The growing influx of costly drugs plus the proliferation of large claimants is threatening the survival of group insurance plans. These pressures are pushing drug costs upward not only for employers, but also for insurers that cover these costs through their risk pooling mechanisms. 

Biologics and specialty drugs are putting the squeeze on group plans. In its report on drug trends published in May, pharmacy services supplier Express Scripts Canada (ESI) announced that specialty drug spending doubled from 13.2% of total expenses in 2007 to 26.5% in 2014. ESI pins this increase on costly treatments and the growing use of specialty drugs. These drugs may account for up to 35% of total spending in the next five years, ESI predicts.

In fact, specialty drugs represent only 2% of settlement requests. They are used to treat disorders like hepatitis C, rheumatoid arthritis, multiple sclerosis and cancer.

Large claimants

The report finds that the annual cost per large claim ranged from $6,900 to $755,000 in 2014. The top 1% stratum of claimants incurred 28% of total expenses in 2014. This segment’s total expenses are equal to those of 85% of the least costly claimants. Annual average spending of large claimants more than doubled in five years. It exploded from $8,185 in 2010 to $18,845 in 2014, and most of these claimants suffered from more than one condition.

These trends are inflating the cost of claim pooling for insurers. While insurers assume a greater share of the risk, fund sponsors’ costs are also on the rise.  “We are worried about our clients’ capacity to pay, which is nearing its limit. Groups will no longer have the means to support their plans,” says Carl Laflamme, senior vice-president, Group Insurance at SSQ Financial Group.

Laflamme thinks that bargain-hunting will no longer be enough to stabilize the costs of group insurance. He thinks that changing suppliers to find a better price is a stopgap measure, and any savings may be artificial. “The sustainable solution is to work more on claims,” he explains. 

Robert Tellier regional vice-president, Group Benefits and Retirement Solutions at Manulife, says that these factors are stoking unprecedented industry concern over cost growth in plans. “Risk pooling by insurers is increasing,” he says. 

For example, cases of hepatitis C are rampant: hundreds of thousands of Canadians are suffering from this disease, Tellier adds. “We expect to find people infected with hep C among the participants of our insured clients,” he says.

The ageing workforce is another factor ramping up the pressure, Tellier points out. “This trend will accentuate in the coming years as the number of early retirements decrease. People plan to work for longer,” he says. Tellier knows that the industry is prepared to launch group guarantees designed to cover workers over age 65. “Even if this is not a short-term goal, discussions on this topic are ongoing in the industry.” 

Johanne Brosseau, president and founder of BrosseauMedConsult, has a long track record in actuarial consulting. She is seeing large claimants skew pooling costs more than ever. She says that hepatitis C and rare diseases that are costly to treat are taking a serious toll on plans. “Heavy cases raise the pooling premium and the ceiling from which insurers start assuming risks,” she says. 

A single dose of Remicade, a biologic designed to treat rare affections like rheumatoid polyarthritis, costs around $940, she points out. Soliris, used to treat a rare disease called paroxysmal nocturnal hemoglobinuria (PNH), rang up an annual tab of $600,000 in 2013 and 2014, Brosseau adds. “According to the threshold set by the Quebec Drug Insurance Pooling Corporation, groups of fewer than 25 employees must assume a threshold of $7,500 for this type of large claimant. The pooling corporation assumes the other $592,500,” she explains

Reduced mobility

AGA Financial group CEO Martin Papillon gives more examples of costly claims. Xolair, a biopharmaceutical for asthma treatment, costs $80,000 per year. In some cases, an injection of Remicade can reach $4000, and the treatment can easily near $50,000 annually. 

During a call for tenders, large claimants may shackle a group that “goes shopping,” Papillon says. “The presence of large claimants makes insurance placement much more complex,” he adds. Papillon describes a large claimant as any employee who claims more than $20,000 of drugs and healthcare in one year. “Large claimants are a phenomenon that is here to stay. We are seeing in our business a ratio of roughly 2 to 2.5 large claimants per 1,000 employees,” Papillon points out.

This means that SMEs are likely to get at least one case, he continues. “A group of 50 employees with two large claimants will have lots of trouble finding an insurer. The Quebec Drug Insurance Pooling Corporation can absorb some of the cost, but the insurer will have to reflect the rest in its premiums. The pooling of its groups will eventually increase, namely the Canadian EP3 pool. Its EP3 cost will rise and it will be less competitive. This is why insurers are loath to take on groups with large claimants,” Papillon explains.

Unfortunately, advisors can do nothing about a small group that includes large claimants, Papillon continues. “A small group of 10 employees hit with a $100,000 claim will see its experience deteriorate to the point that the market loses interest.” 

Information that could identify a large claimant is kept confidential, but an insurer will often ask its advisor if the group includes these cases, Johanne Brosseau points out. “Advisors are refusing to disclose whether their clients’ plans contain oversized cases. They say they do not need to do this because the risk is pooled. But the insurer will reply that it needs the information, because it is the one assuming the risk,” she explains. She recommends that both parties carefully decide on what can be disclosed and what must remain confidential.