On March 27, the Ontario government tabled its new fiscal budget—and it includes a number of long-term initiatives that will have a significant impact on the health plans of Ontario employers in the coming years.
While many sources have reported on the facts and likely consequences for Ontarians, the long-term effect may pose more of an impact to plan sponsors. It is important to understand these changes and how they may influence health plans.
The changes set forth in the budget can be summarized into three categories:
- changes to the Ontario Drug Benefit (ODB) program;
- shifting services from hospital settings to home care; and
- overall public health financial goals.
All three of these may (or will) result in costs being shifted from public health to individuals. And where those individuals have benefits coverage, the costs have the potential to end up on employer benefits plans.
Changes to the ODB program
The most significant change, having both immediate and long-term effects on plan sponsors, is the change to how the ODB deductible is calculated, making it variable based on income.
Beginning in August 2014, the annual deductible will be set as follows:
The government noted that, currently, only 5% of Ontarians over the age of 65 have a net income of more than $100,000. This change in calculation will result in almost $50 million in increased deductibles in the first year. This is $50 million in costs that could shift to individuals or to plan sponsors with plans that cover ODB-eligible drug expenses. For employer benefits plans, the cash impact in 2014 of even a few very high-income individuals over age 65 (whether active or retired) will be substantial.
While the short-term impact could be significant for some employers, the much larger concern is that this formula is not indexed in the future. A 40-year-old Ontarian earning $80,000 today and who, in 25 years (due to inflation) could be earning $170,000, may have an income at age 66 of more than $100,000 (either as a retiree or as an ongoing active employee). Due to salary inflation alone, the majority of young workers today will actually be subject to higher ODB deductibles when they reach age 65.
This may sound like an issue for the very distant future (my retiree drug costs in 2040 are going to be a lot higher—so what?). However, since employers must calculate liabilities that reflect all future post-retirement benefit promises, these projected future cost increases need to be accounted for today. Initial estimates indicate that the accounting impact varies substantially depending on the income levels of employees. Organizations need to understand the financial impact of their particular plans in order to decide how to react.
Shift from hospitals to home care
Over the last two decades, we have seen a trend to outpatient care. Ontario’s budget largely supports continuing this trend, and accelerating it as a way to ensure that the care meets the needs of patients, in addition to being fiscally responsible.
This shift in care moves the financial burden from the public system to the employer and/or individual. For example, consider the following:
- prescription drugs are covered by OHIP while the patient is in hospital, and employers are responsible after discharge;
- paramedical practitioners such as physiotherapists are covered in-patient; and
- private duty nursing and long-term care are a substitute for in-patient care.
The shift may cause employers to see an increased use of, and cost for, these services—many of which are medically necessary for an individual’s return to health. Plan sponsors will need to monitor the potential for increasing costs in these areas and assess whether coverage levels are appropriate.
Overall public health financial goals
Within the budget, the Ontario government has mandated a financial goal to limit any cost increases in public health to 2.1% annually over the next three years, compared with 6.1% annually over the past eight.
While there are some general guidelines about how this goal will be met, it is reasonable to expect that service cuts will be needed to achieve this. If these service cuts include delisting of services (shifting from publicly funded services to privately funded) or adding user fees to existing services, individuals may look to their benefits plans to cover these new costs.
One potential hope for employers can be seen under the banner of “Keeping Ontario Healthy” in the budget. With a greater focus on preventive care and reducing the overall need for health services, the government is aligned with employers in putting stronger emphasis on wellness as a mechanism for long-term cost reduction. While partnership with the private sector is not specifically mentioned in the budget, the recent Drummond report did raise such an idea. What better place for public health and plan sponsors to partner than on health and wellness initiatives for Ontarians!
What plan sponsors need to do now
Given that some of these changes are well defined but others are still only blueprints for the future, plan sponsors need to do the following now:
1. Understand the financial impact (cash and accounting) of the ODB changes.
- Whether you have retiree benefits plans or not, a growing number of employees are over age 65 and will be affected by this change.
- What plan design changes should you consider to deal with long-term cost increases caused by non-indexing of the deductible formula?
2. Assess risk of cost increases due to a shift from in-patient to home-based care.
3. Engage with government.
- Cost cuts and cost shifting are coming in public healthcare in order to meet financial targets.
- Public health changes will impact employers, and the best way to avoid unintended consequences is to engage with the government now while decisions are still being made.
- Opportunities to partner with government should be encouraged, especially with respect to wellness, health improvement and prevention—areas of common ground between employers and public health.
The initiatives set forth in the budget are a reminder to employers of the relationship between provincial healthcare and employer benefits plans. Across Canada, provinces are looking to balance budgets, and healthcare changes are part of the solution. Employers must be informed, be prepared for changes and be active with government to influence future change where possible.