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Normandin Beaudry

New Canadian drug pooling system

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There, in black and white

NB Bulletin Vol. 15 N. 10, August 2012

The Canadian Life and Health Insurance Association Inc. (CLHIA) announced an agreement to pool recurring drug claims for fully insured group benefits plans effective January 1, 2013. This information bulletin outlines the key elements of the agreement and the impacts for plan sponsors.

Objective of pooling

In recent years, the use of expensive prescription drugs, sometimes for many years, has become more and more commonplace for Canadians. Given that group benefits plan premiums are affected by member consumption, the increase in the number of insured members requiring expensive drugs translates into an increase in group benefits plan costs. Plan sponsors are searching for mechanisms for sharing risk, thereby reducing their costs. The pooling of certain high cost drug claims is an attractive risk sharing mechanism. However, it is sometimes difficult for group plan sponsors to pool drug claims because insurers charge pooling fees derived from claims to be pooled or exclude from the pool recurring claims or claims that existed when the contract took effect.

The Canadian pooling system proposed by the CLHIA that will come into effect in 2013 corrects some deficiencies. This system, however, applies to fully insured plans only. Plans consisting of several hundred employees are generally not fully insured and often involve surplus/deficit sharing or are self-insured. Plans with these types of financial arrangements are not eligible for Canadian drug pooling.

The Canadian drug pooling system will primarily impact fully insured plans covering employees outside Quebec. In Quebec, pooling offered by the Quebec Drug Insurance Pooling Corporation (the Corporation) will prevail. Situations where Canadian pooling could be applied to drug claims submitted by insured employees from Quebec are explained later in this bulletin.

The 24 Canadian insurers signed the pooling agreement and will need to comply with the following requirements:

  • Participate in the industry pool to share with the other insurers the risk associated with very high cost recurring drug claims in their portfolios.
  • Implement an industry pool to allow their clients to share the risk associated with high cost drug claims.

Industry pool

As of January 1, 2013, insurers will share the risk associated with recurring drug claims. In year two in which claims for one insured member and his/her family (one certificate) exceed $25,000, the amount over $25,000 will be pooled. To be pooled, claims for one certificate must exceed $50,000 for the first two years and $25,000 for subsequent years. The table below presents an example of eligible claims and pooled claims.


      

Claims incurred on or after January 1, 2012 will qualify for pooling among insurers if they satisfy the conditions listed above. It should also be noted that these claims are accounted for by certificate.

Group plans are not always the first to pay drug costs. In some provinces, public drug programs cover a portion of drug costs. To account for differences in provincial drug programs, the CLHIA has established three separate pools:

  • Residents of Quebec;
  • Residents of British Columbia, Manitoba and Saskatchewan; and
  • Residents of the remaining provinces and territories.

For insured members from Quebec, pooling established by the Corporation will prevail. Some insured plans could, however, be subject to Canadian pooling for recurring claims of $50,000 or more during the first two years in the following situations:

  • For groups with 125 to 249 certificates, Canadian pooling would apply for recurring drug claims between $25,000 and $39,000 because the Corporation’s pooling threshold is $39,000.
  • For groups with 250 to 1499 certificates, Canadian pooling would apply for recurring claims between $25,000 and the Corporation’s threshold of $60,000, $80,000 and $100,000 based on group size and for drugs not on the Quebec Drug Insurance Plan’s List of medications.
  • For groups with 1500 or more certificates, Canadian pooling would apply.

In all cases, Canadian pooling would apply to high cost claims for insured members residing outside Quebec because the Corporation’s pooling applies only to drug claims for Quebec residents.

Internal pool

In addition to sharing high cost drug claims via the industry pool, all insurers participating in the CLHIA pooling agreement must implement an internal pool for high cost drug claims for all of their fully insured groups. This measure applies to renewals coming into effect on or after January 1, 2013. Pooling fees for internal pools that will be included in insured plans premiums cannot be established based on the number or value of drug claims of the plan sponsor. Participation in the internal insurer pool will be mandatory for groups whose plan is fully insured. The pooling threshold for the internal pool will be set by each insurer but must not exceed $25,000 per certificate.

Insurers can also establish multiple internal pools for different identified market segments.

To encourage a competitive market for all plan sponsors, insurers should not take into account claims pooled via the current insurer’s internal pool when preparing bids in response to requests for proposals from plan sponsors looking to change insurers.

To date, no insurers have disclosed information concerning their internal pools. This leaves us with many unanswered questions:

  • Will the internal pool consider recurring claims only?
  • Will the internal pool also be available to groups whose plans are subject to surplus/deficit sharing or are self-insured?
  • Will a group included in different market segments be subject to different internal pools each with their own pooling fees?
  • Will insurers create several internal pools that will disadvantage certain clients?

The functioning of the Canadian pooling system and coordination with the pooling offered by the Corporation are complex issues. Please contact a Normandin Beaudry consultant to discuss it further.
 

 

Please feel free to contact us for additional information.

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Montreal, Quebec, H3B 1S6