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Health insurance premiums to rise by 6.8%

The cost of the minimum health insurance package is to increase by 6.8 percent, Minister of Health Zane DeSilva announced yesterday.

The standard premium rate will cost $252.27 per month from April 1, up $16.13 from the current rate of $236.14.

The law states that the cost of the premium must be shared equally between employers and employees, although some employers pay more.

The news therefore means that some employees will face up to $8 per month extra being deducted from their pay packets for health cover.

However, the added cost is 50 percent less than recommended by actuaries. It has been capped via an agreement that will see the Bermuda Hospitals Board [BHB] limit its fee increase to below the rate of inflation and absorb the cost of increased utilisation of its facilities.

Mr DeSilva called that a “dramatically significant” move, which has been made for the first time ever as he tabled the amendment to the health insurance regulations in the House of Assembly.

He explained the increase was based on an assessment of claims made over the course of the 2009-10 year. When actuaries first projected the rate for the 2011-12 fiscal year they initially identified that an increase of 14.1 percent would be required to cover claims across the system. That would have increased the rate by $33.20 per month, to $269.34.

Mr DeSilva said: “This is an increase that many families, individuals and employers would have difficulty meeting. In recognition of the prevailing economic climate, neither the Bermuda Health Council nor the Ministry of Health could make a recommendation for such a significant increase to Cabinet or this Honourable House.

“However, we also have to recognise that the health system cannot afford to pay for the standard benefits at an artificially low price.”

He said the Bermuda Health Council and BHB identified a mechanism to contain the increase, which has been agreed with the Health Insurers' Association of Bermuda.

“The actuarial review indicated that since 2006, local utilisation [of hospital services] has increased by six percent to an annual figure of some seven percent,” he explained.

“To prevent a continuation of this level of increase in the 2011-12 fiscal year, the BHB will be limited to a three percent increase over and above the previous year's levels. This will be achieved by capping the total fees that can be billed by BHB via a memorandum of understanding with each health insurer.”

He said this means public and private insurers can therefore have “an element of certainty” that their expenditure with the BHB will not exceed this cap.

In addition, said Mr DeSilva, BHB fees have been limited to an increase of 1.5 percent. The actuarial report had assumed the hospital fees would go up by 3.5 percent according to Permanent Secretary to the Ministry Kevin Monkman, who said the actuary accepted the 6.8 percent increase after considering the Ministry's cost cutting measures.

“It should be noted that the BHB fees have been kept below the rate of inflation whilst still providing the sufficient funding for the new hospital,” said the Minister.

“Limiting the fee increase in this way was only achieved after extensive consultation with the BHB management team and gaining their agreement to take on an aggressive cost cutting programme, including a 15 percent reduction in management costs. I want to stress the dramatic significance of this move. It is the first time ever that the utilisation rate at the hospital has been capped.

“The measures we have taken will ensure that hospital costs do not increase by the projected figure of seven percent, but are limited to no more than a three percent increase.”

He said these moves meant the standard premium rate would only increase by half the original projection.

Since 2004 the standard premium rate has more than doubled. It grew more than 12.6 percent every year between 2004 and 2010.

The rate covers the minimum healthcare package, the standard hospital benefit. The law in Bermuda requires all employers to provide this minimum level of health insurance for their employees and non-working spouses and to cover at least half the cost of this insurance.

It covers public ward hospital care, certain outpatient services such as laboratory tests, the ambulance service and care at the mental hospital. However, most employers provide benefits well in excess of the minimum for both employees and their children.

All insurance companies offer more than just the minimum benefit. Policies, including the Government's HIP policy, also contain an extra layer of major medical cover.

It is up to individual insurance companies how much they charge for the cover above the minimal level.

Naz Farrow, chief operating officer for health at Colonial Medical Insurance Company, said in reaction to the announcement: “It is good to see the Minister focusing on controlling future claims costs by limiting the increase on BHB fees.

“However, at this stage it is difficult to predict whether or not in the next couple of years this will make any significant impact. Changes in the fees and services in the last 12/18 months will not have been fully incorporated into the actuarial analysis.

“The largest factor that is contributing to the increased claims cost is the increase in utilisation that is caused by the expansion of local services and accessibility of healthcare.

“Some insurance companies will often look to the standard premium rate as setting a base line for premium increases as the health plans they offer have to be automatically adjusted to include this rate adjustment.

“The challenge for the insurers is that according to the Government actuary the actual health care inflation in Bermuda is running close to the figure of 14 percent. The actual claims cost is increasing by this amount year on year.”

John Wight, chief executive officer of BF&M, said: “BF&M is working collectively with the Ministry of Health, BHB and payer community toward a sustainable solution whereby claims are monitored and controlled; the goal is to ensure the required monthly premium charged is sufficient to cover upcoming claims costs incurred within the next fiscal year.”

Gerald Simons, president of the Argus Group, said: “In a month or so we will have a clearer understanding of the increases in actual premiums.”

Grant Gibbons, of the United Bermuda Party, asked Minister DeSilva if he would table the actuaries report and conclusions regarding this new proposal.

Mr DeSilva replied: “That's a possibility.”

Dr Gibbons then asked who would pay if claims exceed the cap, and whether this would be Government.

Mr DeSilva replied: “No, the hospital will absorb any amount over that amount.”

Health Minister Zane DeSilva

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Published March 10, 2011 at 8:51 am (Updated March 10, 2011 at 8:50 am)

Health insurance premiums to rise by 6.8%

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