Originally from our sister publication, SmallBizAdvisor.ca.
The day after the announcement from the Canadian Life and Health Insurance Association (CLHIA) about a new pooling framework for high-cost drugs, Stephen Frank, vice-president of policy development and health, spoke at a seminar releasing further details of the plan. The seminar was held by the Canadian Group Insurance Brokers in Markham, Ont.
The rationale behind the pooling framework—currently only available for fully insured plans—is to ensure the long-term sustainability of group drug plans in the face of increasing numbers of high-cost catastrophic drug costs, said Frank. The goal is to try to provide as much coverage as possible to Canadians while supporting insurers and encouraging competition in the marketplace.
Frank explained that the framework has two distinct elements to it that CLHIA believes will lead to its success.
The first is mandatory internal pooling for all members of CLHIA. “This will be known as extended healthcare policy protection plans or EP3 pooling,” said Frank. Insurers must place all large drug claims in a self-administered pool. The threshold for the pool must be lower than $50,000.
“The reason for this is fairly straight-forward,” he said. “We need the pool to not be anti-selective. We can’t have people waiting until they have one of these [high-cost claims] wanting to join the industry pool.” Also, the framework aims to ensure that claims are pooled internally before they are submitted to the industry pool.
The rules for the internal pool is that the insurers cannot experience rate clients based on the number or value of high-costs claims. In addition, if an insurer is bidding on new business, they cannot use any information about pooled claims in their bids. “This is our effort to increase transferability and competitiveness in the market,” he said.
Insurers are allowed to have multiple EP3 pools based on different characteristics, such as regions or industries. There are rules for these pools so they are large enough “to not de facto experience rate” clients in them.
The second element is the industry pool. “For a claim to be eligible for the industry pool, it must exceed $50,000 for two consecutive years. In year two and every year going forward that the certificate exceeds $25,000 the amount over $25,000 will be pooled,” he said. Claims are considered on a certificate level, not an individual claimant level.
There is a cap of $400,000 a year that the pool will pay out to any one carrier.
Questions around how the cost of the industry pool will be covered were raised during the seminar. Frank said that each insurer pays into the pool (or is reimbursed by the pool) based on their market share of claims.
“The individual companies will have to decide for themselves whether they pass this cost on to sponsors or not,” he said.
A not-for-profit organization called the Canadian Drug Insurance Pooling Corporation will oversee the new industry pool. Frank said it will have 12 members and one permanent executive director.
The new pooling framework will be rolled out over the course of the next 18 months. Frank said all participating insurers are currently developing their EP3s and will begin communication with sponsors in the coming months. “But all eligible group policies must be covered by an EP3 as of their first renewal day on or after Jan. 1 2013,” he said.
For more information, visit the CLHIA website.