Transcript James C. Lewis, Gary A. Walters

2007 Annual Meeting
Assemblée annuelle 2007
Canadian
Institute
of
Actuaries
L’Institut
canadien
des
actuaires
2007 Annual Meeting ● Assemblée annuelle 2007
Vancouver
2007 Annual Meeting
Assemblée annuelle 2007
Large Drug claims
IP32 Friday 10.30am
Tim Clarke
Jim Lewis
Gary Walters
2007 Annual Meeting
Assemblée annuelle 2007
Agenda
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Introduction (Gary)
Employer/Consultants’ views
(Tim)
Insurance Company viewpoint
(Jim)
Survey results (Gary)
Discussion (You)
2007 Annual Meeting
Assemblée annuelle 2007
Large Drug Claims
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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 oneoff
2007 Annual Meeting
Assemblée annuelle 2007
The dilemmas
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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?
2007 Annual Meeting
Assemblée annuelle 2007
High Cost Prescription
Drugs
Employer and Consultant
Perspectives
2007 Annual Meeting
Assemblée annuelle 2007
Background
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Many significant breakthrough drugs continue to be
introduced
Unit cost of these drugs increasing due to:
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Research and production costs (e.g. biologics)
Targeted treatments (ie. Fewer patients per drug)
Increased legal risks for producers
2007 Annual Meeting
Assemblée annuelle 2007
Background
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Examples of new drugs in recent years:
Condition
Drugs
Annual Cost
Rheumatoid arthritis
Enbrel
Remicade
$20,000 to $40,000
Cancer (oral)
Gleevec
Tarceva
$30,000 to $50,000
Cancer (injectible)
Herceptin
Zoladex
$10,000 to $40,000
Multiple sclerosis
Copaxone
Rebif
$15,000 to $25,000
Fabry’s disease
Fabryzyme
$300,000
2007 Annual Meeting
Assemblée annuelle 2007
Who Pays?
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Key stakeholders –
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Government
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Government
Employers
Individuals
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
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Often coverage by default when the government does not pay
2007 Annual Meeting
Assemblée annuelle 2007
Employer Perspective
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Balancing act
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Employee health
Cost
Most employers want to cover breakthrough drugs
Plan Design / Risk management considerations
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Plan maximums
Out-of-pocket maximums
Stop-loss
2007 Annual Meeting
Assemblée annuelle 2007
Employer Perspectives
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Large employers
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Small employers
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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
Insured or refund accounting
Less ability to accept risk of large claims
Want to “insure” risks – both known and unknown
All employers understanding
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Stop-loss has no caps, limits or pre-existing conditions
If we’re transferring risk, why would we buy anything else?
2007 Annual Meeting
Assemblée annuelle 2007
High Cost Prescription
Drugs
Insurer Perspectives
2007 Annual Meeting
Assemblée annuelle 2007
Problems
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Moral / ethical / emotional issues abound
Who will / should pay?
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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?)
2007 Annual Meeting
Assemblée annuelle 2007
Problems
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Do employers really want to pay?
Do employers really want to be in the
position of having to make this
decision?
2007 Annual Meeting
Assemblée annuelle 2007
Insurer Responses to Date
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Cancer drug specific issues
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Insurers have reviewed contract wording to
understand what is contractually promised
Lobbying through CLHIA
Need to prepare for reality that:
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Governments are likely not to pick these costs up
No National consistency
Must understand needs of the customers
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Employer perspectives
Employee perspectives
Ensure products available to meet these needs
2007 Annual Meeting
Assemblée annuelle 2007
Insurer Responses to Date
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Other High Cost Drugs
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Generally paid under most standard
contracts
Developed managed drug plans
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Formulary plans
Prior authorization protocols
Why have these not taken off to a greater
extent
2007 Annual Meeting
Assemblée annuelle 2007
Insurer Concerns – Large
Insurer Perspective
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Balancing antiselection / spread of
risk issues
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Large claims will not “ruin” a large
insurer based on current frequency /
amounts
Concern is not getting more than “fair
share” of claims
2007 Annual Meeting
Assemblée annuelle 2007
Insurer Concerns – Large
Insurer Perspective
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Pooling of these claims not a problem but
there are concerns about industry
practices
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do some insurers:
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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
2007 Annual Meeting
Assemblée annuelle 2007
Small Insurer
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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
2007 Annual Meeting
Assemblée annuelle 2007
Large drug claim pooling
Survey Results
2007 Annual Meeting
Assemblée annuelle 2007
Survey of current Insurer pool
practices
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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:
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What groups can get pooling at what level
Cost
What is actually pooled
Client/consultant/broker awareness
2007 Annual Meeting
Assemblée annuelle 2007
Survey (1)
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All companies offer compulsory
pooling for small groups
Most companies make it compulsory
for large insured groups as well
Available for Refund & ASO
2007 Annual Meeting
Assemblée annuelle 2007
Survey (2)
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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
2007 Annual Meeting
Assemblée annuelle 2007
Survey (3)
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Does pooling charge vary by:
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Gp’s experience before joining pool
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Gp’s experience after joining pool
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Known future claims
2007 Annual Meeting
Assemblée annuelle 2007
Survey (3)
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Does pooling charge vary by:
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Gp’s experience before joining pool
2 companies yes
Gp’s experience after joining pool
4 companies yes
Known future claims
2 companies yes
2007 Annual Meeting
Assemblée annuelle 2007
Survey (4)
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All separate this from Out of Country
Total Drugs or total medical costs?
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Pool treatment commenced before
pooling?
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Pre-ex on medical condition before
pooling?
2007 Annual Meeting
Assemblée annuelle 2007
Survey (4)
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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
2007 Annual Meeting
Assemblée annuelle 2007
Survey (5)
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Any exclusions on an individual
joining a pooled group?
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Any direct or indirect out-of-pocket
maximums created by the pooling?
2007 Annual Meeting
Assemblée annuelle 2007
Survey (5)
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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
2007 Annual Meeting
Assemblée annuelle 2007
Survey (6)
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Decline to quote a group with past
large medical claim?
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Decline to renew a group with a
history of making pool claims from
multiple individuals?
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Decline to renew a group with an
ongoing pooled claim?
2007 Annual Meeting
Assemblée annuelle 2007
Survey (6)
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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
2007 Annual Meeting
Assemblée annuelle 2007
Survey (7)
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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
2007 Annual Meeting
Assemblée annuelle 2007
Your thoughts?