2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007 Annual Meeting ● Assemblée annuelle 2007

Vancouver

2007 Annual Meeting ● Assemblée annuelle 2007

Vancouver

Canadian Institute

of Actuaries

Canadian Institute

of Actuaries

L’Institut canadien desactuaires

L’Institut canadien desactuaires

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

Large Drug claimsIP32 Friday 10.30am

Tim Clarke

Jim Lewis

Gary Walters

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

Agenda

• Introduction (Gary)• Employer/Consultants’ views

(Tim)• Insurance Company viewpoint

(Jim)• Survey results (Gary)• Discussion (You)

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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?

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

High Cost Prescription Drugs

Employer and Consultant Perspectives

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

Background• 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

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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?

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

High Cost Prescription Drugs

Insurer Perspectives

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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?)

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

Problems

• Do employers really want to pay?• Do employers really want to be in the

position of having to make this decision?

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

Large drug claim pooling

Survey Results

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

Survey (3)

• Does pooling charge vary by:• Gp’s experience before joining pool

• Gp’s experience after joining pool

• Known future claims

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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?

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

Survey (5)

• Any exclusions on an individual joining a pooled group?

• Any direct or indirect out-of-pocket maximums created by the pooling?

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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?

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

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

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

2007

Ann

ual M

eetin

g

Ass

embl

ée a

nnue

lle 2

007

Your thoughts?