Health reform has been one of the flags of Gustavo Petro’s government. The problems of coverage and quality of the current system show the need for a structural reform.

The government’s proposal is to replace the demand-side subsidies based on the EPS (Health Promotion Companies) with supply-side subsidies based on the CAP (Primary Health Care Centers). The idea is to guarantee universal access to quality service. Is this a good idea?

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Evidently, the intention to improve access and quality of health is a moral duty of the State; but a policy is not evaluated by its intentions, but by its results. Colombia has implemented health subsidies through supply and demand. Empirical evidence seems to indicate that Gustavo Petro’s proposal is inconvenient for the country.

Prior to Law 100 of 1993, the Colombian State provided health care through supply-side subsidies. The ISS (Instituto de Seguros Sociales) acted as a monopoly that received funds from the State to provide health care mainly to formal employees.

Basic microeconomics shows that monopoly is a socially undesirable structure because it reduces quantity and makes the good or service more expensive. And that was happening.

The ISS covered a little less than 50% of the population, with low quality and structural inefficiencies in its operation. The user’s opinion was not taken into account because the monopoly has a take it or leave it policy. With the ISS we learned that supply-side financing does not create incentives to expand coverage or to provide an efficient service.

After Law 100 of 1993, the State provides health services through demand-side subsidies. Users can choose the EPS to which they want to affiliate and these receive financing from ADRES (Administradora de los Recursos de la Salud) based on the number of affiliates.

This mechanism introduces competition into the system because the EPSs must improve the conditions of access and quality of service through the IPS (Instituciones Prestadoras del Servicio) in order to attract and maintain their affiliates.

Basic microeconomics shows that competition is socially desirable because it increases the quantity and reduces the cost of a good or service. And that happens. The EPS-IPS model generated a little less than 100% coverage with a rebound in quality with respect to the previous model. The user’s opinion is taken into account by the EPS; otherwise, it replaces it with another one. However, this system has two weaknesses that can be strengthened.

First, financial sustainability. Informality is bleeding the system dry. According to DANE figures, just under 60% of workers in Colombia are informal. This leads to a situation in which the number of contributors (which are the formal workers) is less than the number of users (which includes contributors and subsidized workers). The reduction of resources worsens the service mainly to the most vulnerable.

Second, the incentive scheme. EPS financing is more conditioned to the number of affiliates than to the quality of service. This is what Gustavo Petro’s government is proposing by financing the CAPs through the number of users in the region.

People respond to incentives. If payment is based on the number of affiliates, EPSs do not have direct incentives to appropriately increase the number of doctors, nor the number of specialists, nor the effectiveness of treatments.

To move forward we need to build on what has been built, and improve what is lacking. The country urgently needs a reform of the health system that looks forward and improves its functioning. The reform proposed by the government of Gustavo Petro, based on a return to supply subsidies, looks backwards and seriously undermines the coverage and quality of service.

On the contrary, a demand-side subsidy system based on incentives for quality rather than quantity, together with a policy to reduce informality by reducing parafiscal taxes, would preserve the 30 years of experience of the EPS-IPS model and would provide resources to properly serve users, especially the most vulnerable.

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