What Should the Plan Sponsor Think About Industry Drug Pooling?

Not that long ago, I was in Cambridge, Ontario discussing the topic of “Industry Pooling” for catastrophic (exceptionally high) drug claims.  I did so as a presenter at a March 26 Connex Breakfast Session on the topic of “Catastrophic Coverage: An Ongoing Industry Challenge Explored.”   My role on the day’s agenda was to discuss the potential impact of our industry’s new pooling arrangement on plan sponsors.

I shared my thoughts with the audience that day; now let me share this with you – Pal’s clients and friends.  But first, a little background:

Background on Industry Drug Pooling

For a couple of years, we heard talk of the creation of an industry health care pooling arrangement to help mitigate the cost impact of catastrophic drug claims on drug programs.  Indeed, close to a year ago, Canadian Life & Health Insurance Association (CLHIA) announced the first details of such an arrangement. We reviewed that announcement in our April 2012 issue of The Advisor here.

The basis for this initiative was rooted in the belief that the problem of rising costs due to increased use of expensive specialty drugs was only going to get worse.  CLHIA’s member insurance companies developed a health pooling arrangement at the industry level to help ensure the sustainability of drug programs.

Why the concern about sustainability?  The following provides a little insight into the current drug landscape; with a little imagination, consider what might happen to future costs if left unchecked.

• The number of drug claims exceeding $25,000 ­per individual, per year increases every year.
• More and more, high cost medications are being prescribed for the long-term; they are no longer typically prescribed for just rare or acute treatments.
• The use of new, expensive biologic drugs is increasing.  Biologics are very effective; they are also very costly due to an expensive manufacturing process.

What this means for the plan sponsor – both today and in the future:

Today

On a practical level, today, what does this mean for the plan sponsor?  The reality is that, even though there has been positive press on this arrangement, the direct impact on most plan sponsors will be minimal.  This is because it is a carrier’s internal pooling level that more directly affects a plan sponsor’s annual financial renewal rating.  Typically, internal pooling levels are at $10,000 or $15,000 for small and medium sized businesses and, in most cases, encompass other health claims (such as for hospital and costly medical equipment) in addition to drugs.  This is the level of protection that is most important to plan sponsors.

Assuming this does not change, and in most cases it won’t, it remains business as usual for most sponsors.

Tomorrow

As the industry pooling arrangement continues its rollout, some carriers (not all) are re-evaluating their current internal pooling.  One of the issues under the insurers’ consideration is whether or not certain circumstances preclude them from offering any pooling coverage at all. 

If this becomes a reality, some plan sponsors would be without any risk management tool for their health benefit and this concerns me.

Carriers continue to consider their options and I anticipate we will learn more about this topic in the coming months. 

Stay tuned for my “Pooling: Part II” blog!

Ask before you offer disability coverage to foreign contract workers

I’m currently tracking two human resource trends that will likely remain strong in 2013 and beyond and which are generating questions in the benefits world.  They are: (1) Increased global hiring and (2) increased outsourcing.

The impact of these developments – and they have been noted on a number of human resource trend prediction lists for 2013 – is that we are fielding more questions about providing disability coverage to contract workers who come into Canada on a temporary work visa.  Providing health coverage for these individuals is relatively straightforward; providing disability coverage is a little more involved and employers should ascertain the insurer’s coverage criteria for foreign workers before offering this benefit.  Be aware that some carriers don’t offer disability insurance at all to foreign contract workers; others do but usually with some restrictions and limitations.

For insurers that do offer disability coverage to foreign contract workers, some of the following boundaries might apply:

• Coverage limited to duration of the work visa with maximum time frames imposed
• Insurer must be notified when the individual’s employment status changes from contract worker to permanent resident
• In the event of a disability payment, insurers may have varying rules as to when payments cease, for example, two years after the date of disability.
• There may be allowances for work permit extensions.
• Foreign contract workers must be listed during annual renewal census reviews.
• Coverage ceases upon leaving Canada.

In short, as Canadian hiring practices continue to tap into foreign talent and more non-Canadians enter the workforce on foreign worker visas, make sure you investigate your disability insurance details before making any promises to prospective candidates.  You want to make sure you have the appropriate coverage in place.  

Judy Buckley

V.P. Consulting