2021 Drug Plan Trends Report: Diving deep into pros and cons of drug pooling

Read: Chronic disease, drug claims driving benefits plan costs: report

Specialty drugs can come with significant price tags for several reasons, including the: complex research, development and testing processes and substantial costs for drug companies associated with developing batches of specialty treatments that ultimately never make it to market, explains Gary Walters, senior vice-president, underwriting, with GroupHEALTH.

Specialty drug spending is highest among those of working age, specifically those ages 19 to 65, due to complex chronic conditions — such as multiple sclerosis or ulcerative colitis — that require lifelong treatment, according to a 2020 drug trends report by Express Scripts. Looking ahead, more than half of the current development pipeline is focused on specialty drugs, which Express Scripts expects will only increase as advances in research and technology create targeted solutions for certain medical conditions.

While pooling was originally established to handle single, unforeseen catastrophic events — an expensive out-of-country medical emergency, for example — the concept has evolved to account for the reality of growing specialty drug claims.

For example, a growing need to cover recurring high-cost drug claims led 24 health insurers to create the Canadian Drug Insurance Pooling Corp. in 2013 — a funding arrangement aimed at extending pooling protection to fully-insured drug plans, primarily for small to medium-sized businesses.

Read: Back to basics on drug pooling

This framework is two-tiered, as a Green Shield Canada report notes — each insurer places eligible high-cost drug claims from their fully-insured plans into their proprietary extended health-policy protection plan pools. The pooling threshold, typically upwards of $10,000, is negotiated between plan sponsor and carrier.

When the certificate reaches $65,000 or more for two consecutive years, claims are put into the industry pool administered by CDIPC. According to CDIPC, for extended drug policy protection-based insurance plans, high-cost drugs over $10,000 per year accounted for 42 per cent of total claims paid in 2019, representing 1.6 per cent of claimants — up from 39 per cent the prior year and growing three to five per cent annually since 2016.

Although these statistics reflect the increases seen by those with extended drug policy protection plans, Dan Berty, executive director of the CDIPC, says the experience of other funding types, such as administrative-services only, refund accounted or those that are fully insured but not in the CDIPC, would likely be the same, with recurrent drug claims inflationary factor.

Read: How plan sponsors can contain rising drug costs in 2021

“That’s the real currency that the plan sponsors ultimately are facing and trying to address with various cost-management techniques, pooling being probably the most prominent one in it’s different forms.”

Some employers, often big companies that can better absorb the blow of a big claim, have implemented a cap or are funding expensive drug claims themselves. But, the vast majority of clients do have pooling protection and large claims for those clients are becoming more common, says Barbara Martinez, national practice leader of drug solutions for Canada Life Assurance Co. In 2021, while a $1-million claim is still fairly rare, a $50,000 recurring claim is no longer unexpected, she says.

Pooling charges

With the arrival of more high-cost drugs, the insurer pool — for example, covering claims between $10,000 and the industry pool — is likely under more pressure, says Walters.

“There are more drugs in that sort of $20, $30, $40,000 range, so that’s been a challenge,” he says. “The consequence is that the cost of the pooling goes up much faster than the cost of drugs overall.”

Indeed, as Sandra Ventin, associate vice-president at Gallagher Benefits Services (Canada) Group Inc. explains, the reoccurence of these high-cost claims is a challenge for the insurer community and is driving up insurance costs for pooling protection.

Ventin notes that employers who want to continue to protect their employees are paying drug-pooling charges that typically increasing significantly year-over-year, although pooling charges do not reflect the claims incurred by the plan but, rather, the experiences of all those sharing the risk. The consulting community, she says, is advocating for more transparency in how charges are calculated.

Read: Quebec drug pooling corp.’s cost increases mean premium hikes for plan sponsors

“What we would love to see is — and keeping it anonymous — on a per claimant basis, what was spent, what exceeded that pooling limit and then in aggregate, how many people or individuals were impacted by that. “As a result of differing provincial programs, individuals and plan sponsors have varied financial exposure to the cost of treatments, depending on where they are based, says Todd Stephen, president, senior pension and benefits consultant, Owens MacFadyen Group — in some cases, plan sponsors are diverting a significant amount of their health premiums to the pooling arrangement.

Plan sponsor decisions

With some smaller plan sponsors finding rising premiums unaffordable, several are finding solutions aimed at lower pooling charges in the interim.

One trend, says Walters, is more employers are selecting administrative-services only coverage for drugs, often with a stop-loss threshold over a certain amount — for example, with any claim over $25,000 paid for out of the pool. But, he says, in a stop loss, there is nothing to say stop-loss charges can’t reflect experience. This, he says, may pose challenges.

“The pooling on the insured side may be a little more expensive than the stop loss because everybody pays the same. Whereas in the stop loss, you can get a lower price now, but it will go up a lot if you actually have a recurrent claim. And I don’t think a lot of employers understand that.

“The plan is a one-year contract, so at the end of each year, the insurer and the policy-holder get back together and decide what the price is going to be.”

Read: Drug plan costs increasing for plan sponsors, but experts differ on why

Some employers are also looking at moving to higher pooling thresholds, taking their risk tolerance into consideration. “Instead of $10,000 per person per year — in many cases, and there’s still a large group of plan sponsors that have it set at that level — but increasingly, we’re seeing movement to $15, $20, $25 and $50,000 as the new standard, meaning that we’re no longer insuring the medium high-cost claims, we’re really insuring the true, high, high-cost claims,” Ned Pojskic, vice-president of pharmacy benefits management at Green Shield Canada.

However, as thresholds rise, says Stephen, plans will feel the impact of claims that fall below the pool, requiring the employer to shoulder the expense of lower-cost prescriptions. “For those pooling limits to kick in, it means that the plan itself has absorbed a significant financial hit, or many significant financial hits. If you’ve got a small client, $10,000 that hits their experience before the pooling kicks in could represent 50 per cent of their health claims.”

As a result, one trend seen particularly in mid-size and smaller groups is the implementation of plan maximums at a level suitable for their risk tolerance as an alternative to carrying pooling protection, says Tara Anstey, principal and member of Mercer Canada’s legislative and drug consulting teams.

Insurer decisions

Partly as a strategy to manage pooling, some carriers are starting to offer managed formularies that assess the affordability
of drugs, explains Anstey.

“2015 was the start of a change with carriers in terms of delaying their decisions to list new high-cost drugs. So much of the drug pipeline is comprised of potential ultra high-cost drugs, so I do think if something needs to give, that probably will be the next big trend — movement towards managed formularies that actually assess plan affordability.”

Read: Private drug plan spending rose 5.4% in 2020: report

Indeed, five years ago, Martinez says it was standard for insurers to automatically add a drug to plans when approved by Health Canada. However, most can no longer afford to do so and instead undertake complex pharmacoeconomic analyses to evaluate new high-cost drugs, compare them to existing treatments and consider the value of the drug in terms of how it will improve quality of life.

“That’s now the norm in our industry and it’s going to stay the norm as long as we see [significant] growth rates on expensive drugs for rare diseases. Otherwise, pooling will become unaffordable, or thresholds will have to keep going up.”

Benefits of pooling

Although employers are revisiting their risk tolerance, looking at the savings realized versus the risks of moving to higher thresholds, many plan sponsors continue to see the benefit in pooling protection.

“Even flaws and all, the majority of clients that I’m working with do still see value in the pooling, they are still committed [to] a comprehensive drug plan, so I don’t think we’ve reached that tipping point where employers are walking away from the arrangements or making radical changes,” says Anstey.

Although various pressures and trends have come together to increase charges, Pojskic says it’s important to recognize that pooling still does what it’s supposed to do — essentially smoothing out the experience for plan sponsors, eliminating the dramatic shifts created by a high-cost claim.

At the same time, many industry observers are keeping an eye on near-term changes that may help boost plan sustainability.

Read: Health Canada delaying drug pricing reforms until July

One development that insurers say may help balance out the increases are the reforms to the Patented Medicines Price Review Board framework, which are now set to take effect in July after delays and are expected to lower the prices of new drugs.

“The PMPRB reform is really going to be a very good thing for employer-sponsored drug plans and for keeping the pooling rates at reasonable levels,” says Martinez, noting the changes will potentially lower the cost of new drugs that undergo a pharmacoeconomic analysis, making them likely to be eligible for inclusion in a plan.

Meanwhile, other stakeholders including Innovative Medicines Canada have significant concerns about the upcoming PMPRB reforms, saying, in part, in a January 2021 statement on its website: “[I]ndustry has put forward a proposal that would allow the government to achieve its public policy objectives without undermining patient access to potentially life-saving medicines, clinical trials in Canada or investment in the country’s life-sciences sector.”

With changes on the horizon and many high-cost drugs moving to multiple indications over time, many hope imminent policy solutions and cost-management techniques will help mitigate pooling charges in some capacity. But while he is a strong believer in pooling, Walters says the ultimate question is whether the current model can work over the long term.

“I’m not sure it can. I personally think that, in the end, there has to be a government component to this because we’re now seeing drugs that are $1 million a year.”

Read: Pharmacare should include high-cost treatment strategy, flexibility for plan sponsors: consultant

As private plans were not designed to manage the risk of exposures of drugs that can exceed $1 million a year for a single patient, Anstey says many stakeholders see hope on the horizon in terms of pharmacare discussions, particularly around a high-cost drug strategy. “That really could go a long way to shoring up the sustainability of private plans.”

In its 2020 fall economic statement, the federal government reiterated that it’s working with provinces, territories and other stakeholders to move forward in establishing the foundational elements of national, universal pharmacare, including a strategy for high-cost drugs for rare diseases with funding of $500 million per year on an ongoing basis, tentatively starting in 2022 or 2023. But loud chatter, as of press time, about a possible federal election this year means current plans for national, universal pharmacare could get stalled.

“I do think that the solution is going to be in a rare diseases, or an orphan drug, program that the government could own and pay for and therefore, it lessens the burden for an employer to have to pay for extremely expensive medications for less than 0.001 per cent of the population that are in the $500,000+ range, recurring annually,” says Ventin.

Helen Burnett-Nichols is a freelance writer.