Between 2012 and 2016, Canada’s total private drug claims market increased by a 4.7 per cent compound annual growth rate, according to new research by Innovative Medicines Canada.
The analysis, which is based on IQVIA Inc.’s Canadian private drug plan claims database, aims to highlight the key drivers of private drug plan cost growth for the period. “Often the total growth of the private drug plan market is simply reported without any details on what factors in claimant behaviour are influencing total plan costs,” noted the report. “Prior reports have identified significant growth due to greater utilization of drugs; however, they did not provide details explaining utilization growth. This report will clarify the underlying drivers of cost growth, including utilization, in private drug plans in Canada.”
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The report found the total number of claimants grew by 2.1 per cent and the cost per claimant grew at a rate of 2.6 per cent between 2012 and 2016. Of the growth in the total number of private drug claims, 3.5 per cent can be attributed to the increase in the number of claimants and claims per claimant, with the remaining 1.2 per cent resulting from an increase in the cost of drugs, noted the research.
Informing those averages, the research found costs rose at a more significant rate in 2014 and 2015, at 5.9 per cent and 6.6 per cent, respectively, due to the introduction of new hepatitis C treatments and what the research called a “warehousing effect” from patients waiting for more effective treatments to be released. In 2016, the cost of hepatitis C medications had dropped and, subsequently, the rate of cost increase fell to 4.2 per cent.
Stephen Frank, president and chief executive officer of the Canadian Life and Health Insurance Association, says the compound annual growth rate of 4.7 per cent is “what we would observe in the market and I think there’s a lot of good value there.” However, Frank has some concerns about how the second section of the report represents the trend factor as an element for calculating predicted future premiums.
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The report defined it as “an annual inflation factor used in a health premium calculation to anticipate health claim costs for the upcoming year.” The trend factor folds in expected increases in claims due to inflation, rising usage of a drug, aging, legislative changes, changes to the products being used, including new products, as well as shifting of costs between the public and private sectors.
Frank says the report seems to indicate the trend factor is a much bigger issue when it comes to rising costs than it actually is in reality. “They’re showing a trend factor of say 12 per cent [for 2012] and then juxtaposing that against costs at four per cent, and leaving the impression that premiums are going to be three-times higher than claims costs — and that’s just simply totally inaccurate.”
Looking back over CLHIA’s own data, Frank says it found that, since 2012, claims have risen by 4.2 per cent and premiums by four per cent.
“I think it’s unfortunate that they extended the paper to try to deal with this really complicated issue of how premiums are set, because our concern is that they are leaving a perception that trend factor is the only thing that drives what premiums are,” says Frank.
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Joe Farago, executive director of private payers and investment at Innovative Medicines Canada, says yes, there is a dramatic difference, but that demonstrating it isn’t a criticism. “There is very little transparency or information with regard to the relationship between the actual rate growth of a number of health benefits and how the insurers set trend factors that ultimately feed into overall premium trend factor,” he says.
The formulation of the chart in question rose from data collected by a survey of private insurers in Canada conducted by Xerox Co. in 2016, he says. “To get a better understanding of the trend factor or what insurers predict are going to be the increases in various costs, they surveyed insurers . . . and they were asked, what is your annualized trend for prescription drugs?
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“So the chart that was produced simply had the insurers’ reported growth rates for prescription drugs between 2012 and 2016. And they range from a trend of 10.6 to 12 per cent. So if you contrast that versus the results just reported on in the report, and we have the annualized numbers there, it raises the question: there is almost a three-fold discrepancy between the actual growth rates for prescription drugs in the private market and what the insurers said they expected to see in growth.”
Indeed, the number appears dramatic, notes Farago, but there may be a reason for it. However, the lack of transparency regarding how insurers come to those anticipated rates of growth makes it difficult to determine the reason, he adds.
“It encourages plan sponsors to look at their overall growth rate, speak with their broker or advisor, but it doesn’t criticize anyone,” says Farago. “There may be a valid reason for the large discrepancy, but we’re trying to present facts and figures with accuracy.”
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