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Medical Deficits Break Ecuador’s Social Security Bank

By: Rebeca Morla - @RebecaMorla - Jan 29, 2015, 3:58 pm
An investigation conducted in December by the manager of Ecuador's state hospital at the time, Marlon Manya, revealed 33 areas in need of urgent attention. (IESS Facebook)
An investigation conducted in December by the manager of Ecuador’s state hospital at the time, Marlon Manya, revealed 33 areas in need of urgent attention. (IESS Facebook)

Español The health-care section of Ecuador’s Social Security system is in crisis. The primary state hospital for beneficiaries, Teodoro Maldonado Carbo in Guayaquil, has racked up US$900 million in debts since 2008, with no end in sight.

Corruption, major performance failures, user complaints, and a lack of medicines and supplies are some of the problems that have plagued the hospital of the Ecuadorian Institute of Social Security (IESS). After a thorough investigation began in December, investigators declared it in a “state of emergency” on January 21.

Institutional Breakdown

The crisis of Teodoro Maldonado Carbo hospital falls into two categories: financial and administrative.

On the one hand, the income that the institution receives is insufficient to fund the medical care for pensioners and the nation’s employees, who are automatically enrolled. For 2015, the approved budget for IESS is $7.2 billion, of which $1.7 billion is allocated to medical care.

Felipe Pezo, spokesman for the IESS leadership board, projects that the medical deficit will balloon to $960 million in 2015.

On the other hand, administrative infighting has engulfed the hospital. In December and January alone, the board appointed three new directors of the institution. The PanAm Post contacted one new arrival, Wendy Chávez, but she said she was not permitted to comment.


“Devastating report on #IESS hospital.”

Moreover, the report of an investigation conducted in December by the manager of the hospital at the time, Marlon Manya, revealed 33 areas in need of urgent attention. In addition to a lack of beds, medicines, and supplies, the list includes damaged equipment in critical areas, overcrowding, and no permit with the fire department.

Regarding how they plan to resolve the mess, official communication sources within the hospital either declined or ignored requests for comment from the PanAm Post.

More Money, but from Where?

The IESS is managed by the Bank of the Ecuadorian Institute of Social Security (BIESS), which in turn is part of the Ministry of Finance. In recent months, there have been two legal reforms through which more funds have been or will be allocated to this institution.

First, the latest reform to the Social Security Act passed in late September 2014. BIESS officials thus took control of and are set to raid 54 private pension funds that are now under their purview. Altogether, the value of these funds totals $936 million, including $430 million for more than 147,000 teachers.

Second, the Law for Labor Justice had its first debate in early January in the National Assembly. With passage a forgone conclusion, its aim is to broaden the Social Security system to cover those who perform domestic work, including housewives, but the funding will come from those who earn more than $8,160 annually.

As local magazine Plan V explains that “according to the president’s rhetoric, to provide Social Security to those who perform unpaid work in the home, it was indispensable to affect the rights of others.”

Nonetheless, analyzed in detail, the aforementioned bill is still limited in scope. The housewives who make use of the law will be excluded from medical coverage and various rebates towards approved purchases from the fund.

Plan V research also states that the mechanism by which the “surplus” from higher earners will fund the Social Security system of those who perform domestic work is unclear. The law only states that the money “will be delivered to the system of solidarity benefits of Social Security.”

“The only certainty is that the destination of this ‘surplus’ will go to IESS and those funds will be managed by the BIESS,” the publication reads.

However, since 2008 the population with Social Security coverage has tripled, from 2.7 to 8.9 million. This is due to a 2010 reform, which extended health services to the children of the insured under 18, at no cost to them. Right from the outset, there was a shortfall for medical care, which came to $288 million in 2011.

Correa’s Pillar of Government Spending

Milica Pandžić, executive board member of Students for Liberty in Ecuador, told the PanAm Post that most of the bills passed by this government, despite their “pretentious” names and objectives, are explained by a single piece of evidence, the public debt.

“The main pillar of this government is aggressive public spending…. Today, oil ‘has failed to us’ – to quote our president, and it is us, the citizens, who must now adjust our budgets to address economic difficulties that were engendered from above,” Pandžić says.

In reference to the appropriated pension schemes, she explains that these emerged to meet the needs of workers that neither the private financial system nor the IESS were attending to efficiently.

“With a private administration,” she asserts, “participants of these funds had their money funds — for retirement — secure for their future and they had benefits, such as the access loans, more quickly. Now, with a public administration, the picture becomes blurry.”

“The same principle could be applied to the limits to the earnings of workers…. the state is taking over the citizens’ money using other ways besides taxes, violating over and over again the right to private property, reducing the incentives to produce and generate wealth in this country.”

Finally, Pandžić believes that excessive public spending is a major flaw of Correa’s administration: “The biggest mistake of this government has always been to focus on ‘what is seen’ — public expenditure and immediate results — but they do not understand that there is also, as Bastiat would say, ‘what is unseen,’ which in our case would be all the prosperity and possibilities that the country is losing, while drowning in debt.”

Edited by Fergus Hodgson.

Rebeca Morla Rebeca Morla

Based in Guayaquil, Ecuador, Rebeca Morla works as an editorial assistant with the PanAm Post. She is a political scientist and an Executive Board member of EsLibertad. Follow @RebecaMorla.