A look at the legal risk for benefits plan sponsors

With Canada’s population ageing and research and development looking to produce medications that are beneficial for this evolving demographic, drugs are becoming more expensive, according to Mitch Frazer, partner and chair of the pensions and employment practice at Torys LLP. 

In fact, among all the countries in the Organisation for Economic Co-operation and Development, Canada has the third highest drug costs, at about 22 per cent above the average OECD, he said during a session at Benefits Canada’s Face to Face Drug Plan Management Forum on Dec. 3 in Toronto. “Canadians spent about $28.5 billion on prescription medications between 2015 and 2016 alone.”

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The availability of treatments is expanding, said Frazer, referring to biologics and biosimilars, drugs for rare diseases and medical cannabis. And the industry is also discussing continued coverage for plan members once they reach age 65. “This is an interesting area of law that I think is, in terms of the legal field, bringing up some interesting questions.”

Employers are caught in the middle, he noted, as they attempt to balance offering benefits for employees with keeping costs low. However, in the middle of all of this, employment, contract and human rights laws are creating buffers concerning age, restrictions and the kinds of plans that employers can offer.

Frazer highlighted many recent legal cases, including the 2017 ruling by the Nova Scotia Human Rights Commission that found a benefits plan must cover a member’s medical cannabis prescription. Though the case was overturned on appeal, he said cases where plan sponsors are declining coverage for medical purposes, on the basis that it isn’t a reasonable or necessary expense, have mostly been unsuccessful for the plan sponsor.

With that in mind, employers should consult their benefits plan providers regarding their approach to covering these expenses, he added, because the cost of medical cannabis per employee per year may be increasing.

Read: A look at medical cannabis coverage’s growing pains

In another case, from May 2018, the Human Rights Tribunal of Ontario determined the provision in the Human Rights Code that allowed employers to terminate benefits plans for workers age 65 and over was unconstitutional.

Plan sponsors that eliminate certain benefits coverage for employees who are over 65 should include explicit language in relevant policies and contracts — and ensure there’s a strong actuarial basis for cutting off benefits, noted Frazer. It’s also important that human resources teams remain mindful of the potential work-related issues that this discontinuation may pose.

There’s a balance, he added. “If you’re setting up contracts, which won’t be financially harmful to extend, then you’re setting yourself up to have your plans cover people beyond age 65. Cost is one thing versus the amount of harm it’s going to do to an individual.”

When creating flexibility in benefits plan agreements, plan sponsors should look at two things, advised Frazer. First, look at the cost of the program. If it’s minimal, then employers will be forced to cover people over age 65 at some point, but if it’s rather expensive, they’ll have a better argument for discontinuation. Secondly, the writing of benefits contracts will become increasingly important because it will provide plan sponsors with the flexibility to reduce costs as time goes on. “If you don’t write them carefully, with specific clauses to protect management or the insurance company, then there will be challenges you’ll face down the line when limiting plan costs,” he said.

Read: Settlement reached in Ontario age discrimination benefits case

Referring to another case, ArcelorMittal Dofasco Inc. v. Industrial Alliance, Frazer noted a plan member requiring high-cost drugs was inappropriately denied coverage by her group insurer, but was later approved by her spouse’s group insurer, which subsequently sued the initial insurer for reimbursement.

Many group insurers are now starting to roll out responsive contracts, or block amendments, which allow them to amend coverage and contracts directly with the plan member, noted Frazer. In some cases, employers may not even notice changes have been made.

“The arrangement that you have with your employee, unless communicated well, is that they’re going to get a benefit for whatever period. You haven’t mentioned the possibility that the insurer might change it unilaterally. You need to communicate with your employees, so they have an understanding of what the plan is and they don’t rely on having a specific benefit for life.

“Plan sponsors should consider their potential responsibility and liability when an insurer block amends a plan.”

Read more stories from the 2019 Face to Face Drug Plan Management Forum.