How are the pharmacy claims addressed for employee treatments of consistent, on-going, expensive drug treatment, which runs anywhere from $40,000-$80,000 a year?
A portion of the claim falls under the experience of the benefits plan, but the vast majority is “pooled” within the industry as a whole—pure insurance. Think of it like purchasing home insurance and your home burns to the ground. When your home is replaced, you wouldn’t expect the rates to reflect the full replacement costs. The high-risk claims are “pooled” amongst other insured people to spread the exposure to risk.
In that same manner, the insurance industry’s drug pooling framework ensures recurring high-cost drug claims are brought together to allow movement of business, increase plan sustainability, and mitigate risk.
Industry drug pooling framework
In 2013, the Canadian Life and Health Insurance Association (CLHIA)—the not-for-profit membership organization representing the insurance industry—worked to establish a framework for insurers to pool recurring high-cost drug claims. They established the Canadian Drug Insurance Pooling Corporation (CDIPC) to administer this plan for the industry.
Drug pooling is essential to the sustainability of claims of this nature. The following are some highlights scooped from Green Shield’s information posting.
- Participating insurers place eligible high-cost drug claims from all of their fully insured group drug plans into their own proprietary pools called extended drug policy protection plans or EP3s.
- Insurers set premiums for plan sponsor’s fully insured drug plans without including any pooled high-cost drug claims experience.
- When the costs exceed the initial threshold specified by CDIPC for two consecutive calendar years, the industry drug pool supports the EP3 by removing much of the effect of high-cost recurrent drug claims.
- In the background, the participating insurers spread the cost of the high-cost claims among all of the insurers by putting the claims into an industry-wide drug pool administered by CDIPC—this spreads the risk of recurring high-cost claims across all of the insurers.
Utilizing pooling to the benefit of all, means employers don’t have to resort to restricting reimbursement for high-cost drugs. And in turn, plan members should continue to receive coverage even when their plan is incurring ongoing high-cost drug claims. This has created a greater degree of consistency regarding managing the costs of drugs below the industry pool threshold.
With the premium rates being applied are a portion specified to cover these “pooling” charges. When analyzing the renewal rate structure, it is important to note that the rates themselves may be increasing not based on your own usage within the group of employees housed under that benefit plan, but also funding the pool for those “just-in-case” catastrophic drug claims, as well as those established “on-going” claims already in process within the “pool”.
For employers, these rates represent the cost of the claims within the EP3. Due to the fact that the financials behind the framework are very complex, plan sponsors may not necessarily consider the pooling charges forming part of the premium. Though this varies, “pooling” typically starts between $10,000 and $15,000, then enters the industry drug pool at the threshold of $32,500 to a maximum pooling amount of half a million dollars is covered by all insurers through CDIPC. Remember, the insurer is prohibited from experience rating these claims.
Industry experts continue to emphasis drug pooling on its own was never intended as a long-term solution to very high priced pharmaceutical, simply to buy additional time to develop a more comprehensive solution.
Consider that without the “pooling” framework some plans would have had to halt access to coverage, which obviously would have had negative effects. The high cost of drugs is definitely a bigger societal issue that, as time goes on, is becoming more urgent to tackle.
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