Insurer Colonial is disappointed the Bermuda Government’s proposed healthcare reforms are “rushed” and do not address the drivers of spiralling healthcare costs.
The company is also raising questions about how the new system will work, as it will eliminate insurers’ role in the administration of hospital-related claims.
The Health Insurance Amendment Bill 2019 was tabled in the House of Assembly last Friday.
The Government is to pay an annual grant to the Bermuda Hospitals Board, capped at $330 million for the coming year, to replace the existing fee-for-service arrangement.
Naz Farrow, Colonial Group International’s chief executive officer, told The Royal Gazette that her company had some concerns about the changes.
“We are disappointed the Government’s initiative does not address the real drivers of healthcare costs, including overutilisation, healthcare inflation and an ageing population,” Ms Farrow said.
“These challenges must be confronted if we are to secure a sustainable future for Bermuda’s healthcare system.”
Her concerns echoed those of fellow insurer BF&M, whose chief executive officer John Wight has further argued that regulation of healthcare service providers is a necessary part of efforts to get healthcare cost inflation under control.
The block payment to the BHB will be funded by the Government with a more than threefold increase in the amount it takes from monthly premium payments — up from $101.97 to $331.97. The money will go into the Mutual Reinsurance Fund.
Under the existing system, insurers collect the part of the premium that covers hospital benefits — known as the standard health benefit — and then pay out claims related their clients’ use of the hospital.
Under the new system, due to take effect on June 1, more than nine tenths of the SHB will go straight to the Government in the form of the MRF contribution.
Ms Farrow believes the Government has failed to consult adequately with the industry.
“We would like to see a more inclusive, more consultative approach to the healthcare challenge facing Bermuda,” she said.
“There is a lot of experience, skill and compassion in the industry and, going forward, it should have a place at the table. To date, we believe the consultation, particularly on the proposed changes, has been inadequate and rushed.”
The change will mean the Government taking over responsibility for the administration of hospital benefits.
“This has been a responsibility jointly exercised by the insurance industry and the Government for more than 40 years,” Ms Farrow added.
The MRF charge will be the same for everyone, regardless of their health status and she argued that this would put upward pressure on premiums for those covered by private health insurance.
“For our clients, it means that their total claims experience — whether they use the hospital or not — cannot be factored into their health insurance policies, thereby removing one avenue to lower premiums,” Ms Farrow said.
“Because the set government fee is based on the entire insured community’s experience, the fee will be greater than the premium many of our clients would otherwise pay.”
Under the current system, when an insurer’s client is treated in the hospital, the hospital files a claim and the insurer processes it, checking that the treatment or procedure was appropriate and properly priced.
That will change from June 1, when the hospital will no longer have to make claims.
In a letter to clients, Colonial states: “The change in SHB funding removes two important cost-control elements in the calculation of premiums: insurers will not be able to factor in their total claims experience and the MRF charge will not account of whether or how much privately insured members use the SHB services provided by the BHB.”
Ms Farrow said: “There are also outstanding questions on how the proposed changes will work in practice for the administration of the standard health benefit, which is being removed from the SHB and transferred to the MRF.
“Currently insurers administer these claims on their client’s behalf and provide value-added services.”
BF&M has similarly argued that the loss of the claims process removes a “check and balance” from the system. It also deprives insurers of data that helps them to identify changing health trends, helping them to gear their products to clients’ needs.
Ms Farrow said: “Colonial is making the adjustments necessary to address the proposed changes to the Bermuda Government’s healthcare funding plan. Our first responsibility in this exercise is to make sure the healthcare of our many clients is protected and provided as seamlessly as possible.”
The Government has criticised health insurers for raising their premiums in response to the reforms.
In a statement last week, David Burt, the Premier said: “For almost 50 years insurance companies have made millions of dollars in profits from a system that has rarely, if ever, looked out for the average citizen.
“This Government was elected to make Bermuda a fairer and more just society. A company’s only duty is to its shareholders and its bottom line. This Government’s responsibility, like its mandate, is owed to the people.”
Sources have informed The Royal Gazette that the industry standard average return in terms of profit from health insurance is about five cents for every dollar of premium, with 85 cents paid out in claims and ten cents on operational expenses.
An actuarial report for the Bermuda Health Council showed that government-backed healthcare programmes pay out more in claims than they collect in premiums. For private health insurance, the opposite is true.
In 2017, based on the SHB, the portion of the premium allocated to hospital care coverage, private plans had a loss ratio of 89 per cent, meaning that 89 cents on the dollar were spent on claims and benefits. Government plans had a loss ratio of 143 per cent, meaning premiums fell well short of what was needed to pay claims.
The new system will pool private and government sources of funding to spread out the cost of heathcare across the entire insured population.
Insurance sources believe this will effectively mean the private health insurance system will be subsidising public programmes.
A “frequently asked questions” document, sent to clients of Colonial, is attached to this webpage under Related Media