And technology also facilitates access to information. According to Monteith, Sun Life is developing smart phone claims-paying and plan information technology applications. “We are currently perfecting technology where plan members can have access to their claims-paying process and plan design on their hand-held devices like an iPhone and BlackBerry,” he says, adding that the motivation was to move the industry away from its heavy reliance on paper and to be easy to do business with in a manner clients want.
I want a new drug
Because many of its clients are so focused on costs, The Co-operators offers a range of drug program options through the five new drug formularies it introduced in 2009. Grant says its claims are paid on one integrated platform for health and for dental, which has the advantage of having drug pricing and managed formularies available whether claims are submitted electronically or manually. It also allows the insurer to be more flexible with plan design options. However, she says there hasn’t been much uptake to date. “I think there is a hesitance for plan sponsors to restrict the drugs their plan members have access to.” But Grant is optimistic that this will evolve.
Generic drug pricing is another way to manage drug costs. In November 2008, a Competition Bureau report found that the Canadian private sector could save from $600 million to $800 million a year if generic drugs were priced competitively. On March 1, 2007, the government introduced Bill 102, which reduced the price that the Ontario Drug Benefit (ODB) pays for senior citizens from 70% of the brand name drug to no more than 50%. However, this change did not apply to private drug plans.
Some employers are finding their own solutions. In July 2009, in partnership with Green Shield, General Motors and Chrysler negotiated rebate deals with the manufacturers of nine brand name drugs. These drugs cost less than their generic equivalents and are listed exclusively on the formularies for the two automakers. But Coutu worries about the tiered approach to drug pricing. “Most of our clients in Canada are not large superpowers that can negotiate these deals on their own.”
Even without generic pricing reform, some of the high-cost brand name drugs are going off patent soon, says Shawn O’Brien, a senior consultant in Aon Consulting’s health and benefits practice. Lipitor (for high cholesterol) is going off patent later this year or in early 2011. “It’s probably on 95% of employer plans,” says O’Brien. He explains that once the generic is in place, there can be immediate savings, as long as employers restructure their benefits plans to ensure that they maximize the savings—for example, by setting up mandatory generic substitution or lower-cost alternatives.
There is also movement with generic pricing out west. Alberta has already legislated that generic prices be reduced to 45% of the cost of the brand name drug, and this has been extended to both public and private sector drug plans. Tim Hadlow, senior benefits consultant with Hewitt Associates, says it appears that Ontario will follow Alberta’s lead, but there’s no indication when this will happen. It will mean savings for employer-sponsored plans that promote generic drugs in their plans. However, brand name drug negotiations by insurers on behalf of employers may be for nought. “If generic pricing rules do come into effect with prices significantly reduced, then the effectiveness of any brand name negotiations [by insurance carriers or sponsors] is questionable because the brand name drug price can only go so low and savings over generics may be minimized or non-existent,” he adds.
Over the borderline
As Canada struggles with drug pricing and increasing healthcare costs, the U.S. provides a valuable source of strategies and trends—for example, a consumer-driven approach to healthcare.
Brad Fedorchuk, vice-president, group marketing, with Great-West Life, says the consumer-driven approach in Canada is manifested in the restructuring of the traditional benefits plans, such as implementing an HCSA. “We would see [a debit card for HCSAs ] as a partial shift toward enabling more consumer-driven health,” says Fedorchuk. “Now you’re managing your pot of funds that you can use under the benefits program.”
Pong agrees that consumer-driven healthcare will have an impact on cost, particularly if employees have to pay part of the drug cost. “Employees will need to be very conscious that they can get more affordable drugs [i.e., a lower dispensing fee] at different pharmaceutical chains,” he says. “[But] that’s not an easy journey.” Tracey Griesbach, product marketing manager, group products, with Empire Life, agrees. “You could imagine [that] folks may not be as price-conscious for a [drug] purchase versus many of the other goods [they] purchase.”
A second manifestation is the use of voluntary benefits—products offered by the plan sponsor that employees have the option to purchase. While in Canada, voluntary benefits were mainly options for life insurance, Fedorchuk says these benefits will continue to grow in importance and scope. For example, some employers now offer post-retirement healthcare as a voluntary benefit.
Pong says that from a broader perspective, the trend toward voluntary benefits is positive on three fronts. First, it continues to allow employers to provide health benefits to employees. Second, it ensures that employees have access to more individualized health benefit solutions. And third, “maybe it does help the notion of consumerism, where individual employees now have a better understanding and appreciation of the cost of their benefits,” he adds.
Another strategy that is crossing the border is the concept of preferred providers, in which a provider has made a contract with an insurer to provide healthcare services at a reduced rate to the insurer’s clients. London Drugs does just that. “We can offer our prescription drugs at a very low cost. We give them to our employees at cost, so we don’t charge the dispensing fee,” says Steele. According to Hewitt Associates’ Rapid Response Survey, only 8% of the 133 Canadian companies surveyed obtain discounts from pharmacies identified as a “preferred provider.” Yet 33% said they would consider it if it helped them achieve savings.
Whatever solutions they explore, employers want to know what’s driving costs. That’s a great opportunity for the insurance industry. “It boils down to access to information,” says Grant. “If we can show [employers] in a simplified fashion what’s driving their costs, they can make informed decisions to better manage their benefit costs and impact the health of their workforce.”
And the pressures that the group insurance business has experienced to offer better price and service will continue, Simard adds. “For an insurer, the opportunity is to be able to go through that and always keep the same level of quality. It’s easy to say we’ll do it, but the important thing is, we have to do it.” BC
Brooke Smith is associate editor of Benefits Canada.
brooke.smith@rci.rogers.com
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© Copyright 2010 Rogers Publishing Ltd. This article first appeared in the April 2010 edition of BENEFITS CANADA magazine.