How does a plan sponsor solve a problem like a massive drug claim? One solution embraced by the Canadian market is drug pooling, which goes back to the heart of pure insurance.
Pooling risk to mitigate certain health-care costs is a long-standing practice in Canadian employee benefits. A benefits plan pays a pre-determined pool charge to an insurer with an established pool. Then, if a significant claim arises, the pool handles the payout, rather than the charge going to the plan’s experience or its administrative services-only account.
Traditionally, pools were set up to handle catastrophic events that would bludgeon a plan sponsor’s budget, like a member recovering from a serious accident, or an injury incurred out of country, says Lizann Reitmeier, health practice leader at Buck.
But lately, drug claims costs are rising. New drug therapies are helping with conditions once thought to be incurable or even untreatable. However, they often come with a major price tag.
The country is entering territory where a single employee could require a drug that costs more than $1 million, says Steve Hesketh, an advisor for group benefits, pension and wellness at CapriCMW Insurance Services Ltd. It’s important that employers are able to stave off these massive expenses, especially since they have no real way of knowing whether a potential hire or existing plan member is at risk for a condition requiring a high-cost drug. “This is not something that an employer can screen for,” he says.
Risk in the mix
Plan sponsors can’t really shop around for insurers’ drug-pooling arrangements because they’re highly proprietary and kept under wraps. However, some considerations clarify the choice in terms of what level of risk protection a plan sponsor is seeking out, says Reitmeier.
“The population you’re covering may impact your plan design and your plan design should then impact your pool, because you would want to consider the risk of that particular plan design and tailor the pooling level accordingly,” she says.
For example, depending on where in Canada a company operates, its benefits plan will experience different levels of risk from high-cost drugs.
“Regionally, we have different provincial drug plans, so in Ontario, you are probably going to need a high-cost drug pool, whereas if you’re strictly a British Columbia employer, the province has already taken care of most of the drugs for you,” says Reitmeier. “Regionality would factor in, so if you had a heavy population in B.C., that would skew your risk exposure.”
And with more risk in the mix, Canada’s insurers have taken on their own tier of pooling. In 2013, the vast majority of Canadian insurers formed the Canadian Drug Insurance Pooling Corp. to spread around risk from recurring high-cost drug claims.
“It’s an additional layer of insurance that allows the insurers to pool high-cost claims,” says Suzanne Lepage, a private health plan strategist, noting that, once a claim reaches a certain threshold, the insurer is able to share it with the other insurers in the pool.
Martha Porado is an associate editor at Benefits Canada.