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The Chilean Experience Health, Security and Mandates

Health, Security and Mandates


On March 12th a very tiny news item appeared here and there in the nation’s media that deserved to be a bigger news item. Here’s the entire tiny item-47 words in all-that appeared on the back page of my local newspaper, the Star Tribune of Minneapolis:

"Chile: Pensions Granted to About 600,000 Poor. Nearly 600,000 poor will receive monthly pensions starting in July under a law signed by President Michelle Bachelet. The 42-billion-a-year program covers groups left out by private pensions-the poor and self-employed, street vendors and farmers who saved little for investment."

A couple of years ago this probably would have been bigger news, back when the privatization (I call it individualization) of Social Security was still being seriously talked about in this country. Back then the privatized Social Security program in Chile was held up as a model for other nations to follow. In a visit to Chile in 2004, George W. Bush spoke about Social Security, saying, "Frankly, the Chilean model serves as a good example" for the United States. And the architect of the privatization in Chile, José Piñera, not surprisingly, used to like to say that "The success of the Chilean private pension system is beyond dispute."

That claim is not beyond dispute for everyone, I should point out. I, myself, disputed it back in 1999. Here’s what I said back then about the Chilean plan: "The private system in Chile is a ‘defined contribution’ plan. This means that the amount each worker pays in is required by law, but what you will be entitled to receive in benefits is not. Under such a system, there are no guarantees. In fact, estimates are that 30 to 60 percent of Chilean workers will not qualify for even the minimum pension under the new system."

Now, twenty five years after the 1981 inauguration of the Chilean privatization plan, the Inter-American Development Bank tells us that "the privately managed accounts only covered 55 percent of workers-a percentage greater than privately-managed pension systems in other countries but below Chile’s expectations." (Note that 55 percent coverage leaves 45 percent uncovered, a number that is exactly in the middle of the "30 to 60 percent" range that I cited nine years ago.) As the tiny article in my local paper said, the "groups left out by private pensions" are poor people. What a surprise.

The Lesson For Health Care

This tiny news item from Chile should be a bigger news item not only for what it tells us about the "good example" of privatization of Social Security, but also because of the lesson it offers for those following the health care reform debate in the U.S. Here’s why:

In 2005 Social Security privatization/individualization was at the top of the Bush administration’s agenda. CBS News at the time (after dutifully repeating that "advocates of privatization deem Chile a success story") summarized the essence of the Chilean "reform" like this: "In 1980, Chile’s traditional pay-as-you-go social security system was about to go under. In response, the government created a program that required workers to save for their own retirement through private investment accounts."

In other words, the Chilean government passed into law an "individual mandate" that required workers to take care of their own retirement needs.

Now, if that sounds familiar, it’s because it’s just like the "mandates" that are popular in certain circles when talking about health care reform in the U.S. The Massachusetts plan, the California plan, the Hilary Clinton plan-they all require, or would require, individuals to purchase insurance. Obama’s not that different. According to Anthony Wright, Executive Director of Health Access California, "Obama does not say he opposes the individual mandate-he said repeatedly that he would consider it-but his first goal is to make coverage affordable."

The most well-known "individual mandate" plan is the Massachusetts Health Care Plan, which was voted into being in April of 2005. The plan provides subsidies for poor people, makes some reforms to the private insurance system, and includes an individual mandate for health insurance (which the Washington Post summarizes as "buy insurance or else."). The deadline for people to buy insurance was December 31st, 2007, but not everyone bought insurance and, as the national non-profit advocacy organization, Community Catalyst, said in a study of the plan in recently, "it is likely that a large number of low-income people will remain uninsured."

According to the Concord Monitor in neighboring New Hampshire, "The Massachusetts plan … has had to exempt an estimated 20 percent of its population from the mandate because they can’t afford to participate. And the cost of subsidizing insurance for the many low-income residents who signed up for the plan greatly exceeded predictions, and that’s before the double-digit increase in rates insurers are expected to charge next year."

The Monitor reminds us that "Government mandates have been used to force people to buy auto insurance, immunize their children, pay child support and pay workers a minimum wage. But compliance rates … are far from universal." This leads the Monitor to conclude that "Mandates, as their track record has proven, fall far short of guaranteeing universal participation."

That track record now includes the record of individualized Social Security in Chile. It would be good for people to know about this, as the "mandate" idea seems to be alive and well in this country when it comes to health insurance.

When George Bush says that "the Chilean model serves as a good example" for the United States, I have to agree. In fact, I think it’s a great example. A great example of the problems we run into-again and again and again-when we approach social problems as if they were no more than a collection of individual failures.

A retirement system can only work when a secure retirement is understood to be a human right and not an individual privilege. It doesn’t work-as the Chilean example shows-when based on individual decisions. When we agree on this principle, as a society, then we agree to share responsibility for it, and not leave it up to millions of individuals to make the "right" decision.

This is not because individuals cannot be "trusted." It simply acknowledges what our experience shows: that not all individuals will act in the best interests of the community all of the time unless the community as a whole, through a democratic process, decides to make it happen. In terms of health care, a couple of obvious solutions present themselves: Either a fully-socialized health care system, or a single-payer system, both of which would simply say that we all chip in so that everyone gets health care when they need it. Everybody in, nobody out.

Individualized solutions to social problems leave people out. This is the very important lesson offered by Chile’s recent experience with individualized Social Security. Too bad the lesson was relegated to 47 words on the back page.

JEFF NYGAARD is a writer and activist in Minneapolis, Minnesota who publishes a free email newsletter called Nygaard Notes, found at