Prepaid health care for low income consumers 

by and | Oct 14, 2006

Cruzsalud brings prepaid healthcare into low-income neighborhoods.

​Walking on Petare’s La Línea street at the end of a workday is akin to flowing with the tide. Hordes of people head to their dwellings in any of the hundreds of crowded barrios that make up the eastern tip of Caracas, Venezuela’s capital city. But on this particular day the moving mass of pedestrians is marked by a strange sight—a crew of men and women wearing starched white gowns, some with stethoscopes hanging from their neck; they bring to mind scenes from ER, the popular TV series, as they offer passersby a quick health check-up.

Some view the visitors skeptically, while others pause and wonder what this is all about. The scene is staged by Cruzsalud, a pre-paid health care firm founded in November 2004 by entrepreneur Jean Paul Rivas and three partners, in order to promote a service aimed at Caracas’ low income sector (LIS) consumers.

By mid-2006 Cruzsalud boasted some 10,000 affiliated customers, offering health care plans at fees that ranged from about four to nineteen dollars per month. Included are 24-hour a day telephone consultations on any health issue, home-visits by qualified medical staff, emergency ambulance services, dental emergencies, medical consultations with a specialist, lab tests, and all supplies required in Venezuela from patients who seek surgical procedures from a public health hospital (such as cotton, gauze and screws to mend fractures) with a physician’s gown thrown in.

The easiest way for affiliates to pay their monthly fee is to purchase a prepaid card at the nearest drugstore, or directly from a Cruzsalud salesperson, activating the card by phoning in the code that appears on the back. Basic coverage offered by the card—access to the Cruzsalud health care center—may be equated to that for prepaid mobile telephones; to obtain other health care services (at additional fees) affiliates sign up for a “health ticket”, at just over two dollars each.

Cruzsalud employs 60 staff members, including physicians and salespeople on payroll. An additional sales force of 25, all independent and on commission, are known as Cruzsalud Independent Representatives (RICS). Moreover, 70 specialist physicians are on call, and affiliated customers can draw on 10 health care organizations (such as clinics and laboratories). The firm’s headquarters are located in Lebrún, a Petare industrial zone.


Rivas is a businessman with 15 years’ experience in the insurance industry. In his view, Venezuela’s market for insurance will continue to decline over the next ten years—as it has in the last two decades—given falling purchasing power. In this light, those who propose to remain in the insurance business face only two choices; first, fight for 10 percent of the market with some fifty other firms, or make a go for the remaining 90 percent.

When we became aware that the insurance market failed to grow, that competing firms spent millions to grab customers from each other, we asked ourselves: what’s to be done? Where’s the vision? Rivas and his partners sensed a market opportunity for insurance providers among LIS consumers, but the needs and economic circumstances of the poor would first have to be gleaned. Established insurance companies view areas such as Petare as a homogenous mass, making up the D and E strata; i.e., market segments with the lowest educational and income levels, ranked according to the grid employed by market research firms in Venezuela. Cruzsalud, instead, felt that within these segments are wide substrata; population groups who barely subsist and must be provided state-supported health care by means of programs such as Barrio Adentro—a system of primary health care units in LIS areas launched by President Chavez in 2003—alongside other groups with unmet needs and some purchasing power, able and willing to pay for certain services.

Before operations were under way, Cruzsalud shareholders chose to verify their hunch, hiring a market research firm to prepare an ambitious survey. According to the findings, D and E income groups spent 7 percent of family earnings on health care. More than four out of five of those interviewed would be willing to sign up for the services to be offered by the company (given a 6.7 percent margin of error).

The challenge at hand was to design a product that low income groups could afford, featuring significant value added vis-à-vis such health care services as were offered by the state, including Barrio Adentro. Cruzsalud shareholders were convinced that the right product would ensure success, given the huge size of the potential market and lack of competition for the target segment.


Two key factors—knowledge of the LIS consumer market and cost control—serve as the basis for the Cruzsalud business model. What took us by surprise on getting started was learning that the real need of the target market was simply to have someone to call; not the kind of coverage that, once needed, may cost thousands. Middle income people like us generally know of a doctor we trust, perhaps a family member, friend or neighbor, whom we can phone when sick. But the poor don’t! Findings such as these led Cruzsalud to design a product portfolio that offers an assortment of services aimed at fulfilling target market needs. One such service is a health care center, where affiliates may consult a resident physician charged with reviewing and assessing each case 24 hours a day.

Another key lesson learned relates to the contingent nature of health insurance.

We must understand the economics of being poor; given the dynamics of poverty, a woman may return home carrying five dollars in her purse, but seldom $35. Each day she buys what she needs in order to live. How can she be persuaded to pay today for what she may—or may not—need tomorrow?

This reality led Cruzsalud to understand that in the low income consumer market, the firm competes for the very last dollar; and that competition becomes harder when the product offered is not tangible. This makes it necessary to win over customer trust by offering a quality service on time. It’s not enough to stick the card in their purse; they later test you to find out if it’s true. They call in to say they feel sick, and challenge you. Is it true you will come over here, to a barrio?

To build trust, Cruzsalud recruits “barrio people” for its staff, especially for nursing and sales. A salesperson makes the first contact, and nurses are the first to attend to a patient. These people are highly skeptical because they have been misled and tricked, subjected to unfulfilled promises; barrio people perform a “validating” role, for they are much alike. Once a customer is affiliated, the next challenge is to ensure that payments are kept up. Experience shows that once affiliates make use of the service, a degree of trust that helps build loyalty emerges; should a call not be attended promptly, the probability of missed payments is high.

Cruzsalud attends medical emergencies even when an affiliate’s account is delinquent; once attended, a debt reminder is handed to them. This policy enables the firm to soon recover debt, and turn affiliates into committed customers who pay their monthly fees promptly.

Another recently deployed strategy that holds promise is to employ house to house bill collectors. This helps remind customers to pay their monthly fee on time, and renders payment easier by billing either at home or place of work.

These and other examples that could be highlighted reveal how important it is for Cruzsalud to make every effort to understand the needs, perceptions, and consumption patterns of the poor. The second key aspect, beyond knowledge of the market, is cost control. Insofar as price is a determining factor for low income consumers in making a decision to buy, cost monitoring and control are overarching priorities. Accordingly, Cruzsalud makes intensive use of information technology by means of a system application developed by SAP (the world’s largest business software company) that allows tracking operations daily. Today, at 6:00 p.m., we will know how much the day cost us, what happened, how many lab tests were done, how many customers were cared for… we’ll have all the data. That’s why I consider this a hands-on business. You have to be on top of everything.

Improved medical histories of affiliates, made possible by the information system, enable Cruzsalud to tighten the efficiency of its health care model. According to available data, we expected that each month, for every 100 affiliates, one and one-half would require service; the record shows that it’s more like four out of 100. Of course, at the outset there was no cost reduction; instead, costs mounted as we needed more physicians, more people to handle calls; but this changes when costs are examined in light of medical histories. The more people seek out our services, the easier it is to readily identify those who suffer from hypertension or diabetes; to the extent you can increase preventive health care, the cost of hospitalization and medical treatment is lower. Cost control is perhaps the company’s most effective management tool, for in the final analysis this governs the financial viability of a business built on high volume operations and very low margins.


Rivas and his partners well know that the viability of their venture depends on two critical variables, mass consumption services and up to date fee payment by those affiliated. It’s a problem of volume and depth. Once we reach the point of mass consumption, the product will become much more tangible; to guarantee the operation we must attain a critical mass of monthly contributions as soon as possible.

Operating profit is being generated, but return on investment is minimal. Cruzsalud faces the challenge of expanding the number of affiliates exponentially, and educating consumers to learn a payment culture that most lack.

Asked about the critical resource for Cruzsalud at this time, Rivas readily responds as follows: Time, that’s all we need. We’ve learned this business is based on experience; the longer we operate, the better we know our market and do our job. We want to build a business, not simply to make money; and in Venezuela too many businesspeople seek an immediate return on their investment. As happens with many other aspects in the health field, this is a long-term initiative.

Rivas may cry for time to allow his venture to mature, but conditions in the insurance market exert an upward pressure on the company. By offering a quality product at a low price, Cruzsalud positions itself as a highly appealing service provider for large as well as small companies obliged by law to offer health care to their workforce. A 2005 law known as Lopcymat that regulates workplace conditions in Venezuela specifies that employees and workers must organize themselves to ensure health care at their place of work. Companies that seek to comply with the new law’s mandate, which is being enforced by authorities with uncommon zeal, have spurred demand for health care services. Management is currently reluctant to enter that market, fearing that doing so may compromise the company’s mission. Nonetheless, a dilemma is in the making.

Yet another factor that may shape the medium and long-term outlook for Cruzsalud is the quality of state-provided health care services. Up to now, services not available from state-run facilities have been offered by Cruzsalud at reasonable cost. Should state-run services continue to improve in terms of quality and coverage through the new programs Barrio Adentro 2 and 3, Cruzsalud may have to ensure that instead of competing with public health services, its product portfolio is complementary.

Fall 2006Volume VI, Number 1

Rosa Amelia González is Associate Professor at Instituto de Estudios Superiores de Administración (IESA) and Coordinator of its Public Policy Center.

Horacio Viana is Professor at Instituto de Estudios Superiores de Administración (IESA) and Academic Coordinator of its Master’s in Administration program.

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