Frequently Asked Questions
The Quebec Pooling System
The Oxford English Dictionary defines the verb to pool as “to throw into a common stock or fund, to be distributed according to agreement; to combine (capital or interests) for the common benefit . . . to share or divide”.
Under the basic drug insurance plan in Quebec, pooling means that group insurers and employee benefit plan administrators providing coverage for the cost of medications share a portion of the cost of the claims they have paid out. This portion of the claims is the amount for an individual and his dependents (family) that exceeds a pre-determined threshold (the “threshold per certificate”).
Pooling is done according to terms and conditions that are revised each year and communicated to the Health and Social Services Minister.
To protect a plan and its members from the risk of catastrophic claims.
A very high claim can lead to a significant premium increase that may be impossible for the group to absorb. Sharing claims that exceed the threshold per certificate among all pooling participants,
Pooling is mandatory under section 43 of the Prescription Drug Insurance Act.
All insurers offering supplementary group health insurance in Quebec and all employee benefit plan administrators offering coverage for pharmaceutical services and medications in Quebec must participate in pooling. This requirement is laid out in section 43 of the Prescription Drug Insurance Act.
To qualify for pooling, groups benefitting from coverage of drug costs must meet the standards laid out in sections 15.1, 42.1 and 42.2 of the law.
As the name suggests, the process consists of compensating insurers and employee benefit plan administrators for the claims they have paid for drug costs in Quebec above a pre-determined threshold for each certificate.
For each certificate in Quebec held by their group(s), insurers and employee benefit plan administrators pay an amount called the annual pooling factor into the drug insurance Compensation Table. This payment is made at the time of compensation.
Note that although this factor is estimated at the time of the annual revision of the terms and conditions of pooling, it may be adjusted upwards or downwards at the time of compensation. The purpose is to ensure total compensation of pooled claims. Therefore, the total of the amounts claimed from the Table each year equals the total of the amounts paid in compensation. No surplus or deficit is created.
Taking part in the Pooling Process
Each year, toward the end of February, the actuarial firm designated by the Corporation as the Pooling Manager sends a letter to all participants outlining the rules and deadline for sending the relevant information.
This is usually sent by e-mail, no later than March 31 following the end of the year in question.
The Quebec Drug Insurance Pooling Corporation and its Role
The Corporation is a private non-profit corporation that falls under the life insurance industry. Its Board of Directors ensures a balanced representation from the industry, since it consists of representatives from insurance companies on one hand, and employers or administrators of employee benefit plan or trusts on the other.
Both the pooling threshold and the annual pooling factor are set in function of the size of the group (the number of certificates included in the group, with a certificate corresponding to a member and the member’s dependents, if any):
- The larger the group, the better it is able to reimburse large claims out of the premiums paid by members.
- Consequently, the larger the group, the higher the threshold above which pooling applies, and the lower the annual pooling factor (see the terms and conditions for the current year)
Using a mathematical system called the Monte Carlo method, the Corporation takes into account the number and the changing profile of the groups whose claims are pooled, as well as new drug therapies and their impact on groups. By doing this, the Corporation can adjust the terms and conditions, and set the maximum size below which all groups will be subject to the terms and conditions of pooling.
A mathematical test that consists of simulating 5,000 “claim years” per certificate.
In making these calculations, the Corporation’s actuaries use the actual claims data for the previous year. They set a maximum claim (an average claim based on the data), to determine a group’s tolerance, or its ability to absorb a very high claim.
A margin of risk tolerance is applied to this average claim. For example, this margin takes into account the probability that the average age of a group is higher than the market average.
Finally, the pooling thresholds are set so that for at least 95% of the groups with drug coverage, any major claim is lower than that established in the simulations.
The terms and conditions of pooling provide that the size of an eligible group is determined by the number of certificates in effect in Canada on December 31 of the year in question, even though only Quebec certificates are subject to pooling.
The number of certificates for a group that ends during the year is determined by taking the average of the number of certificates in effect on December 31 of the previous year (or the date the group came into effect, if it was during the year in question) and those in effect at the time the plan ended.
The average used is a simple arithmetic average, without weighting.
When it receives the information to be use in setting compensation to pooling participants, the Corporation has two means of ensuring the accuracy of the data submitted.
Participation in the pooling process is required by law and any failure to meet the obligations of this process can be penalised.
Specific provisions of the Act respecting prescription drug insurance (Sections 84 and 85) provide for fines of at least $ 1,000 and not more than $ 10,000 for failure to comply with the obligations incumbent on participants in the pooling process.
Moreover, insurance intermediaries are also regulated by the Act respecting the distribution of financial products and services and its associated regulations. It is clear from the spirit of this Act and the regulations that intermediaries must always act with dignity, moderation and integrity. Thus, statements or representations that are incomplete, false, deceptive, or likely to mislead may be penalised by the authorities that oversee those subject to the Act respecting the distribution of financial products and services.
To demonstrate the compliance of the data submitted to the Corporation for compensation. The Compliance Certificate contains four kinds of information required for the annual pooling exercise:
- the way in which the participant determines the size of its group or groups;
- confirmation that the information transmitted comes from the company’s books;
- confirmation that no grouping of contracts has been made for the sole purpose of avoiding or benefitting from pooling;
- the signature of a person in authority.
This document is a precautionary measure to prevent risks surrounding the pooling process, namely the risk of manipulation of data submitted for pooling and regulatory risk. Read more
Due to the nature of the information contained in the Compliance Certificate and the commitment it represents, only a person in authority representing the participant can sign such a document. It could be the signing officer of a company or one of its executives. This person must be able to explain the information submitted for the pooling process and represent his company at the Compensation Table.
For insured plans, the Corporation recommends that customers of insurers* and insurance intermediaries** ask whether the annual pooling factor included in the price of their protection differs from that published in the table of the terms and conditions of pooling for the current year for the size of their group. For non insured plans, the same applies with the managing firm such as a third party administrator (TPA).
The Corporation manages the pooling system so that the total of the amounts charged for the purpose of pooling (annual factors) is equal to the total amount paid in compensation. At the time of compensation, the annual factor may be increased or reduced so that no surplus or deficit is created.
Ultimately, the actual factor will be paid by the participants on behalf of their eligible clients*. The Corporation cannot compensate an insurer that has underestimated the risks to its client and reduced the amount of annual factor, nor can it be held responsible for such a situation.
* Employers and administrators of employee benefit plans or trusts.
** Brokers, consulting firms, third-party administrators.
All private group plans must cover at least the drugs included in the List of Medications of the basic prescription drug insurance plan (RGAM). This list is compiled and updated periodically by regulation under section 60 of the Act Respecting Prescription Drug Insurance. It has three components:
- The general list, namely medications whose cost is guaranteed without specific restriction, as well as some essential supplies to the administration of prescription drugs and, since June 2015, fees for eligible pharmaceutical services;
- Exception medications, which includes drugs whose cost is covered in the cases, conditions or for therapeutic indications that the Health and Social Services Minister determines by regulation;
- Exception patients, which provides for cases, conditions and circumstances under which any other drug that does not appear on the lists of general or exception medications may be covered.
Moreover, in addition to these medications, a private group plan may choose to cover additional medications of choice.
Over the years, claims admitted to the annual pooling process have sometimes been only those for medications on the RGAM list, sometimes those on the private plan’s list. It all depends on the terms and conditions of pooling for that year.