New legislation will eliminate guaranteed payments for Social Security system; voluntary health care program being examined too

Mar 31, 2015 | 9 comments

Ecuador’s National Assembly is considering legislation to eliminate some payment requirements within the country’s Social Security (IESS) system that President Rafael Correa says are requiring large government subsidies. The legislation, which would change previous laws, is expected to pass.

Cuenca's José Carrasco Regional IESS hospital.

Cuenca’s José Carrasco Regional IESS hospital.

Correa says that if changes are not made soon, IESS costs will become a major drag on the economy.

The legislation will eliminate a requirement under current law that the government guarantee payment of at least 40% of retirees’ salaries at the time of retirement. It also allows the government to change rates of payment into the IESS system by both employer and employee more easily. “The current formula gives us no flexibility and needs to change,” Correa said in last Saturday’s national television broadcast.

The IESS is also looking at changes in its health care program which has been greatly expanded in recent years and is putting a major financial burden on the entire IESS system, Correa says.

IESS administrators say that the cost of adding health care coverage for members’ children is running much higher than expected. They also say that voluntary enrollment health care coverage, particularly of older people who have not paid into social security during their years of employment, has put strains on the system. “We will not eliminate this coverage but we need to make sure that the expenses are covered by income,” a spokesman said.

Although Correa and the IESS have not endorsed its findings, an actuarial report recommends that employer and employee contributions to the system be increased from 9.74 percent of salary to 12.67 percent. Some employers say that such a large increase will hurt their businesses.

The report also recommends reducing the amount of monthly payments made to retirees and increasing payments that voluntary members of IESS pay for health care coverage. Voluntary members, including about 5,000 Ecuador expats, now pay $70 per month for coverage with dependents paying an additional $11.

The actuaries say that if changes are not made, costs of operating the IESS system will consume the entire national budget within 30 years.

The IESS says that the constitutional guarantee of health care coverage will be honored. For many older Ecuadorians as well as foreign residents, the IESS program provides the only access to health care coverage. Almost all private insurance companies in Ecuador now refuse to provide health insurance for those over 65 years of age.

The National Assembly has concluded the first debate on the legislation. The second debate is scheduled next week with a final vote to follow.

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