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Normandin Beaudry

Impacts of the Quebec budget on group insurance plans

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There, in black and white

NB Bulletin Vol. 15 N. 14, November 2012

During the unveiling of its budget on November 20, the Quebec Government announced several measures that could affect group insurance plans:

  • Elimination of the “15-year rule” for patented drugs
  • Increase in the compensation tax on insurance premiums and extension of its application
  • Adjustment of the health contribution based on income

Elimination of the “15-year rule” for patented drugs

Currently in Quebec, drugs included on the public plan’s formulary are subject to the “15-year rule” (applicable to members of the public plan). This rule states that patented drugs are reimbursed for a period of 15 years from the time they are listed on the formulary of the Régie de l’assurance maladie du Québec (RAMQ), even if their cost is higher than that of a generic version also included on the list. When this 15 year period ends, the RAMQ reimburses the drug, whether it is a brand-name version or a generic version at the price of the least expensive drug.

This measure, which was implemented to encourage pharmaceutical companies to do business in Quebec, was becoming increasingly costly due to the increased use of drugs, the introduction of several key generic drugs, and falling prices of generic drugs.

Therefore, the Government announced the elimination of this rule, paving the way for the RAMQ to reimburse drugs at the price of the least expensive generic drug, if available. Since this rule applied only to members of the public plan, this decision will not have any major impact on private drug insurance plans.

Nonetheless, private plans covering employees or retirees age 65 and over could experience cost increases. Since private plans often offer supplementary coverage to the public plan for these insureds (with the RAMQ being the first payer), reimbursements by the private plans may increase because the RAMQ will reimburse a smaller portion of drugs that have a generic version. To reduce this impact, organizations may consider adding a “generic substitution” clause to their insurance plans stating that brand-name drugs will be reimbursed at the price of the generic version.

Increase in the compensation tax on insurance premiums and extension of its application

Financial institutions in Quebec must pay a compensation tax on insurance premiums, currently at a rate of 0.55%. This compensation tax is comprised of a basic tax of 0.35% and a temporary contribution of 0.2% initially planned for the period of April 1, 2010 to March 31, 2014.

The last budget announced an increase in the temporary compensation tax from 0.2% to 0.3%, and extended this measure until March 31, 2019, i.e., five years beyond the application period that was originally anticipated.

Notwithstanding the budget provision, we remind you that effective January 1, 2013, Quebec will eliminate the basic portion (0.35%) of the compensation tax, a measure consistent with the harmonization of the sales tax. It should be noted, however, that insurers could subsequently increase their administration fees by an amount in the vicinity of 0.35% to offset other tax adjustments related to the harmonization of the sales tax, specifically those related to input tax refunds (ITRs).

Note that the compensation tax is generally combined with the tax on capital (rate of 2%, which is not affected by the budget). The compensation tax and the tax on capital are payable by insurance companies, which include them in their administration fees and, consequently, in the premiums they charge. These taxes will thus be reduced from 2.55% to 2.3% as of January 1, 2013 and insurers may increase their administration fees by about 0.35%. As such, the various government measures will have only a minor impact on group insurance plans costs.

Adjustment to the health contribution

Starting January 1, 2013, the health contribution, which is currently $200 per adult, will vary from $0 to $1,000, depending on personal income. Very few employers reimburse the health contribution, but those that do will see their costs change depending on employees’ salaries. Note that the $200 contribution is maintained for individuals with an annual income between $42,000 and $130,000.

The health contribution will now also be subject to source deductions. Therefore, organizations will need to adjust accordingly.

For more information, visit the Quebec Government’s 2013-2014 provincial budget website.
 

 

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