A nationwide survey of insurers and Blue Cross agencies suggests that Canadian private healthcare plans continue to face steep cost increases in 2008.

The results of the Canadian Health Care Trend Survey recently released by Buck Consultants show that, despite a slight dip in the overall trend last year, cost increases for combined prescription drugs, medical plans and hospital coverage for 2008 are estimated at 13% to 14%.

Dental care costs are expected to rise 7% to 11%, due to increased utilization combined with provincially set fee guides depending on the plan member’s province of residence. Combined total healthcare and dental care cost increases are expected to continue at double-digit rates.

“Our survey results show [that] overall healthcare cost increases continue to outpace other business cost increases as well as the Consumer Price Index,” says Michele Bossi, practice leader in Buck’s health and welfare consulting practice. “We expect health plan costs to increase at double-digit rates for the next five to 10 years, due to increased demand for medical therapies and the aging of the population.”

Bossi says that Canadian employers can start controlling these costs “through longerterm wellness strategies and plan design changes in the shorter term.”

According to the survey, the cost increase for prescription drugs dropped slightly to 14.09% in 2008 from 14.26% last year, but prescription drug costs still represent the largest portion of employer healthcare costs. The cost increase for medical plans alone (excluding prescription drugs) has decreased to 13.09% this year from 13.43% in 2007.

“The largest impact comes from the prescription drug trend,” says Bossi. “Generic drugs continue to gain market share as many of the leading brand name products lose market exclusivity, and growth in the pharmaceutical industry has slowed.”

The survey also suggests the overall healthcare trend (including prescription drugs, medical plans, hospital coverage and dental care) decreased slightly to 13.76% for 2008 from 13.94% last year.

The survey analyzed responses from 10 major Canadian group insurers, representing 84% of the group health providers market in Canada.



Hard Times

Americans find retirement planning as hard as diet and exercise, according to a survey by the Bank of America. Thirty percent say that starting a retirement plan is difficult versus starting a fitness routine (29%) or a diet (28%). Respondents also identified difficulties with determining the types of investments they should make (42%), how much they will need to retire comfortably (40%), when to retire (33%) and where to begin (32%).

The Road to Wellville

The first ever review of the health of the working-age population in Britain found that ill health was costing the country £100 billion (C$199.5 billion) per year— enough to run the entire National Health Service. Key challenges include insufficient access for employees to good work-related health support in the early stages of sickness, including mental health conditions. One of the recommendations is to create a new service called Fit for Work, with the aim of making work-related health support available to all.

Talk to Me

Businesses in the U.K. must improve the administration of benefits and learn to communicate more effectively with employees if they wish to increase engagement and retain workers, says JLT Benefit Solutions. According to a survey by the London-based firm, 55% of businesses communicate benefits to their employees less than once a month, while 26% communicate benefits on an annual or ad hoc basis. Just 29% of companies offer online access to benefits packages. However, with the growing need to enhance communication and reduce the administrative burden, the firm expects this figure to increase considerably over the next 12 months.


Pension Growth Stalls in Q3 The growth in the value of employer-sponsored pension funds was flat in the third quarter of 2007, according to Statistics Canada.

Pension fund assets amounted to $957.2 billion, almost unchanged from $956.9 billion in the second quarter. This situation is explained by a weaker stock market and the rising Canadian dollar, which hindered gains in foreign stock holdings.

The value of Canadian stocks on the Toronto Stock Exchange declined 1.6%, and the value of foreign equity investments dropped 3% after currency conversion, while the value of bonds rose 2.1%.

At the end of September, total pension fund assets were allocated as follows:

• 39.1% to stocks and equity funds; • 32.0% to bonds and bond funds; • 6.6% to real estate; • 3.6% to short-term investments; • 1.4% to mortgages; and • 16.9% to other assets.

“Pension revenues declined to $28.3 billion, after peaking in the previous quarter at $34.7 billion,” notes Statistics Canada. “This decline was due to reduced employer contributions, investment income and profits from buying and selling stocks.”

Expenditures were up 5.9% to $12.9 billion, mostly due to losses on the sale of securities and restructuring costs. Pension benefits paid to retirees rose a marginal 0.3% to $8.4 billion.

Net income declined to $15.4 billion from the record high of $22.6 billion in the second quarter.

Of the 5.7 million Canadian workers belonging to employer pension plans, 4.6 million are members of trusteed plans. The remaining 1.1 million workers with employer pension plans are covered by the consolidated revenue funds of the federal and provincial governments, or by insurance company contracts or Government of Canada annuities. — Jody White

Ontario Budget Positive for Employer Benefits

The 2008 Ontario Budget could have a positive impact on employers offering benefits programs to their workers in the province, says an Aon Consulting InfoFlash.

As part of the government’s illness prevention and cancer screening program, the budget proposes that the provincial healthcare plan cover the cost of prostate-specific antigen (PSA ) tests used to diagnose and monitor the treatment of prostate cancer.

“Group benefits programs typically cover costs associated with lab fees,” says Aon. “If the government provides coverage of PSA tests, private healthcare costs are anticipated to reduce.”

The budget also proposes to provide $190 million over three years to implement a new chronic disease prevention and management strategy, beginning with diabetes. As well, $47 million would be directed to an e-health system, including a diabetes registry.

Prevention and management strategies will give residents the knowledge and support to actively manage chronic diseases, notes Aon, which “could have a positive ripple effect on employer-sponsored drug and disability benefits programs.”

The government plans to make nicotine replacement therapies permanently exempt from retail sales tax (RST ), provided that they have been assigned a drug identification number or a natural product number by the federal government. Aon comments that for private drug plans that cover smoking cessation products, this exemption will result in savings equivalent to the RST currently paid on these products.

The province also proposes to expand the Children in Need of Treatment (CINOT ) program as of January 2009 to cover children in low-income families until they turn 18, up from the current age of 14. In addition, starting this year, the government will work with public health units, community health centres, dentists and dental hygienists to deliver prevention and treatment services for lowincome Ontarians over a three-year period.

“Depending on their eligibility for these services, low-income earners who are currently covered under their employer-sponsored benefits program may be required to coordinate benefits between the two programs,” says Aon. “Group insurance contracts may need to be altered to exclude any services or supplies that an employee or his dependents may obtain as a benefit under the provincial health insurance plan and any government-sponsored program such as the CINOT program.” — Craig Sebastiano


CPPIB Bid Turned Down

The Canada Pension Plan Investment Board’s (CPPIB) attempt to buy a 40% stake in Auckland International Airport Limited (AIAL) for $1.4 billion has been rejected by the New Zealand government. “Under the Overseas Investment Act 2005, ministers are required to decline consent if they are not satisfied that all of the applicable criteria are met,” say New Zealand’s land information minister David Parker and associate finance minister Clayton Cosgrove. “In this case, we are not satisfied that the ‘benefit to New Zealand’ criterion is met.”

CPPIB’s partial takeover offer for the airport required its Overseas Investment Act application to be approved in order for the offer to become unconditional. The board tried to soothe government concerns by offering to reduce its voting rights to 24.9%, the threshold for overseas ownership.

“We are naturally very disappointed in the outcome,” says Graeme Bevans, CPPIB’s vice-president and head of infrastructure. “CPPIB appreciates the support we have received from the 29,000 largely New Zealand, AIA L shareholders who accepted our offer.”

The board began discussions with AIAL last year after a merger agreement with another suitor was terminated. When talks fell apart, the CPPIB went directly to the company’s shareholders.

Initially, AIAL’s board of directors told shareholders that they should reject the offer and sought out other bids, none of which came to fruition. Then, in February, some of the board’s directors changed their minds and recommended that shareholders accept the offer. — Craig Sebastiano


Teachers’ Faces $12.7 Billion Shortfall

Despite earning a 4.5% annual rate of return last year and beating the benchmark, the Ontario Teachers’ Pension Plan (Teachers’) says it has a $12.7 billion shortfall between the plan’s assets and liabilities.

“This highlights the continuing challenge of managing a mature plan,” says president and chief executive officer Jim Leech. “Put simply, a declining portion of the plan’s members must now bear increasing responsibility for keeping it fully funded.”

The plan’s co-sponsors, the Ontario Teachers’ Federation and the Government of Ontario, must file a balanced funding valuation with the regulators by the end of September. Teachers’ staff and board members have been working with the cosponsors to help them identify the best solution for eliminating the shortfall.

Currently, benefits paid out ($4 billion) to contributions received ($2.1 billion) is now double, future contributions to total assets has declined to 26% last year from 42% in 1990, and the ratio of active members to pensioners has dropped to 1.6:1. “The result,” explains Leech, “is that our fund cannot afford the investment risk that it once did.”

At the end of 2007, the plan’s asset mix was 47% equities, 36% inflation-sensitive investments and 17% fixed income investments. In 1995, equities comprised 65%. Teachers’ earned $4.7 billion in investment income last year and grew net assets to $108.5 billion. — Craig Sebastiano

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© Copyright 2008 Rogers Publishing Ltd. This article first appeared in the May 2008 edition of BENEFITS CANADA magazine.