Health insurers are facing criticism as premiums rise, but consumers need to recognise that the dynamics of the Bermuda and global healthcare environment are the major driver behind rising healthcare costs, says Naz Farrow.
Two years ago, healthcare contributed more to Bermuda’s gross domestic product than tourism and there is little doubt that it is one of the ‘big three’ issues facing the Island today.
Along with the economy and education, the cost of healthcare is a pressing concern—one that affects everyone in Bermuda.
It is a drain on businesses and unless the costs are contained it will become increasingly expensive, and therefore less desirable, to carry out business in Bermuda. It may also be a barrier to employing new staff.
Bermuda’s Health Ministry has to provide a lead in this area, but employers and employees can also play a large part in containing costs, as can parents and schools.
To blame the insurer is to miss the point; to do nothing guarantees increased premiums and a greater financial stress on the community as a whole.
Healthcare is the only section of the economy where the decision to purchase a service is not controlled by the consumer. The patient does not make the decision about the treatment received—it is the physician or other provider of services who determines treatment and often the price and who, ultimately, has a strong influence on demand and supply.
There are five stakeholders to consider—employers, employees, providers of healthcare, the government and insurers.
Since employers are obliged by law to contribute to the premium (usually 50 percent of the premium costs, with the remaining 50 percent being deducted directly from payroll) their healthcare spend becomes a bottom line issue. Control of this expense becomes a key focal point.
For employees there is certainly a concern about cost, but this is more weighted towards benefits that can drive up the cost, contrary to the wishes of the employer. The utilisation of benefits and employee responsibility is becoming a key feature of cost containment. When a healthcare issue arises, cost is not an important factor to the patient.
The providers of healthcare are the hospitals, clinics, labs, pharmacies and doctors. This group clearly has the pre-eminent role in the cost-effective provision of health services. Reasonable fees, together with a considered approach to the necessity and appropriateness of any service provided, are the main features of cost control.
Advances in medical practices are allowing us to live longer, surviving illnesses that a few years ago would have been terminal.
There is a price to pay for this: new drugs and diagnostic tests that are more accurate and efficient at treating life-threatening diseases are more expensive than traditional solutions.
Government provides a regulatory framework that provides oversight for the provision and delivery of healthcare. This regulation was written in the early 1970s and is periodically amended. However, as the health system has evolved in Bermuda, there is pressing need to update the legislation and provide for more robust regulatory oversight.
Although the insurance industry sets the cost of insurance premiums, it is not responsible for the increase in healthcare claims from which the premiums are derived.
The ageing population
There are many issues driving the cost of healthcare. Some of the most obvious are the ageing population and an increase in chronic conditions, such as type 2 diabetes caused by a surge in obesity.
The claims of people in their 60s typically cost 2.5 times the average claim of a person in his or her 40s. Typically, the older we get the more we utilise healthcare, the higher the cost of care, and the higher the probability of a high-cost claim occurring.
Combine that with the fact that the number of people in their 60s has increased from approximately 2 to 3 percent of the population base to 15 percent of the population base in wealthy countries such as Bermuda, and we have a challenge to manage the associated increase in costs.
Bermuda’s King Edward VII Memorial Hospital, compared with those in other small communities, is providing a reasonable provision of care. But the size of the community places limitations on the care that can be delivered cost-effectively in Bermuda as we do not have the population volume to spread the cost.
In 2011–2012 King Edward VII Memorial Hospital changed its billing methodology for services. In-patient services changed from a flat diem rate to a diagnosis-related group (DRG). The DRG methodology means that the cost of any service is now charged at an average cost for the care received depending upon the diagnosis for the patient.
This is a fairer method of reimbursement as it reflects the true cost of providing care and also provides an incentive to move patients quickly through the system, improving efficiency. However, the short-term result was that there was a shifting of cost to those who carry private insurance, resulting in increases in premiums of approximately 25 to 30 percent.
Combined with the fact that we have experienced an expansion in out-patient lab and diagnostic services, which are part of the trend towards defensive medicine, this has resulted in healthcare inflation running into double digits.
In my opinion, Bermuda would be prudent to employ the ‘HERO’ic approach to healthcare which was proposed by Dr Paul Ellwood, the healthcare policy innovator responsible for coining the term health maintenance organizations (HMOs).
‘H’ stands for a health system that combines insurance with healthcare delivery.
‘E’ stands for evidence-based medicine. Physicians and patients must agree that they will pursue evidence-based protocols whenever patients have a corresponding diagnosis. This means that we must all agree to deliver appropriate, medically-necessary treatment, not just treatment for the sake of it.
‘R’ is for responsibility. Patients need to assume greater responsibility for their own health and for the cost of the healthcare they require.
‘O’ stands for outcome accountability. Does the treatment work? This requires ongoing scrutiny.
Bermuda should retain these elements as it continues to evolve and develop its delivery of healthcare.
Who’s to blame?
Who is responsible for the increase in the cost of healthcare? Perhaps no single body is responsible.
Technology and our scientific capability to deliver healthcare are potentially outstripping our ability to pay for it. Technology is providing ever more expensive options that offer improvement in the quality of life and the promise of longevity. Perhaps we will just have to get used to paying higher premiums if we want to live longer.
The hospitals, doctors and clinics that invest in advanced medical services and new technology, and pharmacies, are all working for a profit and to generate funds needed for future development and reinvestment.
The health insurance industry simply helps to make the wheels go round and asks for a return on its investment too. It is an easy target for politicians, but premiums and claims costs are driven by overall utilisation and the cost of the services delivered by service providers.
Recently, initiatives have been implemented to update and improve the health system in Bermuda and these have affected the cost of healthcare. The timing is problematic due to the number of initiatives that are currently underway with seemingly little regard for the impact on people’s pockets.
All these initiatives are well intentioned but it is impossible for any society to disregard cost when considering its options, and we cannot simply blame the insurance industry for the rising cost of coverage. We are making our best efforts to advise government and local providers that some of the initiatives are ill-timed and that the forecasts of their consultants may need further analysis.
The increases in premiums in the last few years are attributable to three major factors:
Price increases for certain services in excess of inflation and;
In Bermuda we have been impacted by a combination of all these factors, especially in the local system and through increased utilisation.
There is no simple solution, but a social partnership with all the key stakeholders who are committed to making informed decisions will allow us to move forward.
More can be achieved in Bermuda if we are allowed to pre-certify the use of particular services as is done overseas.
The government has to be realistic about the reforms it is seeking to implement in difficult economic times. Open public debate and further education are needed so that people can decide whether they want to pay more for their healthcare in return for the provision of more services locally.
Naz Farrow is chief operating officer—health at Colonial Group International. She can be contacted at: Naz.Farrow@colonial.bm
Colonial, healthcare, insurance, Bermuda