When Caymanian voters go to the polls on May 24, the cost of living will be one of the issues at the top of their minds.
A significant factor pushing prices higher is healthcare. Developments in other countries have shown that the cost burden related to healthcare for consumers, businesses and government is unlikely to diminish, and some unpopular choices will have to be made to keep the costs somewhat in check.
Surprisingly, consumer price index data from the Economics and Statistics Office shows that while prices overall increased only 2.8 percent over the past nine years, the cost related to health increased even less: 1.8 percent.
However, the three categories that make up health-related prices developed quite differently over time. The cost of outpatient treatment, the largest cost factor in the health segment, is nearly 1 percent lower today than in June 2008, whereas hospital treatments are 15 percent more expensive, and hospital equipment is nearly 8 percent more costly than nine years ago.
One reason for the discrepancy is that standard health insurance fees have not changed since they were created in 2005.
Cabinet decided last November that it would not increase the minimum fees health insurance companies pay for procedures, even though a report by consulting firm Morneau Shepell on healthcare costs recommended adjusting the rate schedule by hiking fees 12.3 percent.
Government argued the fee increase recommendation was based on an inconclusive report because not enough doctors and medical service providers had responded with sufficient data to the underlying survey.
The biggest health-related financial burden for the average consumer, however, is not the cost of medical procedures but the cost of health insurance.
Consumer price data confirms what most people see in their paychecks. Insurance costs jumped 14.9 percent during the past nine years, quickly outpacing general price increases. Although a detailed breakdown is not available, health insurance is by far the largest item in the group of insurance products that are used to calculate the consumer price index.
At one point, in June 2013, when changes to the Health Insurance Law took effect, the cost of insurance spiked to 23.7 percent above the June 2008 level.
The revision of the law mandated improved coverage and additional benefits under the Standard Health Insurance Contract, as well as a higher contribution to indigent care. But expanded services came at a price. In many cases, premiums increased 50 percent or more depending on risk factors and the type of coverage plan.
Meanwhile, the revised health insurance law and efforts by the Health Insurance Commission were successful in broadening the health insurance coverage of the population. Health insurance for employees has been mandatory in Cayman since 1997.
Since the law was revised in 2013, less than 6 percent of Cayman residents are without health insurance, down from 12 percent in 2010, according to data from the Health Insurance Commission.
A global phenomenon
The explosion of healthcare-related costs is a global phenomenon. In the United States, the cost of healthcare is now a much bigger burden for companies than the cost of taxes, investor Warren Buffett said at his investment firm Berkshire Hathaway’s annual meeting in May. Rather than focusing on tax cuts, businesses should be concerned with the cost of healthcare, he said.
In Cayman, the healthcare burden is not only evident in private businesses, but also in the public sector. Healthcare costs are immense for government, both as the country’s largest employer who, unlike most companies in the private sector, pays for civil servants’ full healthcare, and as a social welfare provider.
A report by the Cayman Islands auditor general looking at figures from 2014/15 and released earlier this year found that government pays more than half – 51 percent – of all health-related expenditures in the territory. The remainder is funded by private sector health insurance and out-of-pocket expenses.
Nearly a fifth of the government budget goes to healthcare.
For instance, in the 2014/15 budget year, about $70 million of government’s healthcare budget of $137.8 million paid for the premiums of public servants, employees of statutory authorities and government companies, pensioners, seafarers and veterans. Expenses for treatment overseas came in at $20.4 million, and indigent and uninsured healthcare costs were about $32.2 million. The remainder went into district clinics, mental health services, residential care, drug rehabilitation and other programs.
The auditor general’s report also found that total health-related expenditures in the islands grew by nearly 26 percent between 2010 and 2015, with private sector spending rising faster, at 37 percent, than public sector health payments, which jumped 16 percent. This means that the average person who spent $3,857 on healthcare in 2010/11 had to pay $4,454 five years later.
The healthcare liability threat
Voters may be concerned that just as in other countries, healthcare costs will not only outpace inflation, but will also represent an ever-growing share of their expenses and the government’s budget.
The biggest financial threat to government comes from the liability that arises from the obligation to provide civil services retirees, veterans and seamen with healthcare benefits during their retirement.
A valuation completed in September 2016 estimates government will have to pay $1.7 billion, at present value, over the next 20 years in post-retirement healthcare obligations.
A similar valuation done in mid-2014 was $500 million lower and put the 20-year healthcare liability at $1.18 billion.
In its pre-election economic and financial update, government disputed the assumptions of the latest actuarial valuation. “For all intents and purposes, the government is on a ‘pay-as-you-go’ plan in respect of post-retirement healthcare liabilities. Currently, no long-term assets have been established to start offsetting the government’s post-retirement healthcare liability,” the financial update said.
Government has made one change to lessen the impact of post-retirement healthcare costs: Increasing the retirement age for civil servants to 65.
The main adjustment expected to be put in place in 2018 is the requirement that civil servants contribute a portion of their salaries to monthly healthcare premiums. Currently, neither retired civil servants nor active government workers are required to make co-payments; their monthly premiums are paid by government.
Late last year, Finance Minister Marco Archer called the change “unavoidable,” regardless of who forms the next government.
However, the Cayman Islands Civil Service Association is holding out so far, saying its membership has not agreed to any such co-payment without a choice in healthcare providers being offered to plan participants.
Such a move would effectively constitute a “pay cut” for civil servants and, if it includes wider medical coverage, limit the savings that government can achieve in the long term.
Some tough choices will have to be made, as either way healthcare is likely becoming more expensive. It is just a matter of how much more.