The fact that physicians and insurance companies have come to an agreement on fees for hospital procedures should be welcomed because it ends a long period of uncertainty and means patients will not be face the possibility of having to pay for procedures up front.

But it does not solve the underlying problem confronting the Island's health sector, which is the problem of galloping costs in all areas.

There are innumerable reasons for this, some of which were reported in Friday's Royal Gazette.

As the Census makes clear, Bermuda's population is ageing, partly because people are living longer and partly because the baby boom generation is zooming towards retirement.

In 2000, there were 6,722 people in Bermuda over the age of 65 compared to 5,396 in 1991. And there were 14,758 people aged between 45 and 65 in Bermuda in 2000 - 12,073 of whom were Bermudian. They are the single largest Bermudian age group.

As people live longer and as the number of people over the age of 65 grows, their demands for medical care and treatment grow tool. As Shadow Health Minister Michael Dunkley noted, the average stay in King Edward VII Memorial Hospital's extended care unit is 426 days or roughly 14 months.

Most ECU patients do not require "acute" care or constant nursing but can no longer live alone. The truth is that most could receive the cure they need in nursing homes - if there were enough of them.

Alternatively, Bermuda could look more seriously at the idea of home care, either by family members of caregivers.

Instead they become hospital patients, driving up the cost of care for young and old, because Bermuda's health system is subsidised.

Senior citizens who are still healthy face another problem as well. As soon as they retire, they find their insurance premiums soaring, just when their demands increase. Rightly, they question how it is that they paid health insurance premiums throughout their working lives, only to have them yanked when they truly need them.

That raises the second problem for the health system. Without the Government subsidy for children, elderly patients and the indigent, the hospitals would run an annual deficit in the tens of millions. Even with the subsidy, the BHB did end up$238,000 in the red in 2001 and in the current financial year had to have its subsidy increased by $10 million to $75 million.

That is a health care cost that is passed onto all taxpayers, and for obvious reasons the Government is reluctant to keep increasing the subsidy year after year.

That means that the cost of hospital services will continue to increase. At the same time, nurses, technicians and blue collar workers have to be paid and in the case of nurses, the hospital must keep pay competitive because worldwide demand for nurses is soaring.

The next cost of health care comes from physicians, who face growing insurance costs for malpractice. In addition, they recommend to their patients (or face demands from the same patients) every conceivable test or procedure, regardless of cost or necessity.

Every medical advance, no matter how significant, comes at a cost, and the same is true of prescription drugs. these problems are largely out of Bermuda's control because the drugs and equipment are manufactured abroad, and must be imported. Nonetheless there are complaints about the costs of drugs locally compared to the US, and these must be watched.

There are no easy answers to the health challenges the Island is facing. But the current system is not solving them and this is what the Health Advisory Council that was authorised late last year needs to get to grips with as soon as it is appointed.