CIA Annual Meeting Assemblée annuelle de l’ICA June 29 & 30, 2006  Les 29 et 30 juin 2006 Ottawa, Ontario Session GRP-1 : Added Value of TPA /TPP

CIA Annual Meeting  Assemblée annuelle de l’ICA Actuarial And Other Aspects of TPA /TPP –Pricing –Reserves & Accounting –Legal –Tax Session GRP-1 : Added Value of TPA /TPP

CIA Annual Meeting  Assemblée annuelle de l’ICA Actuarial And Other Aspects of TPA /TPP – Pricing (see Example) Administration Charges of TPA / TPP – General administration Charge – Claims administration Charge May be – Higher than the corresponding Insurer’s charge – Equal to the corresponding Insurer’s charge – Lower than the corresponding Insurer’s charge Charges made by drug card network providers may differ between a large insurer and a TPA/TPP Session GRP-1 : Added Value of TPA /TPP

CIA Annual Meeting  Assemblée annuelle de l’ICA Actuarial And Other Aspects of TPA /TPP – Pricing (see Example) Employer can save money by going ASO – Insurer’s Risk Charge is gone – Can save Premium Tax outside Quebec, Ontario and Newfoundland & Labrador – Insurer’s Profit Charge goes down » No MCCSR  No alternative cost of capital Employer can lose some money by going ASO – Insurer’s Sales discounts may be lost » Insurers may quote below cost on insured groups – Employer takes the experience risk » Risk can be mitigated by using stop-loss Session GRP-1 : Added Value of TPA /TPP

CIA Annual Meeting  Assemblée annuelle de l’ICA Actuarial And Other Aspects of TPA /TPP – Reserves If Employer goes ASO – IBNR Reserves » Not held by the insurer (since no insurer) » No CICA 3461 Requirement for IBNR on Health & Dental » No obligation to pre-fund » IBNR Reserves are still a liability for the employer (may be off-balance sheet) – DLR reserves on LTD must be recognized under CICA 3461 » No obligation to pre-fund  Remember Eaton’s » Need for an actuarial valuation (to be paid for by Employer) » If Employer is registered at the SEC, documentation requirements of Sarbanes-Oxley would apply Session GRP-1 : Added Value of TPA /TPP

CIA Annual Meeting  Assemblée annuelle de l’ICA Actuarial And Other Aspects of TPA /TPP – Legal Designation of beneficiary under Quebec Civil Code – Section 2451: designation remains revocable until received by the insurer » Impact depends upon whether TPA is mandated by Insurer or by Employer » If TPA is mandated by Employer, a normally irrevocable beneficiary could remain revocable  may sue if revoked Self-Insured plan with TPA does not have automatic access to pooling under Quebec Drug Insurance Act – Need to negotiate with the Société de Compensation Session GRP-1 : Added Value of TPA /TPP

CIA Annual Meeting  Assemblée annuelle de l’ICA Actuarial And Other Aspects of TPA /TPP – Tax TPA/TPP services are subject to 7% GST, 8% Ontario sales tax and 7.5% QST if the plan is self-insured TPA/TPP services are subject to 8% Ontario sales tax and the 9% Quebec tax if the plan is partially or totally insured and the insurer pays the TPA/TPP services are subject to 7% GST, 8% Ontario sales tax and 7.5% QST if the plan is partially or totally insured and the employer pays the TPA/TPP Session GRP-1 : Added Value of TPA /TPP