In Chile, 32 percent of total health spending is paid directly by households (that is, out-of-pocket health spending). This is one of the highest levels among OECD (Organisation for Economic Co-operation and Development) countries. Of this spending, 40 percent is attributed to drug purchases. Furthermore, 40 percent of the outpatient drugs used by the Chilean population are bought privately from retail pharmacies. This article estimates the potential savings that households could achieve by opting for unbranded generic drugs instead of their branded equivalents. It also quantifies how these savings differ by socioeconomic groups and calculates the opportunity cost in terms of other items households could pay for with these savings (transport, food and recreation.

The results of this study indicate that substitution toward an unbranded generic is feasible for a segment of drugs representing 29 percent of the markets value. The study estimates the potential annual savings at US$315 million; this would translate to a 48 percent reduction in this segments spending. Additionally, 51 percent of the market does not have any (branded or unbranded) available generic substitutes, despite the lack of patent protection and the availability of registered generic alternatives in Chile or other countries.

The potential savings from substituting branded drugs with generics could reduce total household health expenditures by 4 percent and drug expenditures by 10 percent. The savings are more pronounced for lower education level households, ranging from 12 to 17 percent of their drug spending. These savings would enable lower education level households to cover the equivalent of 50 days of transportation per year (more than two months of working-day transportation), underscoring their significance in terms of other household expenses