Canadian Drug
Insurance Pooling
Corporation
Scott Heard
Vice-President, Sales and Marketing
Group Insurance
A partner you can trust.
Toronto: November 21, 2012
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Our ambition is to ‘be recognized
by our clients as the best service
provider of group benefits’.
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Agenda
1. Rationale for the program
2. Benefits for plan sponsors, plan members, and advisors
3. How does it work?
4. Protection from adverse selection
5. Governance and administration
6. Impact on advisors, next steps, and timelines
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Rationale for the program
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Rationale for the program
 Growing concerns over sustainability
 ESC 2011 Drug Trend Report
 Biologic drug claims growing by 12 per cent per year
 Expected to account for 33% of drug spending in 2014
 CLHIA data
 20% annual growth of claims over $25,000 since 2008
 Increased duration of recurring, high cost claims
 Recurring high cost drug claims for relatively young people
 Increased incidence of high cost claims
 High cost medications increasingly prescribed to treat cancer, auto-immune
conditions and other rare diseases
 Highly effective and very costly treatment
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Rationale for the program
 CLHIA poll
 1/3 of small-medium employers would consider making changes to their drug
plans if premiums were to increase by 25%
The industry pooling program ultimately helps ensure that millions of Canadians
can continue to access the prescription drugs they need, regardless of whether
they or their colleagues require a high cost, recurring drug.
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Sun Life
Union Life
Western Life
Twenty four insurers, who collectively account for 100% of supplemental group health business
in Canada are participating as Founding Members
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Benefits for Plan Sponsors,
Plan Members, and Advisors
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Benefits for Plan Sponsors
1. Availability
 All fully insured groups will continue to be able to purchase group extended
healthcare coverage
2. Affordability
 At a reasonable price even after the incidence of a large recurring drug claim(s)
3. Transferability
 Able to select the participating insurer of their choice
4. Competition
 The solution will continue to encourage active and vigorous market competition
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Benefits for Plan Members
1. Sustainability of coverage
 Able to continue to receive coverage through their employer even in the face of a
high cost drug claim
2. Job mobility
 Change of employers won’t jeopardize coverage
3. Protection from financially catastrophic occurence
 1,900 individuals covered by fully insured plans in Canada had annual drug claims
exceeding $25,000 in 2010
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Benefits for Advisors
1. Continued market access for group healthcare benefits for
fully insured groups
2. Catastrophic claims will not affect price

Even after the incidence of a large recurring drug claim
3. Competitive market conditions restored
4. Limited changes to advisors’ operations
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How does it work?
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How does it work?
 The agreement covers only “fully insured plans"
 Fully insured plans do not include
 Administrative Services Only (ASO)
 Refund accounting (includes any element of premium refund to client)
 Stop loss plans
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How does it work?
1. Insurers must place all large drug claims (fully-insured only) in
a self-administered pool
 Extended healthcare Policy Protection Plan:
EP3
2. Insurers cannot renewal rate based on the experience of a
specific group
 The number or value of pooled drug claims for a particular plan sponsor cannot
be considered in setting renewal rates for that group
 Favorable and unfavorable experience of a particular plan sponsor will be ignored
in setting rates
3. Insurers cannot experience rate and price for new business
based on a particular plan sponsor’s pooled drug claims
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How does it work?
4. Individual insurers can set premiums based on
 The experience of its entire EP3 pool
 Any other experience criteria that is not client specific
5. Drug and non-drug health benefits can be pooled together
 EP3 rules apply to drug portion only of pooled benefits
 Insurers are required to have processes that can demonstrate that they are
following the rules of EP3 for the drug portion
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How does it work?
 Elements of the EP3 pools can be customized by each insurer
include:
 Pricing
 Pooling threshold (subject to a cap of $25,000)
 Pooling at individual level or certificate level
 Industry pool managed at certificate level
 Application of co-payments or deductibles
 Subject to a cap of $1,000 for deductibles
 Formulary design
 etc.
 Insurers can establish multiple EP3 solutions for different
market segments
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How does it work?
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Industry pooling is managed at a certificate level
Thresholds that must be satisfied to qualify for the
industry pool
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Drug claims must exceed $50,000 for at least two consecutive years

The largest drug claim that could be fully pooled for a given cap is
$400,000 / 0.85 + $25,000 = $496,558

If a certificate falls below $25,000 for 2 consecutive years, it is no
longer eligible and would need to re-qualify

Amounts beyond the cap will be 100% borne by the primary insurer.
In year two and in each subsequent year where the drug claims exceed
$25,000, the industry pool will cover 85% of the amount over $25,000 to
a maximum of $400,000 per year
$50,000 threshold is the "Initial Threshold"
$25,000 threshold is the "Ongoing Threshold"
How does it work?

For first three years of the pooling, the thresholds are
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2012:
2013:
2014:
2015:
$25,000 and $50,000
$25,000 and $50,000
$27,500 and $55,000
$30,000 and $60,000
(1st year of pooling)
The CDIPC board will adjust the thresholds to maintain
an appropriate balance

Ensure that the pool stays a relatively constant size

Do not jeopardize the principle of transferability in the market
How does it work?

For first three years of the pooling, the industry cap is
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2012:
2013:
2014:
2015:
$400,000
$400,000
$400,000
$500,000
(1st year of pooling)
The CDIPC board is responsible for adjusting the cap
as appropriate on a go forward basis
How does it work?

Pool 1 – Residents of
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
Pool 2 – Residents of Quebec
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For costs not covered under the Quebec Drug Insurance Pooling Corporation
Pool 3 – Residents of pharmacare provinces
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Alberta
Ontario
Nova Scotia / New Brunswick / Newfoundland and Labrador / P.E.I.
Yukon
North West Territories
Nunavut
British Columbia
Manitoba
Saskatchewan
How does it work?

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Participating insurers will share total pooled drug claims

Based on each participating insurer’s market share of total paid drug
claims for all insured business in the applicable provinces for that pool

Any group drug plan that, by design, could never submit a claim to the pool is
excluded from the market share calculation for the purposes of sharing
pooling costs
How does it work?
The types of claims that are eligible to be pooled will vary depending on the pool
(ON, AB, Maritimes,
Territories)
(Quebec)
(BC, Manitoba,
Saskatchewan)
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• Eligible certificates will come from individuals not
covered under seniors care, or other programs
• Enhances the current pooling protection in Quebec
• Pooled eligible certificates will be for amounts
between the Industry Pool Threshold and the Quebec
Pool Threshold
• Eligible certificates will come from individuals with
claims for a drug not on the provincial formulary
• Eligible certificates will come from individuals with
claims for a drug not on the provincial formulary
Protection from Adverse
Selection
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Protection from Adverse Selection
Pre-existing exclusions apply to existing claims of "new" eligible groups (e.g. an ASO group
becomes a fully insured group, or a sponsor initiating drug coverage for the first time).
Claim greater than
Ongoing Threshold
($25K initially) in prior
year
• Mandatory exclusion from both EP3 and Industry Pool
• Exclusion must be removed if certificate subsequently falls
below Ongoing Threshold for two consecutive years
Claim less than
Ongoing Threshold but
greater than EP3
Threshold in prior year
• Optional exclusion from EP3 pool
• Pre-ex can be removed at any time - if removed, cannot be
reapplied in the future
• If excluded from EP3 pool, must be excluded from Industry
pool
New plan – no historical
information available
• Insurer can offer EP3 coverage
• At end of year one, all high cost claims MUST be audited by
carrier to establish if pre-existing
• Must exclude all pre-existing claims as per rules outlined
above
Pre-existing exclusions do not apply to existing drug claims of groups with
Founding Members that were fully insured group plans as of June 7, 2011
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Governance and Administration
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Governance and Administration
 A not-for-profit corporation has been established
 Canadian Drug Insurance Pooling Corporation (CDIPC)
 Board comprised of 12 members plus 1 Ex Officio (CLHIA)
 Permanent Executive Director will be hired to manage corporation
 CDIPC compliant with Industry Canada standards
 By-laws and powers have been reviewed and customized by the working
group
 Aspects of the program that will be overseen and
managed by a Board of Directors
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Eligibility
Termination
Member rights
Board of Directors
Administration
Governance and Administration
Governance
& Admin
CDIPC
Industry
Pool
Industry Pool
Insurer B
Insurer A
Insurer C
Insurer D
EP3
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TRANSPARENT TO SPONSORS
Administers industry pool and
ensures insurers comply with EP3
and Industry Pool standards
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TRANSPARENT TO SPONSORS
Helps insurers sustain the costs of
providing EP3 protection by pooling
large recurring drug claims
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IMPACTS FOR EMPLOYERS
Mandates internal pooling for all fullyinsured plans
Cannot experience rate clients based
on pooled drug claims
If bidding on new business, cannot
experience rate prospective new clients
(already with another insurer) based on
pooled drug claims
All other aspects of design of EP3 are
customizable and a source of
competition (price, pooling threshold,
formulary design etc.)
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•
•
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Impact on Advisors,
Next Steps, and Timelines
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Impact on Advisors, Next Steps, and Timelines
 Advisors should be aware that
 Insurers will be asking for more information than in the past on prospective new
business
 Copies of plan sponsors’ existing EP3 certificate
 Copies of experience reports – including what is included or excluded from
the experience
 Information provided by insurers:
 Every eligible group plan will receive each year an inter-company EP3
certificate outlining the broad terms of their Policy Protection Plan (EP3)
and any excluded pre-existing claims, respecting privacy requirements
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Impact on Advisors, Next Steps, and Timelines
 Insurers bidding on new business cannot consider the
particular plan sponsor’s pooled drug experience
 The new insurer
 Must pool its new clients’ high cost claims in its EP3 pool
 Can exclude any drug claims that would normally be pooled by its EP3 pool
if the drug claim was not covered by the pool of the previous insurer
 Can exclude from its EP3 plan any pooled drug claim covered under the
EP3 of the previous insurer that does not fit within the design parameters of
the new plan
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Impact on Advisors, Next Steps, and Timelines
 At Industrial Alliance, current pools will stay the same
 Standard $15,000 individual threshold for in Canada medical (drugs and non


drugs)
Other thresholds possible
The Industry pool works like a reinsurance coverage for the insurer
 Move to a per Certificate basis?
 Three regions:
 Pharmacare provinces
 Quebec
 Others  largest cost
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Impact on Advisors, Next Steps, and Timelines
 Canadian Drug Insurance Pooling Corporation established
 Board is established
 Searching for Executive Director
 Insurers currently developing their EP3 offer and
communicating with sponsors and advisors
 Eligible group policies must be covered by an EP3 as of their
first renewal date on or after January 1, 2013
 Eligible drug claim payments to be pooled in the industry pool
effective January 1, 2013
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Questions?
The elephant, symbol of our 100 years of strength and longevity.
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