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2. Development of the social security institute

Social security in Costa Rica
The extension of direct insurance
Extension of insurance to the family
The financial crisis
The constitutional amendment
Toward universalization
Development of human resources
The integration
The new health care models
Final comments

Dr Guido Miranda


The direction that human history had taken over many centuries radically changed toward the end of the eighteenth century Within the short span of 20 years, three events occurred that transformed man's way of life, placing him under new conditions that previously had only formed part of his dreams The first event was the introduction of the steam engine by James Watt in 1769, which led to the substitution of mechanization for labor and the opening of the process of industrialization The second event took place in 1776 when the thirteen North American colonies declared their independence from the British crown and established the first democratic model in which "government of the people, by the people, for the people" became a modern political system The third event took place in 1789, the initiation of the French Revolution, which marked not only the beginning of the end of the absolutist monarchy but also the beginning of a new government approach in which the government began to assume the responsibility of protecting the most vulnerable individuals and population groups in society.

These events are related to the social and economic conditions that determined the life-style of humans and that gradually generated individual and collective security and a better quality of life Nevertheless, in spite of this enormous progress, the problem of disease remained as intractable as before, without knowledge of its causes, evolution, and final outcome Therefore, the advances achieved in other fields did not significantly effect the burden of disease

The rapid population growth generated an excess of labor that was not needed by the process of industrialization The impoverishment of the workers that followed led to extreme poverty and increased morbidity The use of machines caused work-related accidents responsible for temporary or permanent disabilities. The process of territorial domination and the control of markets through military campaigns produced deaths, disabilities, widows, and orphans.

Meanwhile, a unique phenomenon, which would revolutionize political systems, arose in Germany, which at that time was the least democratic country in Europe. After the Franco-Prussian War of 1879, the economic conditions of the German population worsened. This forced Chancellor Bismarck and Kaiser Wilhelm I to search for measures that would attenuate the popular discontent that resulted from poverty, disease, and difficult working conditions. Bismarck elaborated and sent to Parliament a proposal for a law that would protect workers involved in occupational accidents through indemnification for health damages. He also sent a proposal for a law to protect workers against common illnesses by providing free medical care and an economic subsidy that would cover missed working days as a result of illness. This law covered pregnancy and delivery; pregnancy was equated with a disease because it had a predictable duration and a physiologically established recovery period. The concept of family benefits appeared much later.

Even though both laws arrived at parliament together, the law for Required Insurance for Occupational Accidents was approved one year later than the Illness and Maternity law, which was approved in 1883. This happened because of the detailed discussion of the former law by the unions. When the laws were presented, it was stated that the problem of the elderly and the disabled would be addressed later. In fact, a law approved in 1889 provided a retirement fund for workers who had had 30 years of experience and were 75 years of age or who, at any aye, had become disabled.

These three laws that covered the so-called nonmodifiable risks transformed the situation of the workers in the industrialized world. Their content was so important that it pushed the Catholic Church to attempt to regulate the relationship between labor and capitalism through an extraordinary encyclical document known as Rerum Novarum authored by Pope Leo XIII.

From then on, all the countries started working on their own legislation. The relevance of this issue was confirmed when the terms of the World War I amnesty were being drafted. They included the affiliation of all signatory countries to the Treaty of Versailles with a new organization to regulate the working conditions of European workers. This is the origin of the International Labor Organization (ILO) and social security was introduced by all the countries that became affiliated with ILO. During the Fifth Pan American Conference in Santiago, Chile in 1923 attended by Costa Rica, a recommendation was made "to establish social security in each country, mainly for accidents, illness, and disability."

ILO recommended that each country create a ministry in charge of the administration of social security and that a Labor Code be created on which to base labor regulations. Between 1920 and 1923, all Latin America complied with this recommendation. Costa Rica followed all of these recommendations, establishing in 1927 its Ministry of Health and Social Assistance, and approved its first sanitation code. In 1928 it established the Labor Ministry and promulgated a set of regulations that in 1942 would become the Labor Code.

This brief summary explains why social security has been directly linked with the mechanisms of production and the Labor Ministry. This became clearer with the introduction of regulations covering occupational accidents and retirement funds that were never under the control of the Ministry of Health.

World War II began in September 1939, and in six years it produced the most technological advances as well as sixty million deaths, the largest number of total casualties in any war. As the British said, it was a total war because not only soldiers but also civilians died when the cities were bombarded to destroy the defense industry. It was the impact of the war that led to proposals advocated by the social and political thinkers of Great Britain that were universal rather than group specific.

The crisis of World War II produced at least four major changes that transformed societies worldwide in a short period of time:

• The technological advances achieved provided individuals with a variety of goods that improved the quality of their lives, the economy, communications, and education.

• The social value of the citizen increased because the political mechanisms for better land distribution and social equity strengthened the majority, which translated into political actions that had a strong democratic effect.

• The conceptualization, formulation, and implementation of structural reforms of the governments and their regulatory role for society.

• The political organization of the countries created instruments for the search for universality and solidarity, closing the wide gaps that the different stages of development generated.

The document known as the Beveridge Report was published in the middle of the war when the British began to feel victory at hand. For its social and economic effects, this document can be compared with those that produced the three German laws of social security or the political content of the Treaty of Versailles.

The Beveridge Report contains five important concepts that were developed at different speeds in different parts of the world:

• Social security can be modeled in a way that covers all the population with its programs.

• A stronger economy, increased efficiency, and improved social equity can be achieved when the social security funds are united.

• Health care can be a right of all citizens.

• The best solution to unemployment is an active labor market.

• A minimum national wage should be established to strengthen wage policy.

Based on these fundamental premises and the political consequences of World War II, the concept of social security was established as universal, pro-solidarity, equitable, just, and unifying, in order to counteract the unequal benefit to various social groups resulting from laissez-faire capitalistic concepts. The two immediate consequences were the creation of the National Health Service in Great Britain as a way to protect all the population and the Letter of Human Rights with the organization of the United Nations in San Francisco, which established, in Articles 22 and 25, the right of all citizens to access to social security and health, respectively. Both events occurred after the end of the war in 1945.

From then on, changes were implemented gradually. As part of a new structure, the World Health Organization (WHO) emerged as the technical and political organism that establishes the world standards that all countries should follow to improve health indicators. In 1976, the WHO assembly proposed the goal of "Health for All by the Year 2000," which was a programmatic proposal based on the democratic and equitable concept that perceives health as an individual and universal benefit. Two years later, in 1978, health goals were established with specific indicators, and primary health care was proposed as the strategy of choice to achieve them. The social and political progress that has occurred during the last four decades in almost all European countries has placed social security as a development priority that supports the principles of equity and social solidarity proposed in the Beveridge Report.

The countries of the Western Hemisphere have not progressed in the same way. There, the union movement began early, even though the process of industrialization nowhere reached the levels found in Europe. The United States orientation was to allow private health insurance with no relation to the government. This made health care a competitive market where the pressures to increase consumption always have the edge over the economy of use by consumers. Canada adopted the British system.

Although Chile was the first Latin American country that approved a system of Required Workers Insurance, it collapsed because this country was unable to merge this system with those of smaller health care providers. Nevertheless, Chile had the advantage of creating its National Health Service in 1953, which worked very efficiently until political turmoil broke it apart to establish private services that after several years did not cover more than the 21% of the population that was able to pay their fees.

The brutal economic recession in Argentina and Uruguay severely hurt a multi- institution system that was brought from nineteenth-century Europe by immigrants. In the rest of the countries, the social security institutions have had only limited development. Almost all of them were initiated between 1930 and 1950 and, following Bismarck's model, have been unable to cover more than 20% of the total population. Family coverage is still very limited, and participation in integrated health programs is almost unknown and it continues to be rare for the Ministries of Health to share responsibility for health care.

Social security in Costa Rica

The only noticeable action that took place toward the end of the last century was carried out by the Church when Monsignor Thiel, Archbishop of San José, published a pastoral letter called the Fair Wage. There is no doubt that this letter was directly influenced by the encyclical Rerum Novarum. However, it was an isolated event without significant impact on the small and isolated Costa Rican society of those days, when the Government relied completely on the export of coffee and bananas.

In 1906, Representative Enrique Pinto presented a project to the National Congress to protect the population against occupational accidents and profession-related illnesses. This law was not even discussed, and when it was reintroduced three years later it was rejected without substantive discussion. Artisans worked in the production of crafts, and the only industries that began to develop were the banana plantations whose production and marketing were in the hands of the transnational United Fruit Company.

Several popular political parties were founded after World War I, the most important of which was the Reformist Party. This party introduced a political program that underscored the health conditions of the workers and their families, including the need to create an organization that strengthened the fight against parasites, poverty, malaria, undernutrition, and tuberculosis. This was in response to the perception that poverty and underdevelopment were the background against which the subsequent pathologies developed. The Reformist Party, headed by Jorge Volio, faced two opposition parties during the presidential political campaign of 1923.

Since none of the three candidates obtained the majority needed to become President, Jorge Volio accepted a deal in which Ricardo Jiménez would become President in exchange for the creation of an institution that would protect workers against occupational accidents and illnesses. President Jiménez supported the establishment of an insurance bank that would take care of the administration of all commercial insurance available in the market. Insurance involving occupational accidents and illnesses was included, but with the characteristic that coverage was individual and each worker could expand his coverage based on his ability to pay for it and his level of education to identify the advantages of different insurance schemes.

The surprising aspect of this decision was that the Insurance Bank was created as a monopoly that favored commercial insurance policies despite a liberal philosophy of government of which President Jiménez was one of the strongest exponents and that was unopposed. This situation remained unchanged until 1980, when the bank became the National Insurance Institute, which promoted the responsibility of the employer to cover the health care of his workers. Neither the bank nor this institute created their own hospital medical services. They always obtained them from the hospitals and afterwards from the Costa Rican Social Security Institute. The National Insurance Institute has always kept its distance from its homologous institution and has preserved a profitable duplication of efforts by avoiding transferring its programs to the Social Security Institute.

During the political campaign of 1928, health of the population was again among the central themes. President - elect lawyer Cleto Gonzáles Víquez requested a German - born engineer named Max Koberg to develop a health care project. The outcome was the introduction to Congress of the project for the creation of an Emergency System that would take care of treatment for common illnesses affecting the worker and his family. Meanwhile, protection against occupational hazards was still provided by the Insurance Bank. Congress approved the project, but the whole world became immersed in the economic crisis of 1929. Our poor country saw the prices for its exports drop to critical levels that paralyzed the economy and the possibility of financing this new project.

Other authors, such as Carlos María Jiménez, mentioned the possibility of creating a Social Security Institute, but lack of experience with social security resulted in lack of support. Nevertheless, in the neighboring valley of Turrialba, 75 km from San José, which was considered a very long distance in those years, the owners of the coffee and sugarcane plantations established a cooperative for the provision of health services to the workers and their families. This effort was funded by the plantation owners and workers and the county, and represented an organizational scheme that was unique in the country.

In 1913, the encyclical Quadraggesimo Anno was published, complementing Rerum Novarum. It put forward the concept of organization schemes involving employers and workers that would prevent capital-labor struggles. This contrasted with the radical proposals of the Marxist organizations that were gaining ground in most countries.

After all, the concern of the Church for the workers was a political position well defined by Rome. The encyclical promoted the formation of blue-collar Catholic worker groups that could develop benefit actions in conjunction with their employers. In Europe, the German Catholic unions had established very clear guidelines that produced good results. Our Costa Rican ecclesiastical authorities sent the young and promising Father Victor Manuel Sanabria to Rome to obtain his doctorate in canon law. Upon his return he became the Archbishop of San José and head of the Church, which promoted the formation of Catholic unions in the country. He supported the training of Father Benjamin Nuñez in the social arena to promote and develop this idea and to establish health care services and a retirement and indemnification program for the disabled and for widows.

In 1928, the first group under the leadership of Manuel Mora Valverde was established in the School of Law. Within a short time, this gave birth to the Communist Party of Costa Rica and the presence of Manuel Mora as Communist representative in the National Congress. Point two in the Minimal Program of Political Action proposed to the nation the need to establish Social Security Institutions to cover the workers and their families. In 1934 this political group organized the first large strike of workers and selected for this purpose the banana plantations in order to obtain better wages and working conditions.

In 1932, Dr. Rafael Angel Calderón Guardia, a young physician who graduated from the Catholic University of Lovain, where he had been a student of Father Mercier, arrived in San José as an emissary from Rome. As a result of his knowledge of the social and labor sectors he eventually became a cardinal. In the political campaign of 1936 he was elected a representative and eventually became the President of the Congress. Four years later he was almost the only presidential candidate, and officially became President in May 1940. At the same time Manuel Mora was elected a new representative to Congress and Monsignor Sanabria became head of the Church.

A few months before, in September 1939, World War II began, closing once again the markets for Costa Rican coffee and sending the country into a profound economic crisis. In addition, the policy derived from the radicalization of the groups that had close ties with the European countries involved in the conflict soon created an unstable environment. The lawyer Guillermo Padilla Castro, who was a friend and counselor of President Calderón, was responsible for drafting the law that created the Social Security Institute. The idea was to establish a new institution responsible for its administration and that would meet not only the needs of the workers but also improve the political climate, and reduce the tensions that had developed. When the lawyer Padilla had the project ready, there was no one to discuss it, since the country had no previous experience with this type of institution. Therefore he requested permission from President Calderón, to go to Santiago to consult his friend, the lawyer Arturo Etchebarne, who was the director of Workers Insurance Program of Chile. Upon his return, the project was sent to the national Congress, which immediately began to discuss it.

Two groups opposed it from the beginning, the business sector and physicians. The business sector argued that due to the poor economic situation it was not appropriate to consider adding new costs to products, since this would limit their access to international markets. The physicians warned that this law would hurt their profession, since it would decrease their income by absorbing part of their current private patients. A large number of labor groups also opposed this law, although to a lesser extent than the other two groups. Their argument was that the fees that would be required from them were equivalent to a salary reduction in exchange for a service that was completely unknown to them.

The law that created the Costa Rican Social Security Institute was approved in November 1941, with important changes that transformed the original project. A board of directors was named the following January, electing the lawyer Padilla as assistant director. During 1942 the administration of the Institute moved with great care and organized its administration without a great deal of attention to the provision of services related to the section on Illness and Maternity, the only section that had been authorized initially.

The board of directors was worried about four issues that were not solved by the original law:

• The institution was not autonomous, since it was established as an organism linked to the executive power.

• The institution lacked its own infrastructure to provide health services. Therefore to meet the demand for hospital care, it was obliged to refer all patients to the San Juan de Dios Hospital through an agreement reached with the Council for the Social Protection of San José. Professional services, however, were charged by the physicians as if they were part of their private practice.

• The institution's reserve funds were administered by a board formed by the manager of the Insurance Bank, the manager of the National Bank, and a representative of the President of the Republic. This undercut completely the financial and administrative autonomy of the institution.

• The maximum salary allowed for beneficiaries of 400 colones, meant that the poorer workers who needed more services were going to be the customers of the institution. This was precisely the reason why the Chilean Social Security had just closed its clinics.

To solve these problems, it was essential to modify the law, a task that was achieved the following year. The new 1943 law established institutional autonomy, and the board of directors acquired the authority to develop its own rules. With the inclusion in the 1949 constitution of the article that gave the institution the right to administer the Social Security system, the rulings and decisions of the board of directors acquired the strength of law. The Institution also assumed responsibility for the administration of its own reserve funds.

In its first year 12,000 workers were covered by the Costa Rican Social Security Institute. Almost all of them were government employees, since the executive branch provided the first contingent and a seed capital of 100,000 colones for basic operations before the Institute began to collect fees. Since the Institute was organized within the classic social security framework, it only covered wage earners. The women who were provided with services were not family members of wage earners but mainly teachers and office workers.

The Institute lacked infrastructure and therefore had to adapt a room in the San Juan de Dios Hospital to receive the first insured under the care of Dr. Esteban López, who was hired for this endeavor. Surgical services were provided by the hospital surgeons, who sent their bills to the Institute. From the beginning, the administration understood that it required its own beds and pharmacy, since the bills for medicines were of the same nature as those for professional services. For this reason, the construction of a Social Security Hospital was accelerated as much as possible, but it was not until March 5, 194 5 that the first 29 beds were available in the hospital that would later be known as Central Hospital. The Institute began to offer its outpatient services in a small building located in the city's downtown. As soon as it was possible, the a Polyclinic was opened to offer services in family medicine, specialized medicine that was highly in demand, and minor surgery.

Nevertheless, its institutional growth was slow and difficult: slow because the upper wage limit acted as a financial constraint, and difficult because the Institute did not have the empathy of the employers, target workers, physicians, or professional workers. In addition, the country experienced very difficult political times during the 1940s. Because of the upper wage limit, only the poorest workers were created, and this population with low incomes and higher health care needs represented a disproportionate financial burden for the Institute.

The difficult economic situation caused by the war in Europe decreased the ability of the employers to pay. The workers were unaware of the benefits, and the negative comments had more weight than the positive ones. In addition, the Government had lost popular support very rapidly, and the Communist Party was almost the only defender of this type of project, which also created resistance. The support provided by Monsignor Sanabria was not enough to counteract these negatives.

The physicians openly opposed the establishment of the Institute, and in 1944 they founded their first union under the leadership of Dr. Antonio Peña Chavarría, who was the director of the San Juan de Dios Hospital. Soon, working for the Social Security Institute was not considered a professional achievement. In 1946, the board of directors approved the administration's proposal to increase the wage limit for eligibility to 1,000 colones. This led to the first medical strike and collective resignation of the physicians. The conflict was solved only when the board of directors rescinded the order. The physicians claimed that their economic interests would be inure because they would lose part of their private clientele. They also added that the wage limit could not be increased until all the workers earning less than 400 colones were covered by the Institute.

When the national assembly, in 1949, discussed the proposal to introduce legislation that would have been a ewe social advance, it rejected the proposal.

The extension of direct insurance

To understand the process of the extension of the Illness and Maternity law, it is important to understand two factors that were important determinants. The first was the growth of the population, and the second was the behavior of the government with regard to its financial obligations with the Institute.

Population growth has occurred at a very fast pace in Costa Rica during the second half of the century. This phenomenon coincided with the birch of the Social Security Institute, even though the two processes were not related. During the so-called period of demographic explosion, Costa Rica experienced one of the highest rates of population growth, and by 1942 it had the highest birth rate in the world. In 1942, when the first seeps coward the creation of the Social Security Institute were being taken, the total population was less than 650,000. However, this figure began to double every 20 years, and during the 50 years of existence of the Institute, the population has increased fivefold and, by 1991, consisted of more than 3,100,000 people.

The ocher issue was the behavior of the government as a financial contributor to the Institute, It is known that delayed payments from government have been a major problem for most of the Social Security Institutes in Latin America. Although Costa Rica is no exception to this, it is important to recognize that most administrations have cried to correct this problem. The 100,000 colones that the government offered as seed capital for the Institute was not received in cash, but the government compensated by facilitating the importing of materials for the construction of the Central Hospital. The obstacles posed by World War II made it necessary to rely on the collaboration of the government to facilitate these acquisitions. Nevertheless, a debt accumulated, which was paid by the Junta Fundadora. (The Junta Fundadora of the Second Republic governed for 18 months starting in April 1948.) However, the problem did not disappear, and the debt began to grow again until 1957, when the Figueres administration made the first payment arrangement, but did not pay the entire debt.

The financial changes introduced by the Echandi administration in 1958 partially improved the situation. It consolidated the direct financial system of the Institute through specific taxes that were received directly by the Institute. In spite of this effort, the debt continued to grow. When this financing mechanism disappeared with the creation of the Treasury Department, part of the government payments depended on the budget and expenditures approved as the National Budget.

When the Institute began its coverage, it lacked both an infrastructure of its own and support from public opinion. The figures presented in Figure 1 clearly show that during the first 12 years of operation, the Institute served only daily wage earners. During this period, the population that was served increased sixfold but only reached 24% of the economically active population. Since dependents were not included, the coverage of the total population remained constant at 7%.

Extension of insurance to the family

The growth in coverage of wage earners as well as the initiation of medical services to the beneficiaries made evident the need for coverage of their dependents as well. The board of directors listened to the requests for services, in particular those coming from the coffee plantations. Soon after the Ley Constitutiva de la Caja was approved, almost all the social protection organizations in the country explored the possibility of a closer relationship with the Social Security Institute in order to obtain financial support for the hospitals under their jurisdiction. Local interests, however, quickly stopped the initiatives from these organizations. The exception was in Turrialba, where distance and other factors had created a unique situation. The Municipal Council obviously with external advice, established a system to cover the populations of large farms. The system was funded through a wage tax (3% provided by the worker and 2% by the employer), to provide health care to the farm workers and their families. It included medicines, and financed the small local hospital. All this was achieved in 1944. The community requested the transfer of the William Allen Hospital in Turrialba and the inclusion of workers and their families for maternity as well as medical care. The Institute now experienced a paradox, since it now offered services beyond the Central Plateau and provided family medical coverage in a rural area. Both events were an exception to the traditional development followed by Social Security Institutions.

As a result of this precedent, the rural populations of the Central Plateau began to request service for their families as well. In 1955 the Board of Directors of the Council adopted the provision of medical services to dependents as a permanent policy. An analysis of the coverage (Table l) shows clearly thee the inclusion of family members resulted a rapid increase in the number of persons covered. By 1960, five years later, although there had been very little increase in the number of insured workers there were now an equal number of ocher family members covered. The total increase reflected well the coverage of the total population that increased from 12% to 15%.

FIGURE 1. Total Population, Economically Active Population (PEA), Illness and Maternity Insurance (SEM), and Old Age and Life Insurance (IVM) Costa Rica, 1950-1990

Source: Memoria Institutional 89-90

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