I just received a letter from my local healthcare provider indicating that my monthly healthcare premiums have been increased 16.9 percent this year. This meant that the monthly payment had jumped almost 27 percent in two years. Although I was disappointed, it was not really a surprise. Let me explain why.Bermuda’s health industry is currently going through a period of drastic change and review. The National Health Plan of 2011 has been initiated to reset the direction of Bermuda’s health system. Specifically, it lays out a conceptual framework with the goal of making healthcare more affordable and to improve the quality and access of care. Healthcare reviews over the last 15 years have identified a number of ways to improve the healthcare system. The major concerns highlighted are the increasing level of healthcare costs and the affordability for Bermudians.Overall health in BermudaRecently the Bermuda Health Council (BHC) and the Department of Health commissioned a report titled “Health in Review: An International Comparative Analysis of Bermuda Health System Indicators”. This report provides a benchmark of Bermuda versus other OECD countries with respect to the state of the nation’s health, access to healthcare, and quality. It detailed 76 various indicators. The following are some of the key findings:l Life expectancy has increased steadily since 1960 and is on par with the OECD average.l Road fatalities and mortality rates are significantly higher than other countries.l The rate of diabetes is much higher than in other countries.l Breast cancer mortality and suicide rates are lower than average.l Lowest rate of daily smokers anywhere.l Local hospital occupancy rate and the average length of stay in hospital have been relatively stable and are below the OECD average.Unfortunately, in comparison to other countries, Bermuda shows the greatest level of inequality in terms of access to healthcare (this could be disputed as I am unaware of anyone being turned away from the hospital that needed emergency medical assistance, for example).Bermuda’s total health expenditure per capita in 2007 was US$4,959 (PPP). In relation to the OECD, this places Bermuda as the country with the second highest level of expenditure, surpassed only by the US.Healthcare costs in Bermuda have been running at an annualized growth rate of about 6.5 percent per annum based on the government of Bermuda’s CPI index. This compares to the Bermuda Health Council’s annual increase of health spending of roughly 8.8 percent per year.From the “Health in Review” report, total household expenditures for healthcare services as a share of total household consumption has increased steadily since 2004, reaching 17.8 percent in 2007.This rapidly escalating cost is driven primarily by the aging demographic profile of the Bermuda population, the associated consumer expectations and greater utilisation of services. For years these escalating costs were absorbed in a thriving economy where people were earning more. Now, Bermuda is experiencing what many other developed Western countries have had to deal with. In fact, Bermuda’s use of tertiary care in top US hospitals has also driven up costs; in 2009 the cost grew by 40 percent.These escalating costs have been followed with ever increasing health premiums. Since 2004 the standard premium rate in Bermuda has more than doubled and has grown in excess of 12.6 percent every year between 2004 and 2010. Actuarial studies recently conducted suggest that claims expenses do not appear to be moderating. According to the government actuary, the actual healthcare inflation and claims in Bermuda continues to grow at nearly 14 percent per year.These spiralling costs are becoming a large economic burden on the government (which sponsors and funds FutureCare) and lower-income Bermudians.As a result, government is trying to enact measures to slow cost increases and force greater efficiencies onto the healthcare providers such as the hospital. As an example, the Bermuda Hospital Board (BHB) has been mandated to limit its fee increases to below the inflation rate and absorb the cost of increased utilization of its facilities. Via a memorandum of understanding with health insurers, the BHB will cap the total fees that it can bill.The Grey TsunamiOne has to factor the impact of demographic changes on entitlement obligations and ultimately healthcare in Bermuda.Seven hundred post-war “baby boomers” will turn 65 in Bermuda this year. This compares to only 276 in 2010, an over 150 percent increase.The Department of Social Insurance says this is the largest number in the history of Bermuda and they estimate equal or greater numbers each year for the next 20 years. As a result, FutureCare is slated to expand massively over the coming years here in Bermuda. It is not a stretch to assume that current levels of healthcare spending will not suffice for a rapidly aging population.Costs can be kept down artificially through rationing, but the Bermuda public and even the government will likely reject any kind of triage, “death panels,” in the popular parlance. There are ways to reduce spending somewhat, such as eliminating inefficiencies in the system, but they would not likely provide enough in savings to fund the additional demands of an increasingly older population.Simultaneously, the total fertility rate of 1.76 in Bermuda continues to trend lower than replacement levels of 2.1. In the past a relatively stable birthrate combined with the large annual waves of expatriates was enough to ensure that there were far more young people in the insurance-paying workforce than older people reliant on benefit payments.None of those conditions seem to exist today. The demographic pyramid is flipping and will create a negative drag on funding escalating costs. In summary: fewer working young people simply will not be able to pay the medical bills of a growing population of older retired people. This poses somewhat of an overall economic problem.If enough resources to cover the medical costs of the coming “grey tsunami” were to be taken from the productive private sector, it would devastate job-creating investment and innovation. The economy in Bermuda could shrivel even further. There is a simple solution, however, people could work longer or invest more to fund more of their own medical needs.The ultimate effect on this situation in Bermuda may be twofold:1. Escalating healthcare costs are job killers. As the marginal cost to retain an additional worker escalates due to rising healthcare premiums, employers’ budgets for staffing will get squeezed somewhat. This may not be a large expense for the multinational firms here in Bermuda but it is one additional reason why Bermuda may become uncompetitive compared to other jurisdictions. For the small business owner these escalating costs may actually make the difference between hiring an additional worker or not, frustrating Bermuda’s unemployment problem.2. It is too early to definitely state what the effect of these costs will be on future increases in premiums, but it would not be a stretch to assume that the local healthcare insurers may be hard pressed to maintain margin levels as witnessed in the past. Either that or the level of services offered may be reduced to assist in defraying costs.The healthcare situation in Bermuda is not a problem. It is becoming a crisis.