Collusion Among Health Insurers in Chile: Good, Bad, and Ugly Reasons in a Split Decision
Claudio Agostini, Eduardo Saavedra, Manuel Willington, Jul 14, 2010
In 2002 five of the largest Chilean private health insurance providers ("Isapres") reduced the coverage they offered to their members without reducing the price of their plans. In other words, their members were given worse health plans than they previously had, but at the same price. Consequently, in 2005 the National Antitrust Prosecutor (Fiscalía Nacional Económica "FNE") accused the five Isapres-Banmédica, Colmena, Consalud, ING, and Vida Tres-of collusion before the Chilean Competition Court (Tribunal de Defensa de la Libre Competencia, "TDLC"). More than two years thereafter, the TDLC ruled, in a "split decision" (3 votes in favor and 2 against) that there was no sufficient evidence that the Isapres colluded to reduce the coverage of their plans, and acquitted them. The case was appealed before the Supreme Court of Justice, which, in January 2008, also issued a split decision, based on similar arguments and confirmed the previous decision.
The FNE did not provide any "smoking gun" about the alleged collusive agreement. Before 2009 the FNE had no legal power to conduct dawn raids, carry out unannounced inspections, or intercept communications, which significantly limited the possibility of finding hard evidence of collusion. The accusation against the health insurance providers was mainly based on economic and econometric evidence detailed in Agostini et al. (2008), which does not reject the collusion hypothesis, but rejects the cost-increase hypothesis used by the five Isapres to explain their parallel behavior in terms of reducing coverage.
A brief recount of the case and an analysis of the TDLC´s ruling are presented in the following pages. This analysis considers the fact that the system to be followed by the TDLC to assess the proof is the rule of reason, which requires the judges to assess the evidence based on their experience, formal rules of logic, and economic theory. Likewise, TDLC judges are obliged to explain and justify their judgments with not only their appreciation of the proof, but also an account of all the evidence submitted.
It is our opinion that the TDLC judgment is precise and correct in some disputed points and sets important precedents for the future of the health insurance industry. However, the majority decision has essential errors that ultimately led to the acquittal of the accused Isapres. Such failures, according to our analysis, are related to the fact that part of the submitted evidence (a substantial part in our opinion) and part of the rationale followed by the judges are contrary to economic theory and furthermore-as implicitly admitted by the minority decision-are contrary to logic.