at 55 billion pesos a month ($13.8 million). The government is only covering 32 billion pesos, which has led to more than 500 billion pesos in debt. 

For the sector as a whole, ACEMI estimates the insurers are owed 8.9 trillion pesos in debt that has accumulated since last year.

Petro’s health minister, however, said at the end of October that Sanitas has no reason to delay payments to its providers given the government has made all required transfers and other businesses in the Keralty conglomerate are making money. “They don’t pay providers, but their profits in their clinics where there is vertical integration are in very good health,” Jaramillo said.

The health care system is a point of national pride for Colombia. 

Coverage is almost universal, with 97% of the population able to access public services, according the Organization for Economic Co-operation and Development. Meanwhile, health expenditures are running at about 8% of gross domestic product, below the OECD average and outlays by other Latin American peers including Brazil and Argentina. Out-of-pocket spending in Colombia is also among the lowest in the world. 

But Petro’s bid to blunt the role of the private sector could put that at risk, according to Andres Vecino, a researcher at the Johns Hopkins Bloomberg School of Public Health in Baltimore.

The Colombian government’s plans run contrary to what other countries with strong public systems are doing, he said. Both the UK and Canada, for example, are starting to discuss ways in which they can deepen the role of the private sector to help address gaps they face not only in terms of financing, but also a lack of human and physical resources. 

Limits on Coverage

Petro met last month with former President Alvaro Uribe to try and win support for his legislative push. Uribe’s party opposes the bill and is firmly against eliminating the role of private insurers, arguing the public sector is inefficient. But the two leaders do agree on the need to improve coverage in remote areas, boost preventive services and increase wages for health professionals. 

Experts including Castaño and Gaviria, who was health minister from 2012 to 2018, also see a need to impose limits on coverage. Currently, nearly every medical treatment is eligible, which has made the existing system financially unsustainable.

Insurers face increasing costs due to new technologies, an aging population, and a rise in demand for medical services, the health ministry said in a February submission to lawmakers. That’s caused debt to pile up and has led many health insurers to fail over the past decade. 

Of the 30 insurers operating in Colombia last year, 14 were facing some sort of government intervention and only six met the financial standards to operate normally, according to data from the state health-care watchdog.

“The crisis existed before but its acceleration stems from this government,” Castaño said, warning the system’s potential collapse “has a huge cost in human lives.”

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