2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver

Canadian Institute of Actuaries L’Institut canadien des actuaires 2007 Annual Meeting ●Assemblée annuelle 2007 Vancouver

Large Drug claimsIP32 Friday 10.30am Tim Clarke Jim Lewis Gary Walters

Agenda • Introduction (Gary) • Employer/Consultants’ views (Tim) • Insurance Company viewpoint (Jim) • Survey results (Gary) • Discussion (You)

Large Drug Claims • Most benefit plans pay for items not covered by government • Except for PQ, MB, SK & BC expensive drugs are payable by employer plans • Increasing number of specialist expensive drugs available • Some maintenance, some one-off

The dilemmas • Maintenance drug – known cost so not insurance • Government finding ways to not pay new drugs • Changes so rapid difficult to even price for next 15 months • Many such drugs don’t cure or significantly improve or extend life • Employer feels obligation to pay • Is cost/benefit analysis for a drug even possible?

High Cost Prescription Drugs Employer and Consultant Perspectives

Background • Many significant breakthrough drugs continue to be introduced • Unit cost of these drugs increasing due to: • Research and production costs (e.g. biologics) • Targeted treatments (ie. Fewer patients per drug) • Increased legal risks for producers

Background • Examples of new drugs in recent years:

Who Pays? • Key stakeholders – • Government • Employers • Individuals • Government • Increasingly cost conscious • In many cases question the added value of new products • Delayed decisions • Decisions to not cover many new / expensive products • Varies significantly by province • Employers • Often coverage by default when the government does not pay

Employer Perspective • Balancing act • Employee health • Cost • Most employers want to cover breakthrough drugs • Plan Design / Risk management considerations • Plan maximums • Out-of-pocket maximums • Stop-loss

Employer Perspectives • Large employers • ASO benefit plans • Generally high stop-loss points (e.g $50,000) • Financial impact of one or two very large claims not significant • Willing to accept greater risk • Small employers • Insured or refund accounting • Less ability to accept risk of large claims • Want to “insure” risks – both known and unknown • All employers understanding • Stop-loss has no caps, limits or pre-existing conditions • If we’re transferring risk, why would we buy anything else?

High Cost Prescription Drugs Insurer Perspectives

Problems • Moral / ethical / emotional issues abound • Who will / should pay? • Ultimately insurance companies do not pay (this fact seems to overlooked by Governments as they make decisions) • Historically Governments have paid for drugs administered in hospital, consumers / employers paid for drugs acquired outside of hospital setting (this is changing) • High cost, low frequency items make these drugs ideally suited for insurance concept (National PharmaCare or private insurance?)

Problems • Do employers really want to pay? • Do employers really want to be in the position of having to make this decision?

Insurer Responses to Date • Cancer drug specific issues • Insurers have reviewed contract wording to understand what is contractually promised • Lobbying through CLHIA • Need to prepare for reality that: • Governments are likely not to pick these costs up • No National consistency • Must understand needs of the customers • Employer perspectives • Employee perspectives • Ensure products available to meet these needs

Insurer Responses to Date • Other High Cost Drugs • Generally paid under most standard contracts • Developed managed drug plans • Formulary plans • Prior authorization protocols • Why have these not taken off to a greater extent

Insurer Concerns – Large Insurer Perspective • Balancing antiselection / spread of risk issues • Large claims will not “ruin” a large insurer based on current frequency / amounts • Concern is not getting more than “fair share” of claims

Insurer Concerns – Large Insurer Perspective • Pooling of these claims not a problem but there are concerns about industry practices • do some insurers: • Refuse to quote on groups with large recurring claims • Set pooling charges on quote based on past claims/existence of recurring claims • Set pooling charges on renewal based on experience • Do clients understand differences in pooling practices (to the extent they exist) and their impact on price

Small Insurer • Expect less than one claim – no spread of risk • Impact of a single ongoing claim in their pool is significant • May never be able to cover cost from pool charges • Need pre-ex, cannot takeover existing claims, etc

Large drug claim pooling Survey Results

Survey of current Insurer pool practices • 13 companies responded representing almost $9.5B of insured & ASO medical premium & equivalents • Small, Medium & Large insurers • Those only in Quebec – not relevant • All outside Quebec do offer some pooling • Sought info on: • What groups can get pooling at what level • Cost • What is actually pooled • Client/consultant/broker awareness

Survey (1) • All companies offer compulsory pooling for small groups • Most companies make it compulsory for large insured groups as well • Available for Refund & ASO

Survey (2) • Level usually based on # lives, sometimes at client’s choice • $5K to $100K pooling levels offered • Usually pool claims by individual, sometimes by certificate • 7 companies will grandfather prior pooling but at their own pooling level • Equally $ charge and % premium

Survey (3) • Does pooling charge vary by: • Gp’s experience before joining pool • Gp’s experience after joining pool • Known future claims

Survey (3) • Does pooling charge vary by: • Gp’s experience before joining pool • 2 companies yes • Gp’s experience after joining pool • 4 companies yes • Known future claims • 2 companies yes

Survey (4) • All separate this from Out of Country • Total Drugs or total medical costs? • Pool treatment commenced before pooling? • Pre-ex on medical condition before pooling?

Survey (4) • All separate this from Out of Country • Total Drugs or total medical costs? • Majority medical • Pool treatment commenced before pooling? • 4 No, 1 maybe • Pre-ex on medical condition before pooling? • 2 Yes

Survey (5) • Any exclusions on an individual joining a pooled group? • Any direct or indirect out-of-pocket maximums created by the pooling?

Survey (5) • Any exclusions on an individual joining a pooled group? • None • Any direct or indirect out-of-pocket maximums created by the pooling? • 2 companies yes

Survey (6) • Decline to quote a group with past large medical claim? • Decline to renew a group with a history of making pool claims from multiple individuals? • Decline to renew a group with an ongoing pooled claim?

Survey (6) • Decline to quote a group with past large medical claim? • 6 yes, 3 maybe • Decline to renew a group with a history of making pool claims from multiple individuals? • 2 yes • Decline to renew a group with an ongoing pooled claim? • 2 yes

Survey (7) • Only 5 companies feel that plan sponsors are aware of and asking about the issue • Only 2 feel that brokers aren’t aware and asking • Half companies are not happy with the risks • All believe that this is becoming a bigger issue

Your thoughts?

2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver