With the widespread benefits arising from continuing advancements in the efficacy of prescription medications used to treat acute and chronic medical conditions, it is easy to lose sight of an important side effect which often accompanies the undeniable benefits these medications provide. That side effect is their cost. And due to the fact that Canada lacks a national, comprehensive catastrophic drug program, the high costs of certain drugs can be particularly problematic. This is especially true for those employers who have their drug coverage provided by Canada’s life and health insurance companies where the number of annual insurance claims for prescription drugs in excess of $25,000 per patient has been increasing steadily at above 20 per cent per annum for the past five years — and it shows no signs of abating. In fact, in all likelihood, the frequency of these high-cost drug claims will rise in the years ahead as advances in research continue to produce effective but expensive drugs needed to treat familiar and newly discovered medical conditions ranging from cancers to auto-immune and genetic enzyme disorders.
Recently, the increasing volume and frequency of high-cost, recurring claims for expensive prescription drugs has placed a financial burden on many of Canada’s small and medium-sized businesses that offer their employees a fully-insured health care plan. Fully-insured employer plans are subject to annual changes in their premiums to reflect the forecast cost of their drug plan. This means that an employer who has a very large and recurring drug claim will often be subject to significant increases in premiums. These increases are particularly difficult for small and medium-sized employers to absorb, many of whom are unable to manage the new, higher premiums. That can force employers to take drastic actions, such as cutting back on their drug plan coverage. In some circumstances, the employer may even be unable to offer the plan to any employees for the lack of available funds required to pay for the increased insurance premiums resulting from the high-cost drug claim of an individual employee. Stephen Frank, Vice President, Policy Development and Health for the Canadian Life and Health Insurance Association (CLHIA) — the trade association representing Canada’s life and health insurers — explains: “What happens when small and medium-size employers who provide a fully private health insurance plan to their employees and who have a claim for one of these high-cost drugs is that their costs can quickly escalate to a point where they can no longer afford to provide that coverage to their employees.”
In order to stop this from happening, Canada’s insurance providers have worked together to share the costs of the extremely expensive drugs for private-sector businesses which offer their employees fully-insured drug plans. Canadian health insurance providers have all agreed to shelter employers with fully-insured plans from the full financial impacts of high-cost drugs and, therefore, will increase the sustainability of employer- offered drug insurance plans. In addition, they have created a national, industry-wide drug pool that will allow insurers to spread the costs of such expensive drugs among all insurers in Canada. This new arrangement came into effect on January 1st, 2013. Twenty-four health insurance companies, which account for 100 per cent of Canada’s supplementary drug market, have agreed to participate in the industry- wide drug-pooling plan.
The core tenet of the pooling framework, as Frank explains, is that the premiums for an employer’s drug plan are calculated without “any reference to the pooled amount of any high-cost claims. In essence, insurers are required to set the premium… assuming that the high-cost claim did not exist. Furthermore, in order to help each participating insurer sustain the costs of offering this protection to their clients, the industry will set up an industry-wide pooling framework to spread the risk of recurrent, high- cost prescription drug claims across all participating insurers.” Aside from these basic standards, all other aspects of how insurers structure and price their drug plans to employers is customizable and will be a source of competition in the marketplace.
This pooling agreement is a good start to addressing this issue for all Canadians. The CLHIA estimates that it will protect between seven and nine million Canadians. Frank points out that the prescription medication pooling plan was driven by the Canadian insurance industry and is a unique experiment in the Western world. “This is the first and only fully private national prescription drug-pooling initiative in the world.” Frank expands upon the special nature of Canada’s prescription medication pooling. “Elsewhere in the world, you can find similar national pooling arrangements. However, they are mandated by government and not initiated by the private sector, as is the case in Canada’s health insurance industry.”
TOP PHOTO: Stephen Frank, Vice President, Policy Development and Health, CLHIA