To manage healthcare costs for catastrophic events, the CLHIA (Canadian Life and Health and Insurance Association) announced an agreement that calls for participating carriers to pool eligible drug claims in excess of a stipulated amount and to set customer premiums without including these pooled claims.

For Plan Sponsors who have been impacted by employees/members who face catastrophic drug claims or expensive Specialty Biologic treatments that can range from $15,000 to $600,000, this announcement and future rollout is a welcome bit of relief.

Why an Industry Pooling framework was required:

  • ESI – Express Scripts Inc. (a pharmacy benefit manager) 2010 Drug Trend Report shows biologic drug claims growing by 14 per cent per year (versus 4 per cent for other drugs) and estimated that these drugs are expected to account for 33 per cent of drug spending in 2014.
  • CLHIA’s data shows similar numbers – in that the growth in the number of high costs claims (those over $25,000) has exceeded 20% per year since at least 2008.

These are unsupportable figures and are worrisome on a number of different levels.

What it means:

  • Employers with insured business will have access to more sustainable drug plans.  It will also be simpler for them to move their group benefits to other carriers even if they have a recurring high cost drug claim.
  • Employees will be less likely to lose coverage from employer-sponsored plans due to high cost drug claims
  • Carriers will be able to spread the cost of very high cost, recurrent drug claims across the industry.  This initiative will primarily benefit small and medium-sized businesses, which typically do not have the financial resources to absorb a significant increase in their insurance premium due to high cost drug claims.

 Exclusions:

This is an important first step towards establishing a meaningful framework for catastrophic drugs.  The bad news for larger employers, is that the initial program will only apply to approximately 40% of insured Canadians since the plans will only apply to fully insured plans.  The program will excluded plans that use Administrative Services Only (ASO), Refund accounting, or other Stop loss arrangements.

Information is sparse at this time, but we believe that current programs that utilized drug caps or maximums will also be barred from participation in pooling protection plan.

For employers wanting to participate in the pooling protection plan, they will affectively be shutout from doing so (initially) as the founders of this plan have used June 7, 2011 as the start date in which they will use to determine eligibility for the pooling program that is to commence on January 1, 2013.

The “Mechanics”

  • Industry pooling is at a certificate (family) level and to qualify for the industry pool, the certificate must exceed $50,000 for at least two consecutive years.
  • In year two and in each subsequent year where the drug certificate exceeds $25,000, the amount over $25,000 will be pooled amongst all the participating Insurers in what will be the EP3 or Extended Healthcare Pooling Protection Plan. The maximum amount that the pool will pay out to a Carrier on any one certificate is $400,000 per year.

Over the next few months, we suspect that more information relative to EP3 certification and about the plans in general will emerge. There are a significant number of employees/members who are not covered under this strategy, so a ‘true’ National program for dealing with high cost biologics remains elusive.

For over 20 years, Chris Pryce of Human Capital Benefits has been advising employers on all aspects of managing employee benefits programs and related products. If you have any questions, you can contact Chris at 416.924.8280 or by email at chrispryce@www.humancapitalbenefits.com