Insurers to share costs of high-priced drugs

In 2010, Canadian insurers paid out roughly $9.5 billion in prescription drug costs, and close to 2,000 individual claims had an annual cost in excess of $25,000, reports CLHIA. One claim alone came in at more than $1 million two years in a row. And CLHIA says the number of claims over $25,000 has been increasing at a rate of more than 20% since 2008.

“Expensive drugs are becoming more and more commonplace,” says Paul Boundy, vice-president of business development, group benefits, with Sun Life Financial. “For an employer today, it’s getting to be a sustainability issue. Will they be able to maintain that drug program well into the future? What if a particular employer is unfortunate enough to be saddled with having two or three claimants with very large drug amounts?”

Meanwhile, government-paid drug coverage is on the chopping block. Last week, the Ontario government announced that it would be cutting drug coverage for wealthier seniors—that is, single seniors with incomes over $100,000 and senior couples with incomes over $160,000.

For many employers, increased drug plan costs have meant restricting coverage or, in extreme cases, cutting it altogether. A recent poll conducted by Leger Marketing on behalf of the CLHIA found that one-third of small and medium-size employers would consider making changes to their drug plans if premiums were to jump in price by 25%.

“It is the industry’s view that no Canadian should face the prospect of losing their drug coverage due to rare but very expensive drug costs,” said Frank Swedlove, president of the CLHIA, in a statement.

To avoid burdening a particular plan, some insurers attempt to minimize costs by pooling risks for expensive prescription drugs within their current block of business, explains the CLHIA in its backgrounder on the new program. However, this often has the consequence of locking a plan sponsor in with its current insurer, since other insurers may not be willing to take on a plan with large claimants without implementing higher premiums.

“Currently, if [the plan sponsor] wants to go to market to select a new insurance carrier, the marketplace will note that that plan sponsor has some large claimants, and it may be difficult for that plan sponsor to move their benefits plan to another carrier,” explains Boundy. “I think [the pooling program] is really going to help ensure portability and a competitive marketplace for plan sponsors.”

Under the new framework, participating insurers will set premiums for fully insured employer drug plans without including any pooled high-cost drug claims. This will effectively shelter Canadians from potentially losing their employer-sponsored drug coverage due to a high-cost claim, says the CLHIA.

“The ability for insurance companies to pool the costs of very expensive drugs represents a win-win scenario for all participants in fully insured plans,” says Swedlove. “Employers get a more financially sustainable drug plan; employees benefit, as they will continue to receive coverage from their employer plans even in the face of a high-cost drug claim; and insurers are able to spread the cost of high-cost claims among the participating companies.”

However, there are still some unresolved issues with the proposed framework, warns Mike Sullivan, president of Cubic Health Inc., a Toronto-based drug plan management company. “At what level will they be pooling claims for fully insured plans? $10,000 in drug costs? $25,000? $50,000?”

As well, the backgrounder from the CLHIA says the internal pools that insurance carriers set up will be “a source of competition and open for customization by each insurer,” notes Sullivan, which leaves the future state of the program uncertain.

“Where will this end up five years from now?” he asks. “Will certain insurers evolve a much more competitive offering than others? There are a number of key questions that still need answering before anyone can really evaluate the benefit of this new agreement.”

And since the program covers fully insured plans only, it doesn’t affect administrative services only (ASO) plans—the typical plan structure for larger plans in Canada, Sullivan adds.

Boundy says the decision to focus on ASO came down to a need for uniformity and agreement from carriers. “The non-refund, fully insured [plans] seemed to be the place where there was consistency of thought. People who choose to go ASO—they’re choosing to take on their own risk,” he explains. “The philosophy of ASO is that the plan sponsor is saying, ‘I can take the risk and I may choose some level of drug protection, but I am basically choosing to self-insure.”

However, that could change in the future, says Boundy. The pooling program could be expanded to ASO plans—although, at the moment, there’s no set timeline for such a move.

For now, those in the benefits space will be watching to see how the new framework plays out for both employers and employees as they battle an increasingly expensive drug market.

“It’s great to see that the issue of high-cost drugs is getting attention, but this is a very complicated area to manage, and one that differs profoundly from province to province,” says Sullivan. “It would be prudent to reserve judgment until we see more details emerge. It is a step in the right direction, but there are many more steps required to manage this area in a responsible and sustainable manner.”

Currently, the participating insurers are: Alberta Blue Cross, Assomption Vie, The Co-operators, Desjardins Financial Security, Empire Life, Equitable Life, GMS Group Medical Services, Great-West Life, Green Shield Canada, Industrial Alliance, La Capitale, La Survivance, Manitoba Blue Cross, Manulife Financial, Medavie Blue Cross, Pacific Blue Cross, RBC Insurance, Saskatchewan Blue Cross, SSQ Financial Group, Standard Life, Sun Life Financial, Union Vie and Wawanesa Life.