Using U.S. strategies in Canadian benefits plans

With Canadian healthcare costs on the rise, I often suggest to benefits administrators plan design modifications that would cut costs without reducing benefits—for example, a preferred provider network. However, these suggestions are often met with distaste. I hear objections such as, “We can’t ask our employees to go to one pharmacy and not the other.” The discussion historically has ended there—until recently.

Canadian plan administrators fighting rising costs are increasingly considering American-style design considerations. Following are some of those.

Pre-approval for services
U.S. plans frequently require plan members to obtain pre-approval for services. Certain surgeries, CAT scans, MRIs and other services can be denied if approval is not received first.

With paramedical costs growing, some Canadian plans have implemented similar pre-approval for services such as massage therapy, acupuncture, compression hose or orthopaedic shoes. Beneplan clients’ claims history shows that just implementing pre-approvals can decrease paramedical costs by two-thirds, without the need to lower coverage maximums for these services.

Preferred provider networks
Americans are used to being told to go “in-network”; if they seek care from providers outside their health maintenance organization’s network, they get zero coverage. An increasing number of Canadian benefits plans have begun offering higher coverage levels to employees who seek care from preferred dental, vision or pharmacy providers. These employers are able to negotiate discounts—25% off the retail pricing—with their network of preferred providers.

Custom drug formularies
American plan sponsors have long fought rising drug costs by being proactive about seeking discounts or rebates on volume purchasing. But only recently have large Canadian plan sponsors—those with the critical mass available to negotiate volume discounts—begun taking advantage of this opportunity.

A related trend taking shape in Canada is for plan sponsors to define coverage levels in order to encourage generic use. For example, a member would pay a higher share of the cost for an expensive brand name drug (e.g., Lipitor) versus its generic alternative (e.g., atorvastatin).

Non-profit co-operatives
There are several strong examples of non-profit co-operatives in the U.S., including Washington state’s Group Health Cooperative and Minnesota’s Health Partners. But many co-ops have not survived. Most existing mutual life insurance companies began as pure co-operatives. But class-action lawsuits in the 1980s against many of these organizations for failing to use the profits in the best interests of the owners led to their demutualization. Many of these same organizations are now publicly traded and listed on stock exchanges.

After a down period, the popularity of co-ops seems to be on the rise again in Canada. Smaller employers are realizing that these health insurance purchasing co-operatives offer similar power-in-numbers negotiating possibilities as the larger plan sponsors have on their own. These arrangements also offer another cost-management benefit: plan sponsors that are part of non-profit co-operatives are able to get refunds on their fully insured benefits plans if claims plus fees are less than premiums paid.

Aggressive cost-containment practices continue to evolve in the U.S. For example, some employers have tied a plan member’s co-pay to their BMI, cholesterol levels and status as a smoker. Given that Canadian plan sponsors have begun to look across the border for plan design ideas, it will be interesting to see what new trends take shape in Canada in the coming years.

Yafa Sakkejha is a benefits consultant with Beneplan Inc.

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