The Need for Industry Pooling on High Cost Drug Claims

The high cost drug landscape

Over the past decade, on average, prescription drug plan costs have increased between 9-12% each year. These increases have largely been driven by blockbuster drugs such as Lipitor and Crestor.  However, the face of the prescription drug landscape is changing.  Recently, cost increases have slowed due to drugs coming off patent and legislative changes to generic drug prices. Meanwhile the cost and claiming frequency of high cost biologic drugs continues to increase.  

In fact, according to our 2010 data, the total annual cost associated with specialty medications was 97% of the total annual cost of acute medications (such as antibiotics). Based on our figures, the average annual cost per claimant for specialty medications claims is over 136 times higher!

Medical advances have led to a significant increase in the number of high cost prescription drug therapies.  Although their annual costs can be considerable (sometimes well over $50,000 per year), these medications are often life-changing. 

Forecasted growth in the number of high cost drugs available and prescribed in the Canadian market is causing concern among plan sponsors and insurers. This scenario could result in strain for both the plan sponsor trying to control the rising cost of a renewal, and the plan member who may be facing a reduction in coverage of his or her drug therapy.  Given the life-changing nature of these blockbuster drugs, we believe the best approach to managing these costs is the combination of a strong prior authorization process and a mechanism to spread the potential costs across the industry.

The industry solution

Canadian life and health insurers have come together to offer a new drug pooling framework, designed to help protect private benefits plans from the impact of high cost drugs.

The new framework announced by the Canadian Life and Health Insurance Association (CLHIA), available for fully insured non-refund plans only, is a step forward for small and medium-size companies that have group benefit plans experiencing the strain of increasingly expensive specialty drugs. The CLHIS indicated that 24 insurance companies across Canada, collectively representing 100% of the supplementary drug market, have committed to joining the framework created to address:

• Affordability – Non-refund plans should be able to purchase healthcare coverage at a reasonable price. A plan sponsor should not be subject to unaffordable rate increases because of a large, recurring drug claim from a plan member. 
• Transferability – Non-refund groups should be able to select the participating insurer of their choice and not be tied to their current insurer when faced with a large, recurring drug claim.
• Continued coverage – Non-refund groups should be able to ensure coverage of a plan member’s recurring drug claims.

Beyond addressing these concerns, the agreement needed to be acceptable to as many insurance companies as possible and ensure the maintenance of a competitive marketplace. The industry solution addresses these concerns through the two-part, principle-based model that applies to fully-insured non-refund plans:

• The first component requires participating insurers to pool all high cost prescription drug claims for all their fully insured non-refund groups. This pooling must be done in accordance with industry standards.  The internal pooling is referred to as Extended Healthcare Policy Protection Plan (EP3) pooling.
• The second component is an industry pool that spreads the risk of eligible recurrent, high cost drug claims across all participating insurers.  The industry pool will help ensure that participating insurers are able to sustain the costs of offering EP3s.

How does the industry solution work?

One way to think about the industry pool is like a reinsurance agreement or arrangement.  The principle is that industry participants will equally share in the financial risk of certain eligible high cost drug claims.  By doing so, no insurer will be subject to anti-selective risks that could potentially develop under differing underwriting criteria.

Great-West has always adhered to strict guidelines with respect to pooling. It’s one of the ways we protect plan sponsors from catastrophic risks. For more information on industry pooling, limitations and criteria, contact your Great-West group representative.