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Less people on the Island, but a higher demand for medical services

Bermuda’s shrinking population hasn’t translated into a reduction in health insurance rates.

Fewer residents are using more medical services locally and overseas, said Michelle Jackson of Argus.

She spoke with

The Royal Gazette as part of an ongoing series this newspaper is running on the Island’s health costs issues.

“There are definitely fewer people residing in Bermuda than there were a few years ago,” said Ms Jackson, Argus’ vice president of group insurance.

“Unfortunately, that does not mean that insurance companies are processing fewer claims.”

Health insurers refer to this as utilisation, and it parallels the numbers of claims they process, she explained.

“One thing to note with regards to our decreasing population: for the most part, the people who have left the Island have been younger, expatriate workers. That population is, for the most part, relatively healthy.

“They were paying their premiums and not using many medical services.”

In effect, the outgoing workers had been subsidising the rest of us, she said.

“That means that the decrease in population has been a factor in the ageing of our population, and actually helping to drive up the cost.”

Premiums are calculated in tandem with fee increases legislated by Government, such as for the Standard Premium and the Mutual Reinsurance Fund.

Insurers examine medical inflation, utilisation trends, demographics and the level of benefits to determine their premiums.

“The premiums must be set to cover the cost of healthcare, which has been growing at a rate two to three times that of general inflation year after year for the past decade,” Ms Jackson said.

A routine pregnancy can “easily” cost around $20,000 while extensive cancer treatment can add up to $250,000 or more.

“This is why we have health insurance. Insurance is a means of exchanging a large and unpredictable cost, for a smaller, predictable expense — the monthly premium.

“Insurance is a pooling arrangement whereby many people contribute to the pool, by paying premiums, and, at any given time, only a few people draw from the pool.”

Insurers must cover their administration expenses on top of ensuring that premiums can cover their expected claims.

The “overwhelming share of health insurance premiums” goes toward services such as hospitals, doctors and prescription drugs, said Colonial Insurance CEO Naz Farrow.

Profit accounts for three to five percent of the premium dollar, she added.

Meanwhile tax, in the form of the MRF, runs about five to six percent, administration accounts for 12 to 15 percent and reinsurance, two to five percent.

“These numbers are similar to those legislated in the USA, and represent a fair deal,” Ms Farrow said.

She attributed premium increases to three top factors: general inflation at 27 percent; 30 percent for price increases for services in excess of inflation; 43 percent through increased utilisation.

Rising demand, new treatments and more intensive diagnostic testing which reflects the increasing practice of “defensive medicine”, all spur the rise in costs.

“An ageing population and increasingly unhealthy lifestyles are also contributory factors,” Ms Farrow added.

As Bermuda’s range of on-Island services improve, local utilisation has climbed sharply.

And, as the Island’s economy contracts, “the cost of administration, as a percentage of the premium dollar, can actually increase”, Ms Farrow said.

“This is because fixed costs are spread over fewer members. We would have to make redundancies in order to maintain the salary-cost ratio.”

She added: “The contraction in the economy has not been beneficial to average claims costs or premiums, although insurers are trying to maintain their premium ratios by becoming as efficient as possible.”

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Published May 13, 2013 at 9:00 am (Updated May 13, 2013 at 9:37 am)

Less people on the Island, but a higher demand for medical services

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