Berkeley Program in Law and Economics

This article analyzes the legal regulation of ISAPREs from the vantage point of law and economics and makes a case for passing some amendments to this private health system based on market failures. The private health system of ISAPREs has not been able to satisfy the expectations of third age people who are discriminated against by an adverse selection. This article explains how this adverse selection works and accounts for the inability of ISAPREs to efectively compete in that market segment. In addition, it puts forward a solution to this problem consisting in a new market of indefinite health contracts which creates a new value and gives confidence to risk adverse individuals. This new market shall also create incentives for ISAPREs to compete in the segment of third age people and obtain important scale economies in their costs, besides giving them leverage to negotiate under equal conditions on behalf of their affiliates in the market of catastrophic diseases, in which there is a truly monopoly at the hand of the medical profession.