Drug plan design changes are often unavoidable, whether they’re due to a carrier modifying contracts across the board or an employer looking to manage ballooning costs.
Generally, “plan sponsors are looking at programs like more managed formularies and, potentially, maximums,” says Suzanne Lepage, a private health plan strategist in Kitchener, Ont. “Changes driven at the insurer level [tend to be] delayed listing programs and preferred networks.”
Whatever the change, plan sponsors can expect to hear some grumbling among employees. But should they also expect a lawsuit?
When coverage changes, “a plan member can feel their health is being impacted by the decision that’s being made, or something is taken from them that they had before,” says Lepage. “They might look at their [benefits booklet] and ask, ‘Where is it in my contract language that tells me you can delay coverage on this drug?’”
Lawsuits are expensive and time-consuming, so they’re rarely an employee’s first step. But plan members are more likely to take legal action if they can’t get their treatment covered through other funding avenues. “In some cases, it’s less about what form the plan limitation is taking and it’s more about what the actual financial impact is to the member, and also whether the drug is getting paid through another source,” says Tara Anstey, a principal at Mercer Canada.
So in British Columbia and Quebec, for instance, where provincial drug coverage is more generous than other jurisdictions, employers may see fewer disgruntled and litigious employees.
Deep pockets and big payouts
While the expense of litigation may stop individual employees from bringing suit, it won’t necessarily stop plan sponsors or insurers that are secondary payers from suing, especially when there’s a lot of money on the line.
In September 2009, for instance, a woman was prescribed a medication costing $25,000 a month to treat a life-threatening blood disease. Her workplace benefits plan reimbursed 90 per cent of certain prescription drug costs but denied the claim because it mistakenly believed the drug was administered in hospital and therefore not covered through the plan. The member sought coverage from her secondary payer, her husband’s administrative-services only retiree benefits plan, which reimburses the full cost of prescription drugs.
By December 2010, the woman’s primary plan realized it shouldn’t have denied coverage but didn’t start paying for two more months. In 2016, after a four-year legal battle, the Ontario Court of Appeal held that the insurance company had to reimburse the self-insured plan $1.3 million, representing the 90 per cent of costs it should have paid from day one.
While few employees can afford to fund a prolonged legal battle, it’s free to file a complaint with a provincial ministry of labour. If a benefits plan change constitutes a significant difference in an employee’s total compensation, they could make a claim for constructive dismissal, says Mitch Frazer, a partner at Torys LLP. That is, if the terms of employment have changed so significantly that the agreed-upon job no longer exists, the employer may be liable for severance.
“You’d want to give plenty of notice of the change, . . . You’re supposed to match up the notice you give to each employee with the notice you’d give if you were to terminate them,” he says. That roughly works out to one month for every year of service, to a maximum of two years.
But it would be an administrative nightmare to start the new plan on a different date for each member, so giving two years’ notice to everyone is the safest route. If that’s not possible, Frazer suggests picking a start date that gives sufficient notice to as many employees as possible.
Once new plan limits are in place, employers should be cautious about permitting exceptions, says Anstey. While grandfathering a member into the original plan reduces the risk they’ll bring legal action, it increases the risk that other members subject to the limitation will argue they’re being treated unfairly.
Though insurance providers bear the cost of defending any lawsuits stemming from fully insured plans, plan sponsors with ASO arrangements would bear that cost, even though insurers often draft the plan documents and may use the same language used in the documents for their insured clients, says Anstey.
Switching to an insured plan is one way for employers to mitigate their litigation risk, she says, noting the cost may not be much more in certain provinces, such as Ontario. That’s because plan sponsors are subject to premium tax regardless of whether they have a self-insured or insured arrangement. But in other provinces, where ASO plan sponsors don’t pay premium tax, the three to four per cent increase may be too steep a price.
Even if it’s not feasible to switch to an insured plan, Anstey encourages ASO plan sponsors to ask insurance carriers, during the tendering process, to take on the risks of any legal defence. She has seen several providers agree to do so and, in some cases, at no added cost.
Whichever route a plan sponsor decides to follow, it’s most important they understand their plan limitations and ensure they’re well documented, along with any criteria that govern coverage, says Anstey. “Taking ownership of the plan is key.”
Sara Tatelman is a Toronto-based freelance writer.