The Challenges Of Public Regulation In Brazil


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  • The Challenges Of Public Regulation In Brazil

    1. 1. International Seminar Regulation of Private Health Insurance in Brazil, 10 years of Law 9.656/98, Rio 2 June 2008 The challenges of public regulation in Brazil the OECD Review on Regulatory Reform Mr. Stéphane Jacobzone Principal Administrator Regulatory Policy Division Directorate for Public Governance and Territorial Development
    2. 2. Why Regulatory Reform ? Quality Regulation to strengthen governance and economic growth <ul><li>Efficient markets, Good governance and the rule of law </li></ul><ul><li>Maintains and increases regulatory protections, to c orrect market failures in PHI systems </li></ul><ul><li>Benefits to consumers quality, choice, cost and price </li></ul><ul><li>Establishing markets for the private sector </li></ul><ul><li>Improves transparency and accountability, and raise trust in government </li></ul>
    3. 3. The Brazil Review in the context of the OECD Country Reviews of Regulatory Reform <ul><li>Independent assessment by team, Vivian Figer </li></ul><ul><li>Multidisciplinary approach : </li></ul><ul><ul><li>High Quality Regulation </li></ul></ul><ul><ul><li>Regulatory Authorities in four core sectors: </li></ul></ul><ul><ul><li>Supplemental Health Insurance </li></ul></ul><ul><ul><li>Telecommunications </li></ul></ul><ul><ul><li>Electricity </li></ul></ul><ul><ul><li> Land Transport </li></ul></ul><ul><li>Extensive consultation </li></ul><ul><ul><li>government officials (including elected officials) </li></ul></ul><ul><ul><li>business and trade unions, consumer groups, academics </li></ul></ul><ul><li>Standardised report </li></ul><ul><ul><li>(Mexico, Switzerland, Norway) </li></ul></ul><ul><ul><li>Other OECD Studies on PHI : 2004 report, reviews of Ireland, France, NL, </li></ul></ul>
    4. 4. Setting up Independent Regulatory Authorities (IRAs) <ul><li>Policy Objectives </li></ul><ul><ul><li>Improve economic efficiency in a market framework shielded from short-term political and administrative risks </li></ul></ul><ul><ul><li>Avoid the risk of capture by specific interests </li></ul></ul><ul><li>Context </li></ul><ul><ul><li>Privatising former state-owned enterprises </li></ul></ul><ul><ul><li>Necessity of a sound regulatory framework </li></ul></ul><ul><ul><li>Ensuring market efficiency and protecting consumers' interest in cases of imperfect competition/monopolistic markets </li></ul></ul>
    5. 5. A Political Challenge <ul><li>The choice </li></ul><ul><ul><li>Self-regulation and competition framework </li></ul></ul><ul><ul><li>Direct Ministerial Oversight </li></ul></ul><ul><ul><li>Independent Regulators </li></ul></ul><ul><li>The rationale </li></ul><ul><ul><li>Delegating power to a regulator at arms' length from the political system </li></ul></ul><ul><ul><li>Improving the protection of consumer interest in case of market failures or other failures </li></ul></ul><ul><ul><li>Improving transparency and stability </li></ul></ul><ul><ul><li>High quality staff and technical expertise </li></ul></ul>
    6. 6. Towards the &quot;Regulatory State&quot; <ul><li>Clarifying the functions of the State </li></ul><ul><ul><li>Public Ownership General rule making (general rules) </li></ul></ul><ul><ul><li>Enforcing regulation (applying the rules) </li></ul></ul><ul><ul><li>Consumer protection (quality/market) </li></ul></ul><ul><li>A challenge to the executive and parliamentary powers </li></ul><ul><ul><li>A regulator entrusted with regulatory powers, including sanctions, licences, and even some rule making </li></ul></ul><ul><ul><li>A Government in Miniature? </li></ul></ul><ul><ul><li>Establishing the legitimacy of a &quot;non majoritarian&quot; institution </li></ul></ul>
    7. 7. The international context <ul><li>Trend towards participation of the private sector for the delivery of core public services/network industries </li></ul><ul><li>The European dimension </li></ul><ul><li>OECD Work </li></ul>
    8. 8. Independent Regulatory Authorities in the proposed 2005 OECD Recommendations on Regulatory Quality <ul><li>Broad regulatory perspective </li></ul><ul><ul><li>Establish regulatory arrangements that ensure that the public interest is not subordinated to those of regulated entities and stakeholders </li></ul></ul><ul><ul><li>Ensure that regulatory institutions are accountable and transparent </li></ul></ul><ul><li>Competition dimension </li></ul><ul><ul><li>Ensure that regulatory restrictions of competition and market openness are limited and proportionate to the public interests they serve </li></ul></ul><ul><ul><li>Periodically review the need for universal service obligations, their effectiveness and the need to maintain restrictions on entry and prices </li></ul></ul><ul><ul><li>Promote efficiency and the transition to effective competition where economic regulations continue to be needed (abuse of market power): separate competitive activities from regulated utility networks, promote non discriminatory access to essential network facilities, promote interconnection of networks, use price caps and other mechanisms to encourage efficiency gains. </li></ul></ul><ul><li>Assessment </li></ul><ul><ul><li>Use performance-based assessment of regulatory tools and institutions, to assess how effective they are in contributing to good regulation and economic performance </li></ul></ul>
    9. 9. PRIVATE HEALTH INSURANCE <ul><li>OECD Work on PHI: need for regulation in imperfect markets </li></ul><ul><li>SUS plus PHI duplicate cover (similar to other OECD countries) : 30 % in SE, below 10% N/NE </li></ul><ul><li>Covers services by private providers and reimburses SUS for public services in some cases </li></ul><ul><li>Half of total health expenditure private, and a third covered by PHI: very significant social impact, per capita expense similar to Australia Ireland, above Portugal or Spain in PPP </li></ul><ul><li>Relatively high health expenditure in GDP </li></ul><ul><li>Various organisational forms, high administrative expenses (higher than in OECD countries, US) </li></ul>
    10. 10. Health expenditures by source of funding Source: OECD Health Data, Brazil
    11. 11. Health expenditure in GDP and GDP per capita Source: OECD Health Data, Brazil
    12. 12. PHI’s expenses per capita and GDP per capita Source: OECD Health Data, Brazil
    13. 13. Share of PHI’s expenses in THE and share of population covered by PHI Source: OECD Health Data, Brazil
    14. 14. Collective plans: premium share by operator Source: OECD Health Data, Brazil Individual plans: premium share by operator
    15. 15. Price Index of Health Plans Source: IDEC CREMESP
    16. 16. The regulatory framework <ul><li>Move from Social insurance to universal insurance in 1988 with constrained funding </li></ul><ul><li>Regulation introduced in 1998, and ANS created by law in 2000 </li></ul><ul><li>New and old plans, prohibition of age or illness discrimination </li></ul><ul><li>Institutional set up similar to Australia, Ireland the Netherlands (specific PHI agencies), in Mexico and Canada insurance oversight agencies (similar to SUSEP). In US state level regulation: insurance commissioners. </li></ul><ul><li>Highly concentrated markets (Over ¾ for two operators). </li></ul>
    17. 17. The regulatory framework <ul><li>Regulation of contracts (reference, minimum and amplified plan), restriction on rate settings </li></ul><ul><li>Tighter controls for individual contracts </li></ul><ul><li>Supervision of insurers: </li></ul><ul><ul><li>Financial supervision </li></ul></ul><ul><ul><li>Relationships with providers </li></ul></ul><ul><li>Procedure for information sharing (TISS) </li></ul><ul><li>Policy for Quality in Supplemental Health: monitoring performance. </li></ul><ul><li>Relations with public budgets </li></ul><ul><ul><li>Compensation to SUS </li></ul></ul><ul><ul><li>Fiscal expenditures </li></ul></ul><ul><li>Issues similar to those faced by OECD countries (relatively high cost system). </li></ul>
    18. 18. The regulatory framework <ul><li>Remodelled with ANTT in 2001 after major deregulation and privatisation/concessions </li></ul><ul><li>Loss of analytical capacity (GEIPOT, PNLT) </li></ul><ul><li>Third party access to rail (Does not exist in Mexico, or in many European countries for example) </li></ul><ul><li>Safety targets for rail </li></ul><ul><li>Partnership with state agencies and the policy </li></ul><ul><li>“ Cleaner situation” for bus transport and licences </li></ul><ul><li>Limited regulation for road freight: price competition but implications for quality and safety </li></ul><ul><li>New concessions: lack of agreement on the internal rate of return: close scrutiny of TCU, role of BNDES, impact of future renegotiations? </li></ul><ul><li>More significant regulation for passenger transport (but bid for tender) </li></ul>
    19. 19. REGULATORY GOVERNANCE <ul><li>Institutional aspects </li></ul><ul><ul><li>Special autarchies under the indirect administration </li></ul></ul><ul><ul><li>Level of autonomy specified in specific laws </li></ul></ul><ul><ul><li>Consensus on the role of the state apparatus </li></ul></ul><ul><ul><li>Less policy attention at the start </li></ul></ul><ul><ul><li>The new law proposal as a way to solve a problematic situation </li></ul></ul><ul><ul><li>Diversified situation across sectors but this is also the case in OECD countries </li></ul></ul>
    20. 20. A heterogeneous institutional status
    21. 21. Independence the formal dimension <ul><li>The executive structure of the regulator: Single head / board </li></ul><ul><li>Duration, nomination, renewal (link with Parliamentary terms?) </li></ul><ul><li>Rules for the staff vs. the sector (hiring, firing) </li></ul><ul><li>The possibility of overturning the decision: appeals </li></ul><ul><li>The Brazilian case: </li></ul><ul><ul><ul><li>Structures comparable to other OECD countries </li></ul></ul></ul><ul><ul><ul><li>Different administrative and cultural background </li></ul></ul></ul>
    22. 22. Independence Independence in practice <ul><li>The role of experience, respecting the terms </li></ul><ul><li>The leadership of the first head </li></ul><ul><li>Relations with elected politicians </li></ul><ul><li>The ability to manage crises (e.g. peak in energy prices, energy rationing, currency fluctuations or telecommunication prices) </li></ul><ul><li>Quality of the staff </li></ul><ul><li>The issue of Brazil </li></ul><ul><ul><li>Nominations to the board </li></ul></ul><ul><ul><li>Need to have complete boards </li></ul></ul><ul><ul><li>Role of the public debate in a multi centric democracy </li></ul></ul>
    23. 23. Governance structures
    24. 24. Possibility of Instructions
    25. 25. Appeals
    26. 26. Appointment of Heads
    27. 27. Terms of Appointment
    28. 28. Financial resources and staffing <ul><li>Financial resources </li></ul><ul><ul><li>Use of central public funds: binding constraints </li></ul></ul><ul><ul><li>Implicit pressure of budgeting ministries </li></ul></ul><ul><ul><li>Control of audit offices </li></ul></ul><ul><ul><li>Fees/Levies on the regulated industry: setting an independent formula ? </li></ul></ul><ul><ul><li>Recent Brazil examples </li></ul></ul><ul><li>Human resources </li></ul><ul><ul><li>A difficult challenge for small countries (multisector regulation) </li></ul></ul><ul><ul><li>Rules for conflicts of interest, cooling off period (OECD Recommendations) </li></ul></ul><ul><ul><li>Need for a specific framework for regulatory authorities? </li></ul></ul>
    29. 29. Financial Resources
    30. 30. Functions and powers of regulatory authorities <ul><li>Economic functions </li></ul><ul><ul><li>Enforcing market rules </li></ul></ul><ul><ul><li>Licensing (entry, exit) </li></ul></ul><ul><ul><li>Fixing prices of access to the Grid or the Network </li></ul></ul><ul><li>Managing risks </li></ul><ul><ul><li>Inspection, Control </li></ul></ul><ul><ul><li>Prudential ratios for financial institution </li></ul></ul><ul><ul><li>Avoiding rupture of service </li></ul></ul><ul><ul><li>Assuring Universal Service Provision </li></ul></ul>
    31. 31. The rule making power <ul><li>Normally power of the ministers/cabinet (political trade offs) but views may differ </li></ul><ul><li>In practice some rule making power given to independent regulators technical standards vs. laws: </li></ul><ul><li>A tension between delegating rule making and respecting independence </li></ul><ul><li>But jurisprudential approach: set of precedent decisions  rule </li></ul><ul><li>Solutions </li></ul><ul><li>Possibility of suggesting official amendments of the existing rules (annual report to Parliament) </li></ul><ul><li>Possibility of proposing rules to Government </li></ul>
    32. 32. The issue of strategic planning and law making <ul><li>Not a regulator’s attribute </li></ul><ul><li>Need to separate enforcement from law making </li></ul><ul><li>Need for capacity in the ministries: </li></ul><ul><ul><li>Example of EPE in Brazil for electricity </li></ul></ul><ul><ul><li>Ministry of health monitoring is very important </li></ul></ul><ul><li>The role of national councils to develop a strategy </li></ul><ul><li>Building consensus in a diverse democracy </li></ul>
    33. 33. The power of sanction <ul><li>An independent regulator  government in miniature </li></ul><ul><li>Executive power, preparing rules and judging? (settling disputes) </li></ul><ul><li>Problem vs. the traditional setting of democracies </li></ul><ul><li>In practice </li></ul><ul><li>Respect of certain judicial forms for applying sanctions: separating investigation from deciding on the sanction </li></ul><ul><li>Adapt the level of sanctions: Inapplicability of penal law: </li></ul><ul><li>Efficient sanction: to deter from inappropriate behaviour and make it &quot;ex ante&quot; worthless </li></ul>
    34. 34. Horizontal Design <ul><li>Coordination with Competition Authorities </li></ul><ul><li>SDBC in Brazil </li></ul><ul><ul><li>Important for health care issues, </li></ul></ul><ul><ul><li>Cases with CADE </li></ul></ul><ul><li>Coordination among regulatory authorities </li></ul><ul><li>SUSEP </li></ul><ul><li>PRO CONs </li></ul>
    35. 35. Balancing Independence with Accountability <ul><li>A condition of success </li></ul><ul><ul><li>&quot;non majoritarian&quot; institutions (Majone) </li></ul></ul><ul><ul><li>Political credibility of the regulator </li></ul></ul><ul><li>No explicit mechanism for reporting and establishing legitimacy </li></ul><ul><li>Procedural and political aspects </li></ul><ul><ul><li>Often demanded by the independent regulators themselves (cf dialogue with Parliament) </li></ul></ul>
    36. 36. Ensuring Accountability: How ? without undermining independence <ul><li>Systems of checks and balances </li></ul><ul><li>Transparency and procedural requirements </li></ul><ul><ul><li>Administrative procedure laws </li></ul></ul><ul><li>Dialogue with citizens and Parliament </li></ul><ul><ul><li>Annual report, dialogue with Parliament (expertise) </li></ul></ul><ul><ul><li>Links with consumers' associations: role of IDEC </li></ul></ul><ul><li>Substantial judicial/legal review: issue in Brazil </li></ul>
    37. 37. Ensuring Accountability and High quality regulation <ul><li>High quality regulation: </li></ul><ul><ul><li>Subject the regulators' decisions to requirements for high quality regulation : </li></ul></ul><ul><ul><ul><li>Regulatory Impact Assessment </li></ul></ul></ul><ul><ul><ul><li>Transparency </li></ul></ul></ul><ul><ul><ul><li>Predictability </li></ul></ul></ul><ul><li>Key for industry and for credibility </li></ul><ul><li>Cf PRO-REG project in Brazil </li></ul>
    38. 38. Assessing quality Performance evaluation <ul><li>Several dimension </li></ul><ul><ul><li>legal, judicial review </li></ul></ul><ul><ul><li>accounting/auditing </li></ul></ul><ul><ul><li>overall economic assessment </li></ul></ul><ul><ul><li>Recent UK example on capability assessment, Treasury reviews, National Audit Office </li></ul></ul>
    39. 39. Performance Assessment of regulators in Brazil <ul><li>Self assessment by regulators </li></ul><ul><li>Role for TCU / CGU </li></ul><ul><li>Role for consumers: IDEC/IADB </li></ul><ul><li>Role for foreign investors in some sectors AMCHAM reviews </li></ul><ul><li>National academic studies </li></ul><ul><li>Evaluations by WB/IADB </li></ul>
    40. 40. General conclusions <ul><li>Designing independent and effective regulators </li></ul><ul><li>The need for high quality regulation </li></ul><ul><li>No &quot;pre cooked recipe&quot; </li></ul><ul><li>Respect national institutional settings while adopting international standards </li></ul><ul><li>Significant policy turmoil in Brazil, in a moving regulatory environment: </li></ul><ul><li>Regulatory authorities have stood the test of time but may need some fine tuning and adaptation </li></ul>
    41. 41. Conclusions for Health/PHI <ul><li>Significance of PHI sector in Brazil: only second to US in sample of countries surveyed </li></ul><ul><li>Problems of OECD countries: e.g. Australia, Ireland </li></ul><ul><li>Cost Containment and consolidation </li></ul><ul><li>Efficient use of modern technologies </li></ul><ul><li>Quality monitoring and accreditation </li></ul>
    42. 42. Selected Policy recommendations <ul><ul><li>Consolidate the autonomy and statute of Brazilian regulatory authorities </li></ul></ul><ul><ul><li>Strengthen the strategic framework for planning and decision making in regulated sectors </li></ul></ul><ul><ul><li>Strengthen social accountability mechanisms without undermining the authorities’ autonomy </li></ul></ul><ul><ul><li>Implement Regulatory Impact Analysis as an effective tool for regulatory quality. </li></ul></ul><ul><ul><li>Improve transparency and increase social participation in regulatory processes. </li></ul></ul><ul><ul><li>Systematise cooperation with competition authorities </li></ul></ul><ul><ul><li>Strengthen the powers of the Brazilian regulators </li></ul></ul>
    43. 43. Thank you for your attention