Opinion: A prescription for Cayman’s complex health insurance problem

By Simon Cawdery

Cayman’s healthcare system is steeped in historically necessary complexity. Today, though, that same complexity stifles innovation, raises prices, hinders entrepreneurialism and limits consumer choice. It’s time for that to change.

Before I go any further, I want to make a potentially controversial statement:

We should want health insurance companies to make money.

There. I said it!

Once your blood pressure has settled and emotions cooled, just consider the alternative.  Imagine a world where health insurance companies didn’t make money: There would be no health insurance.

The only plausible alternative would then be for Cayman to have a fully nationalised system where government funded all medical costs. In Cayman, that would be economically catastrophic – unless we immediately introduced income and corporate tax.

Of course, there is a hypothetical third option, but this would be, to say the least, politically and humanely unpalatable; the rich would pay for health care and receive it, while the poor would not and would receive none in return. Therefore, let’s be realistic and recognise that insurance is here to stay.

It’s probably obvious, but still worth restating: Healthcare provision and policy is a complex subject. Some countries operate an entirely nationalised system, others an entirely privatised system, with others a hybrid somewhere in the middle. The very variety of options and permutations illustrates the very complexity. If an optimum healthcare delivery mechanism existed, it would surely have been replicated everywhere.

Although Cayman must operate within the insurance-based system, that does not diminish the huge opportunities that are available for meaningful reform.

A US$65 million opportunity

Published on the Cayman Islands Monetary Authority’s website are some notable statistics:  In 2023, Cayman residents paid US$353 million in health insurance premiums. Of this, CINICO accounted for US$140 million. Meanwhile, health insurance companies paid out US$288 million in claims.

That’s a US$65 million gap. Since CINICO is broadly a break-even organisation, this gap exists within the private health insurance market.

This suggests that there is more than US$750 per person per year in potential ‘fat’ within the system. Fat that exists because of the complexity of Cayman’s system. Imagine if every person in Cayman could be $500-$750 better-off a year. For lower-income households, that would be genuinely meaningful.

Insurance, risk and the power of pooling

To understand the solution, we need to delve into the somewhat complex world of statistical probability theory for a paragraph. My apologies in advance!

Insurance companies make money by charging consumers slightly more than the cost of providing coverages associated with those consumers. The problem is that only the consumer knows their health status and their intended actions. No health insurance company knows if you are healthy, exercise or eat well. Thus, there is an information asymmetry (you know more than they do about your health and your intentions). This means that any one person has to be assumed, by an insurance company, to be risky. But in a large group, the risk distribution much more closely resembles the overall population. That’s why bigger is better when negotiating with insurers. For example: a pool of 100 people has a smaller probability of having 100 unhealthy people than the risk of one person being unhealthy on his or her own. Similarly, the probability of 10,000 unhealthy people in a sample of 10,000 is substantially lower, and so on.

Therefore, the optimum aggregate negotiating position for Cayman is to have one pool into which every person is required to participate. In essence, simplicity.

Right now, Cayman has two different legal systems for healthcare provision, one government hospital system, two private hospital systems, seemingly hundreds of doctor’s surgeries, scattered diagnostic equipment across dozens of properties, and a dizzying number of insurance providers. In essence, complexity. That complexity drives up prices and limits choice.

A five-person business negotiating with an insurer will get worse rates than a pool of 85,000 people. In fact, research suggests that some of the larger firms in Cayman pay half-as-much per employee as smaller firms for exactly the same insurance policy.

Now imagine an entrepreneur wants to leave a big firm to start her own business. How does she get insurance? Firstly, not all providers will offer coverage to small startups. Secondly, if she has pre-existing conditions the premium rates will be horrendous.

Entrepreneurialism in Cayman is actively harmed by the structure of our health insurance system. That’s not healthy. Every society should want to encourage creativity and entrepreneurialism, as those are the engines of job and wealth creation, as well as economic growth. And yet the status quo causes active harm in this area.

The solution: One negotiation, one pool of insured

Cayman should establish an independent body (with a board with backgrounds in finance, economics, healthcare and insurance), or possibly repurpose CINICO, to run a five-yearly health insurance tender. Global insurers would bid to cover the entire population. The tender should require that each person be offered at least four plan options:

(1) Basic SHIC plan;
(2) Intermediate plan with enhanced benefits;
(3) Premium plan that is akin to the best policies out there today; and
(4) Optional enhancements.

This body wouldn’t manage claims or administer the system. Insurance companies have tens of thousands of people to do that much more efficiently. It would set policy, effect diligent supervision and run the periodic tender process. Then it would monitor to ensure that everyone (Caymanians, work permit holders, retirees) was enrolled and report to the authorities on anyone not paying their way.

With one insurer then negotiating rates with hospitals and providers, costs could fall further, creating a virtuous circle whereby premiums could, in turn, be further reduced, helping abate Cayman’s cost-of-living crisis.

Given that rates should be lower under this system, it gives us the opportunity to think strategically. What if there were then a levy of $200 per year per person to fund two ring-fenced initiatives:

• Universal health screenings available to everyone in Cayman, so that diseases can be caught earlier, treated earlier and, therefore, cost less overall. Cayman is failing at this, and seeing higher insurance costs as a result.
• Direct government support for those with chronic long-term medical conditions, removing them from the insurance pool. This may seem counterintuitive, but by doing so, and having the government pay those people’s medical bills directly from the levy on each policy, there are immediate cost savings.  No longer are profit margins being added on to the policies of the most vulnerable, and since the least healthy are no longer in the insurance pool, the average health of the pool increases. This could further reduce premiums for all since insurance companies much prefer to insure healthy than sick people. For the avoidance of doubt, those same people would still be required to contribute into the system by paying premiums, but that money would go directly to government rather than insurance companies.

If politicians want to get cute, they could make non-Caymanians pay $300 with Caymanians paying $200. That could raise over US$20 million per year to fund the above – while reducing premiums for everyone.

Crucially, health insurance would be the choice of the individual, not decided upon by who you work for. Caymanians could move jobs, set up their own business all without worrying about whether they can afford to buy health insurance. Surely, that’s a goal worth aiming for?

For anyone worried what might happen to employer contributions; those can certainly be maintained. Nothing needs change there. All this does is empower individuals and gives them back the choice that the current system has stripped away from them.

Fixing Cayman’s health

Having offered a workable solution to Cayman’s complex insurance system, the second requirement is to address the health problems that are at the root of higher health insurance costs for everyone in Cayman.

Are those health problems demographics, genetics or something else? I want to be clear that this is a nuanced question and there’s room for reasonable disagreement. But I want to argue that Cayman’s health, lifestyle and policy decisions are material causes of early death and needless medical suffering.

Policy peculiarities

There are, as the old saying goes, lies, damned lies and statistics and I appreciate that government may push back against the way I am using the next set of data, but consider this: In Cayman’s 2025 government budget, the amount allocated for policy advisors was $7 million. For healthcare regulation (absolutely necessary, don’t get me wrong), the sum was $3 million. For public health education: $317,794.

More than 20 times as much money is spent on policy advisors than is spent on public health education. Why?

Public health education can (and, when done well, does) change lives. Done properly, it can drive behaviour and choices; all of which can lead to healthier life outcomes. So why have successive governments not considered this a priority?

Surely, it would be better if we had fewer people with diabetes or cardiac complications in the first place?

With small, targeted interventions, we can. But we can’t achieve any of that if our priorities are paying policy advisors $7 million and allocating just $317,794 to public health education. That’s both bizarre and deadly.

Why not shift the priorities? Why the inertia?

Prevention is always better than cure

Surely, we can all agree that it’s better not to get sick in the first place. Then why does Cayman make testing for diseases and preventative screenings so complicated, expensive and hard to access?

Take an example – mammograms. In Cayman, the cost can be up to $350 for this preventative exam. In Spain, the exact same service would cost the equivalent of $100.  One of the reasons is scale. Cayman’s disjointed system means machines are under-utilised. Multi-million-dollar machines should be used to their operational capacity, not gathering dust in a building.

A national health prevention fund, financed by the proposed insurance levy, could offer free or subsidised testing, ensuring equipment is fully utilised and disease is caught early; catching and treating early also has the economic benefit of saving money in the long run.

Lifestyle matters

We also need though to talk about lifestyle. Let’s be honest, our collective diet and lifestyle need substantial improvement.

The UK government, in a stunning and entirely unexpected example of innovation in government, is exploring giving all citizens health trackers. The idea being that there would be incentives to use them and benefits in lower taxes if certain outcomes are achieved.

Imagine the potential benefits if this happened in Cayman.

Those who could evidence a minimum monthly level of activity could be rewarded with a reduction or rebate on their health insurance premiums. No obligation, just basic behavioural incentives to motivate and encourage positive behaviour. Could this help reduce the incidences of heart disease and diabetes? Quite possibly. Could it also help reduce the risk profile of the Cayman Islands to insurance companies, thereby leading to reduced costs? Quite possibly. Why not try it once we have our nationwide health insurance system in place.

Incidentally, for the record, note that there is no ‘nannying state’ here. There’s no telling anyone what they should do. You don’t want to wear a fitness tracker? Fine, pay higher premiums. Freedom of choice is entirely preserved so no one can complain about being compelled to do something they don’t want.

Simon Cawdery, CFA, is an investment manager and governance professional who lives and works in the Cayman Islands. He writes regularly for the Compass.