This document is meant for anyone wanting to better understand the private drug insurance Pooling process in Quebec, and more specifically, the process by which Participants receive compensation.
Under the Quebec Act Respecting Prescription Drug Insurance (the Act), all insurers and all administrators of employee benefit plans are required to pool the risks associated to the costs of pharmaceutical services and prescription drugs of Quebec residents according to the criteria to which they mutually agree.
To fulfill this obligation, the industry established a risk-sharing system (Pooling). The Quebec Drug Insurance Pooling Corporation (QDIPC) is the organization that administers this system and is the only body recognized for this purpose by the Quebec government.
Legal Basis and Framework
The goal of the Basic Prescription Drug Insurance Plan (BPDIP), in effect since January 1st , 1997, is to ensure that the entire Quebec population has reasonable and fair access to prescription drugs. To this end, the plan provides basic coverage for the cost of pharmaceutical services and prescription drugs.
Pooling participants (the Participants) are group insurance insurers or employee benefit plan administrators in the private sector (these plans are also known as administrative services only or ASO plans).
Coverage under the basic plan is provided for by the Régie de l’Assurance Maladie du Québec (RAMQ) or by the Pooling Participants.
Broadly speaking, the law prescribes that Quebecers who have access to private coverage are required to purchase such coverage. Certain exceptions apply, mainly for people 65 and older and certain categories of people determined by regulations.
Under the Act, Participants are required to provide coverage that includes at least the reimbursement of pharmaceutical services and prescription drugs listed by the BPDIP to anyone eligible for a group insurance plan or an administrative services only plan, regardless of their sex, age or health status.
Moreover, under section 43 of the Act:
“All insurers transacting group insurance and all administrators of employee benefit plans who provide coverage for the cost of pharmaceutical services and medications must pool the risks arising from the basic plan coverage they provide according to the Terms and Conditions they determine.
The Terms and Conditions must be communicated by the representatives of the insurers and administrators, in writing, to the Minister not later than November 1st each year. Failing that, the Terms and Conditions shall be determined by government regulation for the period it indicates.”
To fulfill the requirements of the Act, the life and health insurance industry, including representatives of employee benefit plan administrators, created the QDIPC.
Role of the QDIPC
The QDIPC is the only organization recognized by the Quebec government to ensure the sound management of the system for Pooling risks related to the cost of prescription drugs in private group plans in Quebec. It is a non-profit corporation whose sole mission is to pool drug insurance risks among all insurers and employee benefit administrators covering Quebec residents. It is financed by the Participants. Only claims submitted by people residing in Quebec benefit from Pooling.
What Is Pooling?
The goal of Pooling, established by the QDIPC to meet legal requirements, is to share the risks related to prescription drug insurance in the private sector in Quebec, in order to protect Quebecers’ ability to access private insurance while allowing free competition among Participants. Without this Pooling, the ability of certain groups to access private prescription drug coverage (and to other group insurance coverages – other health, dental and disability – that cannot be purchased if a person does not have prescription drug coverage that is at least equivalent to that of the general plan, particularly disability insurance) could be compromised, forcing these groups’ members to join the public plan, which is usually less generous, and creating adverse selection() against the public plan. The costs and risks of this Pooling are kept within the private sector, allowing healthy coexistence between the different private and public plans.
The Pooling system administered by the QDIPC is neither insurance nor reinsurance coverage. Instead, it is a risk-sharing system among Participants with a compensation system.
The Pooling formula used is established by the QDIPC. It is updated annually, taking into account the actual results of past compensations, as well as projection assumptions. It is also subject to an annual consultation involving all Participants.
Challenges – Difficulties
Pooling aims to reduce the challenges groups face related to accessibility to coverage including prescription drug reimbursement.
Certain aspects are already very well regulated by law and are not challenges to accessibility. For example, an insurer or plan administrator cannot refuse access to coverage to people with pre-existing conditions.
However, the cost of prescription drugs, particularly catastrophic drugs, and more particularly, those for certain chronic diseases, is a major challenge for employers and groups of Association of Persons. There is a real risk that these groups will have difficulty in securing coverage at a reasonable cost. In fact, if a group has a catastrophic claim, it may simply be unable to afford the cost of their plan. An employer or an Association of Persons may then have to consider terminating its coverage.
The QDIPC strives for effective Pooling in order to be able to establish fair compensation that is simple to apply and understand.
To be effective, the formula has to protect accessibility to coverage for groups struggling with catastrophic claims.
To be fair, the formula and its rules of application should not create bias among Participants, and those should understand how to apply and follow the rules.
To be simple, the formula needs to be based on existing market practices and strive to limit administrative impacts on Participants to avoid increasing management costs, which are ultimately paid for by customers. It must also be easily understood by Participants, market intermediaries and employers or Associations of Persons. In order to maintain healthy competition and follow free market rules, the QDIPC strives to simplify Pooling management as much as possible for Participants.
The Pooling Formula Selected
Certain prerequisites are necessary to ensure the fair Pooling of claims.
The legal obligation to pool the risks resulting from the implementation of the basic plan imposes membership on Participants. The definitions and rules of application must be clear and precise in order to ensure the consistent implementation of the process.
Experience has shown us that the main risk involved in the ability to access private coverage is the high cost of certain claims, more particularly, recurrent claims. The ability of a group to bear these costs varies according to their size.
The Pooling formula established by the QDIPC pools claims paid under a certificate beyond a certain amount (threshold). Claims exceeding this threshold are removed from the Participants’ experience and pooled with the entire industry. They are then redistributed fairly among all Participants. The threshold varies according to the size of the group of people covered and takes into account these groups’ ability to absorb the cost of drug claims. The thresholds and group sizes covered by Pooling are reviewed annually when the Terms and Conditions are established. The goal is to avoid a situation in which a group has to bear too great of a burden, jeopardizing the continuation of the private plan and depriving members of more complete coverage, including one or more other coverages for accident, illness or disability (Section 39 of the Act). The use of a threshold that varies based on group size minimizes financial and administrative impacts while protecting accessibility. The QDIPC’s Pooling rules apply as soon as a group includes a certificate from Quebec, regardless of where the group is located.
The estimated per-certificate cost to cover pooled claims is called the “Pooling factor”. Factors differ for certificates with or without dependents and vary by threshold level. At the time of compensation, the Pooling factor is reassessed, using actual experience data (and not based on projections) in order to ensure full compensation of the amounts involved. Thus, the total of the amounts claimed in excess of the thresholds at the end of a year equals the total of the amounts paid out as compensation. No surplus or deficit is created.
This is an annual process and covers the period extending from January 1st to December 31st of each year.
After consulting Participants, the QDIPC establishes and communicates to the Ministre de la Santé et des Services Sociaux, no later than November 1st, the Pooling parameters that will apply the following year, notably thresholds and Pooling factors. This allows Participants to take this information into account when establishing rates for their groups. These are what are called the Terms and Conditions.
However, these Terms and Conditions are used only to help Participants establish rates or estimate annual costs. The real compensation factors will be known only once compensation has been completed, by taking all market experience results into consideration for a given calendar year. Money will then be exchanged among the different Participants. This is what is known as Compensation.
The QDIPC relies on market practices for both administrative management and claims management. To simplify the management of Participants’ claims, Pooling covers all claims for drugs reimbursed by the group plan, net of all discounts, thus going beyond the legal requirement of Pooling the drugs on the BPDIP list.
Thresholds vary according to group size.
For each of the claim brackets exceeding the thresholds:
Participant’s market share % x Value of the entire industry’s pooled claims =
Claims total that the Participant bears ($)
- If the Participant’s actual claims are lower than their market share: they pay the difference, which is deposited in a trust account used for Compensation management.
- If the Participant’s actual claims exceed their market share: they receive compensation equal to the difference.Once the Process has been applied to all Participants, the amounts received equal the amounts paid out as compensation.
In the end: the charge per claim bracket exceeding the thresholds is the same for all Participants, regardless of their individual results. Everything is distributed fairly.
In practice, once the year’s results are fully known and verified, cheques are exchanged on a net basis. In the end, certain Participants owe money to the Compensation process while the rest of the Participants receive money, according to their share.
The sums of money are paid to Participants after all funds have been received. The monies are exchanged through a trust account which balances out at the end of the Compensation process.
According to the 2019 statistics, out of an annual market amounting to $3.7B in claims handled by Quebec’s private sector, approximately $115M in claims are pooled. This means that the Pooling formula applies to about 3% of total claims. The cheques exchanged among the 30 or so Participants total approximately $10M.
The compensation period lasts about two months: the time it takes to receive all the amounts payable from certain Participants, and then paid it to the others.
The monies collected during the compensation period are usually temporarily invested in the Corporation’s name in a high-interest savings account or a 30-day guaranteed investment certificate.
To guarantee the independence of the Pooling process and information confidentiality, data is collected by a manager external to the QDIPC, who then performs the calculations necessary for distributing the amounts among Participants. These calculations are repeated and verified by an independent actuarial firm.
Following that, the funds are routed through a trust account in the name of the QDIPC. This account is totally separate from the QDIPC’s operating accounts and is used only for Pooling purposes. Every withdrawal requires the signature of the representative of both entities, that of the external manager and that of the QDIPC, thereby confirming that the exchanges are made on the basis of the manager’s calculations, in keeping with the Terms and Conditions and the entire verification process established by the QDIPC.
Moreover, the activities in the trust account are audited by an external auditor who verifies the incoming and outgoing payments of the trust account.
The entire process takes place under the supervision of the QDIPC.
In order to ensure that the process is fair and that rules are applied consistently throughout the entire market, the QDIPC has established certain measures:
- Every year, all Participants sign a compliance certificate. With this statement, the signatory confirms, on behalf of the Participant, the accuracy of the data transmitted and their compliance with the rules established by the QDIPC and holds the Participant liable.
- An initial series of data validations is carried out by the Manager. Additional audits, which are more complete, are carried out at the macro and micro level by an independent actuarial consulting firm. Participants are asked questions and variances are explained. When necessary, corrected data is resubmitted to the Manager.
- An audit protocol has been developed and targeted audits are carried out annually, on a rotating basis, among Participants.
- To ensure that rules are applied consistently, a prior approval procedure whose goal is to establish group sizes, as well as an information request procedure, are available to discuss more complex cases or answer Participants’ questions.
- A complaint and denunciation system is in place, through the website or by writing to firstname.lastname@example.org. This allows anyone to report a situation related to Pooling that they consider unfair.
All these measures allow the QDIPC to ensure consistent application of the rules and to better adapt to the practices of a constantly evolving industry. All this makes the system resilient, scalable and robust over time.
Protection of Information
The QDIPC has established several practices to protect information shared during the compensation process.
The QDIPC asks Participants only for the information needed to carry out its mandate. Exposure and claim files do not bear employees’ or claimants’ names. If additional information is necessary, the QDIPC limits itself to the strict minimum required by the circumstances.
During meetings of the Board of Directors and/or its committees (with the exception of the Audit Committee, composed exclusively of outside directors), the analysis files are anonymized in such a way that even the Participant’s name does not appear. The same holds true for the audit reports. Only QDIPC employees and outside directors have access to personal data. All these people are bound by strict rules of ethics that protect confidential information.
Only the expert consulting firms acting as independent external consultants during the process sometimes have access to the original information. These firms are also bound by strict confidentiality clauses and have to provide statements of compliance at the end of the year.
For sensitive elements, Participants may at any time use additional means of protection: passwords, a secure sharing service system or their own internal protected e-mail system.
A Participatory and Transparent Process
Participants are informed of the initial results of the compensation process in July when the consultation documents are released in order to establish the following year’s Terms and Conditions. These initial results are preliminary and based on raw data received before the regular full audits. Based on the preliminary loss ratios released, all Participants have access to an overview of their own results for compensation.
Participants can challenge the process while it is in progress by contacting the QDIPC. They can also discuss certain questions of general interest with all Participants during the annual consultation, usually held in September.
Once the verifications and audits are complete, each Participant receives their own preliminary invoice. This document contains the actual compensation figures for the entire industry, as well as the Participant’s actual figures. The amount owing or receivable is also shown. Participants then have 30 days to ask questions or report errors. Upon expiration of this time period, provided that no material error has been reported, the final invoice is issued and compensation is made on this basis.
The elements of this timeline represent the normal course of the compensation process. The process unfolds under the supervision of the QDIPC. A delay in one step may result in a delay in the timeframes of the activities.
The QDIPC retains the services of a process manager. It determines and approves the documents that will be used by the manager for data collection. These include, among others, the compliance certificate, the Excel files and the instructions for the year.
The manager emails Participants a letter and the files required to submit the data for the calendar year that just ended.
Deadline to submit information to the manager.
The manager performs a macro analysis of the data received. The Participant may be asked to answer questions.
May – August:
Certain Participants are audited. These Participants are visited by the auditors and are asked to provide detailed information.
Micro-level verification of the information received as part of the process. Participants are sometimes requested to provide additional information about claims, certificates or groups.
Preliminary Pooling results are sent to Participants for the previous calendar year, as well as the upcoming Terms and Conditions for the following year, for consultation purposes.
Throughout the process and during verifications, Participants are asked to resubmit their data if an error is detected.
Participants are invited to take part in a consultation session to discuss the upcoming Terms and Conditions. Topics of interest concerning the Process are also discussed. The preliminary results and statistics are presented.
Deadline for data revisions following audits and the detection of errors.
Deadline for sending Terms and Conditions to the Ministre de la Santé et des Services Sociaux.
Preliminary invoices sent out. Participants have 30 days to verify and validate the information that will be included in the final invoice.
Final invoice issued. As of this date, figures are considered final and compensation is carried out on the basis of the invoiced amounts. Liable Participants have 30 days to submit the monies owing, which will be deposited in the trust account established for this purpose.
Once the last of these payments has been received, the QDIPC, in collaboration with the manager, pays out the amounts to the Participants receiving compensation. The process is then completed.
Compensation for year N is calculated and verified in year N+1 and compensation cheques are finally exchanged at the beginning of year N+2.
Pooling enables the fair sharing of risks related to expensive drugs among Participants. The main goal of this system is to ensure the accessibility of groups to insurance coverage despite the risk related to the high cost of certain drugs.
The compensation formula used is established by the QDIPC in collaboration with the Industry. A simple formula and clear rules of application facilitate consistent application of the rules, which is in everyone’s best interest.
Data collection, calculations and the usual verifications are performed by independent firms under the supervision of the QDIPC. Every year the process is undertaken, there is a perfect balance between the amounts claimed by certain Participants and those paid by the others. In fact, the total of the amounts received in compensation at the end of a year equals the total of the amounts paid out as compensation. No surplus or deficit is created.
The reliability, integrity, confidentiality and independence of the Pooling system are ensured by the strict application of the QDIPC’s policies.
This is how the QDIPC ensures the sound management of the system for Pooling the risks underwritten by the prescription drug insurance industry in Quebec.
Simplified Example of Compensation Calculation
Let’s work with the assumption that the entire market consists of 3 Participants and that their market is made up of groups with fewer than 25 certificates only. All these certificates are individual. We will use the threshold for 2021.
Number of Individual
Total Pooling Charge
Number of Claims
150 000 $
200 000 $
225 000 $
250 000 $
375 000 $
324 000 $
750 000 $
774 000 $
|Participant||Market Share||Pooled Claims|
|Calculation||Market Share||2021 Threshold||Calculation (‘000)||Pooled Claims|
|A||= 150K/ 750K||20 %||8 000 $||= 200 – 8||192 000 $|
|B||= 225K / 750K||30 %||8 000 $||= 250 – 8||242 000 $|
|C||= 375K / 750K||50 %||8 000 $||= 324 – 8||316 000 $|
|Total :||100 %||750 000 $|
|Participant||Calculation of Each Participant’s Market Claims:||Pooled Claims||Receives or Pays the
|Total of Cheque to Pay/Receive|
|Calculation (Market x share %)||Amount Each Participant is Responsible For|
|A||= 750 000 x 20%||150 000 $||192 000 $||Reçoit||-42 000 $|
|B||= 750 000 x 30%||225 000$||242 000 $||Reçoit||-17 000 $|
|C||= 750 000 x 50%||375 000 $||316 000 $||Paie||+59 000 $|
|Total :||750 000 $||750 000 $||0|
Here is how claims exceeding the threshold are finally borne, after pooling:
|Group||Compensation||Pooling Factor* (included in the premium)|
|A||200 000 $||8 000 $||42 000 $||150 000 $|
|B||250 000 $||8 000 $||17 000 $||225 000 $|
|C||324 000 $||8 000 $||-59 000 $||375 000 $|
|Total :||774 000 $||24 000 $||0||750 000 $|
*if the claims experience/premium ratio comes to exactly 100% everywhere, this figure would correspond to the Terms and Conditions published by the QDIPC and which are usually included in the premiums.
In other words:
- For claims exceeding the thresholds, each Participant is responsible for their share of the claims of the pooled market. For example, Insurer C is responsible for 50% of the pooled claims, equivalent to $375,000 (50% x $750,000) = $59,000 (paid as Compensation) + $316,000 (paid directly to policyholders).
- The simplified example shown assumes that there is only one claims bracket, namely claims exceeding $8,000. In real life, pooling schemes contain several brackets in which the pooling factor and each claim are segmented into several parts.
If Insurer C had paid the three market claims, the final table would have been as follows:
|Insurer||Claims Paid||Paid by|
|Group||Compensation||Pooling Factor (included in the premium)|
|A||0 $||0 $||+150 000 $||150 000 $|
|B||0 $||0 $||+225 000 $||225 000 $|
|C||774 000 $||24 000 $||-375 000 $||375 000 $|
|Total :||774 000 $||24 000 $||0||750 000 $|