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Canadian Drug Insurance Pooling Corporation

Scott HeardVice-President, Sales and MarketingGroup Insurance

Toronto: November 21, 2012

A partner you can trust.

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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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Twenty four insurers, who collectively account for 100% of supplemental group health business in Canada are participating as Founding Members

Sun Life Union Life Western Life

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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?

Industry pooling is managed at a certificate level Thresholds that must be satisfied to qualify for the

industry pool Drug claims must exceed $50,000 for at least two consecutive years 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

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.

$50,000 threshold is the "Initial Threshold" $25,000 threshold is the "Ongoing Threshold"

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How does it work?

For first three years of the pooling, the thresholds are

2012: $25,000 and $50,000 2013: $25,000 and $50,000 (1st year of pooling) 2014: $27,500 and $55,000 2015: $30,000 and $60,000

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

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How does it work?

For first three years of the pooling, the industry cap is

2012: $400,000 2013: $400,000 (1st year of pooling) 2014: $400,000 2015: $500,000

The CDIPC board is responsible for adjusting the cap as appropriate on a go forward basis

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How does it work?

Pool 1 – Residents of Alberta Ontario Nova Scotia / New Brunswick / Newfoundland and Labrador / P.E.I. Yukon North West Territories Nunavut

Pool 2 – Residents of Quebec For costs not covered under the Quebec Drug Insurance Pooling Corporation

Pool 3 – Residents of pharmacare provinces British Columbia Manitoba Saskatchewan

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How does it work?

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

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How does it work?

The types of claims that are eligible to be pooled will vary depending on the pool

• Eligible certificates will come from individuals not covered under seniors care, or other programs

(ON, AB, Maritimes, Territories)

• 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

(Quebec)

• Eligible certificates will come from individuals with claims for a drug not on the provincial formulary

(BC, Manitoba, Saskatchewan)

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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).

• Mandatory exclusion from both EP3 and Industry Pool• Exclusion must be removed if certificate subsequently

falls below Ongoing Threshold for two consecutive years

Claim greater than Ongoing Threshold

($25K initially) 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

Claim less than Ongoing Threshold

but greater than EP3 Threshold in prior

year

• 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

New plan – no historical information

available

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 Eligibility Termination Member rights Board of Directors Administration

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Governance and Administration

• TRANSPARENT TO SPONSORS• Helps insurers sustain the costs of

providing EP3 protection by pooling large recurring drug claims

Insurer A

Insurer BInsurer C Insurer D

Industry Pool

EP3

Industry Pool

• IMPACTS FOR EMPLOYERS• Mandates internal pooling for all fully-

insured 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.)

CDIPC • TRANSPARENT TO SPONSORS• Administers industry pool and

ensures insurers comply with EP3 and Industry Pool standards

Governance & Admin

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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?

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