As Brazil’s middle class swells, it’s starting to look beyond the country’s free public health system to private care and clinics—and the United States’ biggest insurer is now betting that consumers will want private insurance to finance that shift.
Facing the prospect of shrinking US margins, Minnesota-based UnitedHealth Group today announced plans to pay $4.9 billion for a 90% stake in Amil Participações SA, a Brazilian managed-care provider that owns 22 hospitals and works with an additional 3,300 hospitals, 11,000 outpatient clinics and 44,000 doctors in the country’s largest healthcare network, reaching five million people.
UnitedHealth’s foray into the world’s sixth-largest economy gives it a solid footprint in Latin America, creating what it’s calling “the largest, most diversified health care company serving the Americas.” The all cash deal—to be executed in two phases over the next year pending Brazilian regulatory approval—largely benefits Amil’s doctor-billionaire founder Edson de Godoy Bueno, who will stay on as CEO. But it also shows the growth of Brazil’s two-tier healthcare system, which has provided universal coverage since 1988, helping to boost life expectancy but also widening the service gap between rich and poor, incentivizing those who can afford to pay for superior private care to do so.
UnitedHealth appears to be the first foreign firm to bet so big on that shift, assuming that a recent spike in demand for insurance will be even less elastic than Brazilians’ desire for new cars and refrigerators. The country’s “growing economy, emerging middle class and progressive policies toward managed care make it a high potential growth market,” UnitedHealth Group CEO Stephen J. Hemsley said in a statement.
Brazil’s recent economic boom has been driven by three things: commodities, credit and consumers—who, encouraged by government incentives and record-low interest rates, continue to spend even as their once-hot economy stalls at 0.5% yearly growth. Foreign investors and corporations have for several years looked to buy their way into that expansion, with everything from beer and beverage acquisitions to venture investments in budding e-commerce companies—though domestic M&A now far surpasses foreign-led activity (pdf, p9).
The number of Brazilians with private health insurance jumped 37% to 48 million between 2005 and 2011, according to UnitedHealth’s statement, but still reaches just a quarter of the population, compared with 80% in the US, where there has to date been a limited public option. UnitedHealth’s foray into Latin America presents a chance to diversify beyond that US base, where margins are expected to shrink as President Barack Obama’s healthcare legislation takes effect. It also marks the company’s third BRIC foray, building on businesses across China and India, as well as in Europe, Australia and Abu Dhabi.
Insurance availability can be seen as a development indicator in many emerging markets. As economies mature and poverty levels fall, consumers begin planning for the future, first borrowing and saving and then gradually looking for longer-term financial products including mortgages, pensions and health- and life-insurance policies. This new demand can in turn deepen local capital markets, as issuing institutions seek to invest holdings in longer-term assets that are more likely to come due at the same time as payouts. A growing Brazilian insurance market could then, have a stabilizing effect on its economy—provided insurers take that long-term view.