CLHIA refutes data in study of rising drug claim costs

By Andrea Lubeck | August 20 2018 01:30PM

Stephen Frank

Stephen Frank, Canadian Life and Health Insurance Association (CLHIA) President and CEO, has accused Innovative Medicines Canada of using “misleading” data in its recently released study on drug claim costs.

The first part of the study covered factors that drive up claims costs in private drug insurance plans, as reported last week by The Insurance and Investment Journal. The researchers found that 75 per cent of the increase in the cost of claims, calculated at 4.7 per cent, is attributable to higher usage and claims experience factors, while only 25 per cent is linked to growth in drug costs.

Factual errors

Although he called the data on the cost drivers in claims in private drug insurance plans interesting, Frank finds fault with some of the other data contained in the report, which he describes as “factual errors.”

Innovative Medicines Canada reports that insurers use an inflation factor in the calculation to set premiums, in addition to prior claims experience of a private plan. The firm projected the annual inflation rate for prescription drugs at 12.06 per cent in 2016, although the actual growth in drug costs was 4.2 per cent. 

Based on this data, the study authors caution fund plan sponsors against insurers’ practices, which it argues “lack transparency.”  

“Comparing the insurer projected trend for prescription drugs to the actual increase in the cost of drug claims, it can be noted that there is a large gap between the projected and actual growth, and one can hope that this translated into reduced claims experience, refund accounting and/or a reduction future premium calculations for individual plan sponsors. However, there is no obligation or guarantee that this is the case. Plan sponsors should be alert and question their premium increases at renewal time,” the authors explain.

When interviewed by The Insurance and Investment Journal, Frank said that annual premium growth was 4.0 per cent between 2012 and 2016, whereas annual claim costs stood at 4.2 per cent.

No influence on premium costs

He added that the inflation rate projected by insurers has no influence on premium costs. “The total health benefits for premium are taken into account. That includes drugs, dental, and disability. Drugs are an important part of the premium, but they are not only that,” he says.

The CLHIA is concerned that people will read too much into report’s findings, Frank adds. “[The authors] don’t understand the mechanics of premiums…When you look at total claims and premiums, they track closely.”

The CLHIA plans to send a response to Innovative Medicines Canada and hopes that the firm will correct the data to make it reflect actual industry practices, Frank says.

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