Saving the Social Security

 Models like the Social Security (CSS), as we have in Panama are a thing of the past, since the pyramid scheme (Ponzi Scheme), on which it is based, has not been sustainable anywhere in the world, so countries tend not to offer health services (as in the United States where you either have private health insurance or you can't go to any private hospital) or you have a "socialist" health system where everyone is served with the same quality (Europe). There is also a model like the Colombian, where the same health system is provided in outsourcing.

As for retirements, they are managed privately, through pension funds, where each receives the retirement that corresponds to him/her according to what he contributes to it, without any type of solidarity in the system. In this case, the pension system is at the mercy of financial market swings where pension funds are invested for the best possible return, but they are far from political decisions that are more difficult to fix in case of losses (which is in most cases).

The CSS theme has been delayed since former president Martin Torrijos threw a Band-Aid at the system, rather than fixing it once and for all. The CSS needs to be self-sufficient, that it does not depend on laws to keep working, and that the state makes the contributions only for the uninsured. But the CSS issues are profound, so it is necessary to take action to save it.

Well, we are not really going to save the Social Security, we must save its services. That is, the first thing we must accept is that the old CSS model died, but we must come out with something new, that really works, and that it does not need dialogue to keep it going year after year.

And thinking outside the box, we must be clear that this institution is composed of two totally different businesses, and from there that they must be separated. That is, the CSS must be separated in a health institution, which is responsible for the prevention, but also for the healing of diseases, through health centers, clinics, and hospitals. For this, MINSA (Panama´s Health Minister) must assign to this institution all its health centers, Capsis, Hospitals, so that a single institution handles them. In all these places, care will be provided to both insured and uninsured. Policyholders will continue to pay for their services monthly, while the uninsured will have to be subsidized by the government, annually (we can make this amount less and less if we make it easier for independents to contribute with the CSS).

Services must be automated, i.e., appointments can be made through the internet or mobile applications, which is an easy and fast service, and without bureaucracy. And for Panamanians who do not have access to technology (or who do not know how to use it), a telephone service must be offered through a 24-hour call center, which works as efficiently as the service through the internet or apps. Patient records must be electronic, which any doctor in the system can access and update when serving the patient. 

The pharmacy system must be completely restructured so that we are not at the mercy of the unscrupulous, but that we can have all the medicines available to patients and that they do not have to go to buy anything from private pharmacies. The problem of medicines is not money, but processes, on the one hand and scoundrels on the other.

We must finish the Hospital City once and for all so that we have the necessary infrastructure, furniture, and equipment so that health in Panama improves for the underserved, and that employees can trust the system and use it and do not have to spend on private health insurance.

The funds to pay for all these adequacies in theory exist, since these funds do have a surplus every year, so there is no excuse for this not to work well. The only thing is that we must end corruption, inefficiency, bottles and that we can make health institutions an example.

We must have the doctors, nurses, and assistants needed for prevention and healing, and reduce wage earners who have nothing to do with the health system. You must have the right number of officials according to standards/benchmarking of public or private systems around the world.

The director must be a professional with experience in Hospital Administration. Not because a doctor knows how to manage health, in fact, no doctor knows or how to manage their private practices, as they never received any kind of education about the administration. Therefore, we need an area professional, who knows how to make the relevant decisions to the health system without any problem.

This issue of health is more than anything a political decision to merge the MINSA health system with that of the Social Security. This would take away a lot of power from the minister in the field, which would be taken away from many responsibilities, budgets, and appointments. The important thing is to automate the health system in its entirety for the benefit of policyholders and citizens in general.

Where there is going to be more trouble is on the financial issue. Here, we need a finance professional to lead the new institution, which will have as its main mission, to ensure the appropriate profitability for the Invalidity, Old Age and Death fund (IVM), which funds pensions. 

We have the Audited Financial Statements as of December 31, 2019, and unless the audited numbers are wrong, in addition to quarantine and having lost 40% of the contributions by 2020 (about $800 million or so, that with a single contribution from the State, at some point, I could solve this one-off deficit this year) and hoping that by 2021 we can achieve some normality despite the unemployment of at least 10%, there is no other problem (unless the 2019 EFs or the previous ones had been made up), which indicate to me greater problems than I will mention later.

Already in Panama, there is a pension system that works quite well, and it is the SIACAP that is the Savings and Capitalization System of the Public Servants of Panama, which aims to grant additional benefits to pensions of permanent disability, absolute permanent disability for professional risk and old age that is granted to the public servant in accordance with the Organic Law of the Social Security Fund.

It is managed with a structure of only 31 people (and they used to be 15), 3 operators (3 investment management companies and a paying cash register company), with more than 500,000 affiliates and US$812 million in equity. But the most important thing about all this is that it handles an average annual return above 6% compared to the 2% (at best) that handles the IVM in the CSS. 

The problems of the IVM start with its profitability, and this is mainly because the CSS Organic Law maintains limitations on the type of instruments in which it can be invested, and from there to having this low yield, which is due to a difference of more than 4 percentage points between what SIACAP has historically done, and what the CSS does (at every $1 billion, 4% represent US$40 million annually).

Another problem then begins with the number of policyholders, which is that the same institution does its best to ensure that workers cannot integrate into it. The SIPE 

(which is the actual “automated system of the CSS) is really still archaic and you can do a better program, on the one hand. On the other hand, you must make registration easier and mandatory for the independents. With this, we could earn about 500,000 additional people who with a monthly contribution of US$50 from each of these independents, at least, could generate additional revenue to the CSS of at least US$25 million per month or US$300 million per year.

The other PROBLEMS of the CSS are in the variables, which must be used to get retirement.

1. Increase to 480 installments (40 years) – which is reasonable for someone who starts working at 18 and could retire at age 65.

2. Increase the retirement age for men and women to 65 years, since the average age of Panamanians is in the order of 80 years so that about 15 years of retirement are taken advantage of on average.

3. Maintain the calculation of the top 10 years of wages, and that the maximum retirement amount is 60% of this average. However, the maximum retirement amount, which right now is $2,500, must increase in an indexed way with inflation (and in the event of deflation, in the year of the deflation it is not adjusted and would be adjusted with the following inflation)

4. Due to the current economic situation it is crazy to touch other variables that are related to more contributions.

5. Minimum retirements must be adjusted to equal to 60% of the current minimum wage, i.e., about $330 per month, and adjusted, as well as the minimum wage is adjusted (and I hope that it will be indexed against inflation and that it is not a fight every 2 years between employers and employees).

The CSS must also collect as many accounts receivables as it has outstanding, it must sell the mortgage and special loans it has in its portfolio, and it must sell as much land and buildings as it is not using, as all these assets require handling that the CSS does not know or have to do. By converting them to cash, it would allow the CSS to have about US$600 million extra liquids to be invested (looking for an additional US$30 million in profitability per year).

This is a financial company that should seek the highest return for its assets at the lowest possible cost, no more, no less. You should not get tangled up in looking for "other investment alternatives" but you should invest your funds well, using trained professionals in this regard. It is not an institution that needs a lot of employees either. If we need $2,000 in annual financial benefits, for just under 300,000 retirees and pensioners, we need $1 billion in annual financial benefits (with nearly $11.5 billion in assets by the end of 2019, we need to increase liquid assets to more than the current 81% and seek the highest possible return on these funds).

If we are collecting $3 billion in installments annually, the idea would be that less than 33% will go to financial benefits and that the expenses are lower and lower, so that liquid assets can grow every year. And with the independent/informal, we can grow by an additional 10% plus the natural growth of workers every year, at least, the amount of the quotas annually.

As always, I am super positive, and the numbers we have analyzed help me in my positivism. I am sure that, with these changes, we can obtain two strong institutions, which can operate efficiently with technology and the right number of officials – no more, no less. That you can offer policyholders the best possible hospital service, and you can guarantee retirement to Panamanians in the long run, without problems and without having to be suffering from agreeing every 5 years. It is not going to be a simple process, but it's not as complicated as many people predict (in theory, if we prevent politics from being the one that dominates the subject), nor should we be fatalistic: the Social Security can be saved!