In the absence of a government sponsored catastrophic drug program across Canada, private group insurance plans are continuing to bear the brunt of increasingly higher cost prescription drugs.
New medical treatments have resulted in a significant increase in the number of expensive prescription drug therapies introduced to the market. While these treatments provide major health improvements for patients, they come at a significant cost to both the employee (if coverage is not at 100% co-insurance and if there is a plan maximum for drugs), and to their employer sponsored benefit plans.
According to the Canadian Life and Health Insurance Association (CLHIA), in 2013 there were over 4,200 individual claims from fully insured plans that had an annual cost in excess of $25,000 with the highest reported claim to be in excess of $1.2 million for one certificate. The industry’s experience has been that the number of prescription drug claims of over $25,000 annually has been increasing at over 20 per cent a year since at least 2008. The highest growth segment was drug claims in the $100,000 to $250,000 range, with seven claims now exceeding $500,000 annually.
To ensure the ongoing sustainability of employer sponsored plans, group insurance carriers worked together with the CDIPC (Canadian Drug Insurance Pooling Corporation) to introduce the Extended Healthcare Policy Protection Plan (EP3) in 2013. This drug pooling arrangement pools together all large drug claims, above a specified amount and below $500,000, from the participating insurance companies allowing them to jointly share the risk. The drug claims are removed from the insurance company up to the EP3 Maximum, and from the plan sponsor’s claims experience, and shared amongst all participating insurance companies thereby spreading the risk and mitigating costs for all involved.
The prevalence of high cost drugs is expected to accelerate in the coming years as more biologics enter the pharmaceutical pipeline and are introduced to the marketplace. Previously most of the high cost drugs were used to treat rare diseases. They are now prescribed for more common disease states. In 2013, 43% of claims over $25,000 were for drugs that treat auto-immune / anti-inflammatory diseases (Remicade and Humira). Drugs in this category are maintenance medications and are expected to continue.
Currently only group insurance plans that are fully insured are eligible to participate in the EP3 pooling arrangement. Group plans managed under a Refund Accounting, Self-Insured (Administrative Services Only) basis, Simplified Retention or International Pooling arrangements, where there is no “insurance” contract in place, are not eligible for EP3. While there may be stop loss / pooling protection in place, we are seeing a trend towards group insurance carriers applying some experience rating of these catastrophic drug claims at renewal against the catastrophic medical / drug pooling coverage charges thereby putting a greater risk and responsibility for these high cost drug claims directly on the plan sponsor.
Clients currently managed under a refund accounting or self-insured (ASO) basis would do well to consider the financial risks of continuing to offer unlimited drug coverage, and whether it may be time to consider revising their financial arrangements to a fully insured approach.
The Leslie Group Limited can be contacted at 416 510 8966 to assist your firm in a review of your plan design and financial funding arrangements that will allow you to weigh the risk that these new drug costs are and will have on your group insurance program and provide you options to reduce the risk to your organization, while continuing to provide competitive coverage.