2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle Annual Meeting ● Assemblée annuelle 2007 Vancouver 2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver Canadian Institute of Actuaries Canadian Institute of Actuaries L’Institut canadien des actuaires L’Institut canadien des actuaires

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Large Drug claims IP32 Friday 10.30am Tim Clarke Jim Lewis Gary Walters

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Agenda Introduction (Gary) Employer/Consultants’ views (Tim) Insurance Company viewpoint (Jim) Survey results (Gary) Discussion (You)

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Large Drug Claims Most benefit plans pay for items not covered by government Except for PQ, MB, SK & BC expensive drugs are payable by employer plans Increasing number of specialist expensive drugs available Some maintenance, some one- off

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 The dilemmas Maintenance drug – known cost so not insurance Government finding ways to not pay new drugs Changes so rapid difficult to even price for next 15 months Many such drugs don’t cure or significantly improve or extend life Employer feels obligation to pay Is cost/benefit analysis for a drug even possible?

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 High Cost Prescription Drugs Employer and Consultant Perspectives

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Background Many significant breakthrough drugs continue to be introduced Unit cost of these drugs increasing due to: Research and production costs (e.g. biologics) Targeted treatments (ie. Fewer patients per drug) Increased legal risks for producers

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Background Examples of new drugs in recent years: ConditionDrugsAnnual Cost Rheumatoid arthritisEnbrel Remicade $20,000 to $40,000 Cancer (oral)Gleevec Tarceva $30,000 to $50,000 Cancer (injectible)Herceptin Zoladex $10,000 to $40,000 Multiple sclerosisCopaxone Rebif $15,000 to $25,000 Fabry’s diseaseFabryzyme$300,000

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Who Pays? Key stakeholders – Government Employers Individuals Government Increasingly cost conscious In many cases question the added value of new products Delayed decisions Decisions to not cover many new / expensive products Varies significantly by province Employers Often coverage by default when the government does not pay

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Employer Perspective Balancing act Employee health Cost Most employers want to cover breakthrough drugs Plan Design / Risk management considerations Plan maximums Out-of-pocket maximums Stop-loss

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Employer Perspectives Large employers ASO benefit plans Generally high stop-loss points (e.g $50,000) Financial impact of one or two very large claims not significant Willing to accept greater risk Small employers Insured or refund accounting Less ability to accept risk of large claims Want to “insure” risks – both known and unknown All employers understanding Stop-loss has no caps, limits or pre-existing conditions If we’re transferring risk, why would we buy anything else?

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 High Cost Prescription Drugs Insurer Perspectives

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Problems Moral / ethical / emotional issues abound Who will / should pay? Ultimately insurance companies do not pay (this fact seems to overlooked by Governments as they make decisions) Historically Governments have paid for drugs administered in hospital, consumers / employers paid for drugs acquired outside of hospital setting (this is changing) High cost, low frequency items make these drugs ideally suited for insurance concept (National PharmaCare or private insurance?)

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Problems Do employers really want to pay? Do employers really want to be in the position of having to make this decision?

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Insurer Responses to Date Cancer drug specific issues Insurers have reviewed contract wording to understand what is contractually promised Lobbying through CLHIA Need to prepare for reality that: Governments are likely not to pick these costs up No National consistency Must understand needs of the customers Employer perspectives Employee perspectives Ensure products available to meet these needs

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Insurer Responses to Date Other High Cost Drugs Generally paid under most standard contracts Developed managed drug plans Formulary plans Prior authorization protocols Why have these not taken off to a greater extent

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Insurer Concerns – Large Insurer Perspective Balancing antiselection / spread of risk issues Large claims will not “ruin” a large insurer based on current frequency / amounts Concern is not getting more than “fair share” of claims

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Insurer Concerns – Large Insurer Perspective Pooling of these claims not a problem but there are concerns about industry practices do some insurers: Refuse to quote on groups with large recurring claims Set pooling charges on quote based on past claims/existence of recurring claims Set pooling charges on renewal based on experience Do clients understand differences in pooling practices (to the extent they exist) and their impact on price

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Small Insurer Expect less than one claim – no spread of risk Impact of a single ongoing claim in their pool is significant May never be able to cover cost from pool charges Need pre-ex, cannot takeover existing claims, etc

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Large drug claim pooling Survey Results

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Survey of current Insurer pool practices 13 companies responded representing almost $9.5B of insured & ASO medical premium & equivalents Small, Medium & Large insurers Those only in Quebec – not relevant All outside Quebec do offer some pooling Sought info on: What groups can get pooling at what level Cost What is actually pooled Client/consultant/broker awareness

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Survey (1) All companies offer compulsory pooling for small groups Most companies make it compulsory for large insured groups as well Available for Refund & ASO

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Survey (2) Level usually based on # lives, sometimes at client’s choice $5K to $100K pooling levels offered Usually pool claims by individual, sometimes by certificate 7 companies will grandfather prior pooling but at their own pooling level Equally $ charge and % premium

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Survey (3) Does pooling charge vary by: Gp’s experience before joining pool Gp’s experience after joining pool Known future claims

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Survey (3) Does pooling charge vary by: Gp’s experience before joining pool 2 companies yes Gp’s experience after joining pool 4 companies yes Known future claims 2 companies yes

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Survey (4) All separate this from Out of Country Total Drugs or total medical costs? Pool treatment commenced before pooling? Pre-ex on medical condition before pooling?

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Survey (4) All separate this from Out of Country Total Drugs or total medical costs? Majority medical Pool treatment commenced before pooling? 4 No, 1 maybe Pre-ex on medical condition before pooling? 2 Yes

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Survey (5) Any exclusions on an individual joining a pooled group? Any direct or indirect out-of-pocket maximums created by the pooling?

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Survey (5) Any exclusions on an individual joining a pooled group? None Any direct or indirect out-of-pocket maximums created by the pooling? 2 companies yes

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Survey (6) Decline to quote a group with past large medical claim? Decline to renew a group with a history of making pool claims from multiple individuals? Decline to renew a group with an ongoing pooled claim?

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Survey (6) Decline to quote a group with past large medical claim? 6 yes, 3 maybe Decline to renew a group with a history of making pool claims from multiple individuals? 2 yes Decline to renew a group with an ongoing pooled claim? 2 yes

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Survey (7) Only 5 companies feel that plan sponsors are aware of and asking about the issue Only 2 feel that brokers aren’t aware and asking Half companies are not happy with the risks All believe that this is becoming a bigger issue

2007 Annual Meeting Assemblée annuelle Annual Meeting Assemblée annuelle 2007 Your thoughts?