[vc_row content_width=”grid”][vc_column][vc_column_text]For insurers and administrators of employee benefit plans
Note : A first version of this information bulletin was published in December 2004. This version has been updated with new information.[/vc_column_text][/vc_column][/vc_row][vc_row content_width=”grid”][vc_column][vc_column_text]Ed. note: This bulletin does not have the force of law. It presents the point of view of the Quebec Drug Insurance Pooling Corporation on various subjects, based on the Act respecting Prescription Drug Insurance.[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_empty_space][/vc_column][/vc_row][vc_row content_width=”grid”][vc_column][vc_text_separator title=”The Risk Pooling System”][/vc_column][/vc_row][vc_row content_width=”grid”][vc_column el_class=”pie”][vc_column_text css=”.vc_custom_1461626624764{border-bottom-width: 1px !important;padding-bottom: 20px !important;border-bottom-color: #e4e4e4 !important;border-bottom-style: solid !important;}”]
Since the Act respecting Prescription Drug Insurance was enacted in 1997, all insurers and all employee benefit administrators (i.e. the policyholder in the case of non-insured plans) are required to pool the risks presented by the cost of medications according to criteria they agree upon (as required by section 43 of the Act respecting Prescription Drug Insurance). To comply with this requirement, the industry set up a system of risk sharing (or pooling). The first bulletin of this series introduced the Quebec Drug Insurance Pooling Corporation, which is the body responsible for the administration of this system. This second bulletin outlines the parameters of risk pooling. The terms and conditions in effect for the current year are explained on the Corporation’s Web site at www.pooling.ca, under Publications/Reports.
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The Pooling System Principle
Within the framework of the basic prescription drug insurance plan that has been in effect in Quebec since 1997, the cost of medications is pooled above a certain threshold. This threshold varies according to the size of the insured groups and their ability to absorb significant increases in the cost of medications. The objective of risk pooling is to prevent a given group from having to bear too great a premium increase on its own.
Under this system, part of the insurance premium (called the “pooling factor”) is reserved for pooling for insured groups. Non-insured plans are called upon to pay the pooling factor into the Compensation Table when appropriate. The pooling factor is reviewed at the time when the costs of medications above the threshold are compensated, in order to ensure the complete compensation of the amounts involved. Thus, the total of amounts paid out in compensation at the end of a year is equal to the total of the amounts collected. No surplus or deficit is ever created. Moreover, the pooling factor and the threshold above which pooling takes place are reviewed once a year, in compliance with the Act respecting Prescription Drug Insurance (the Act).
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The pooling threshold and the pooling factor are both determined by the group’s size. The larger the group – that is, the more certificates with drug coverage there are – the greater its ability to absorb costs, the higher the pooling threshold and the lower the pooling factor. Note that a single insurance certificate may include both the member and the member’s dependants. Thus, groups benefit from the protection of their particular plan below the threshold that is applicable to them and, above that threshold, from the protection offered by the pooling system administered by the Quebec Drug Insurance Pooling Corporation (the Corporation).
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All insured and non-insured groups, insofar as they meet the norms set out in the Act, are subject to risk pooling. The Corporation has determined the parameters of the current pooling system to enable insurers and employee benefit plan administrators to comply with section 43 of the Act.
To ensure uniform understanding of the requirements of the Act, the Régie de l’assurancemaladie du Québec (RAMQ) spells out the legislator’s intentions in a series of information bulletins. These norms are the basis for the Corporation’s application of the pooling system. Consequently, a group that does not meet the norms established by the Act, would not be eligible for pooling, and could therefore deprive members of this group of assistance in paying large claims.
Since the pooling mechanism was set up in 1997, all insured plans and Administrative Service Only (ASO) plans with fewer than 125 certificates are subject to pooling according to pre-established parameters. On January 1, 2003, this protection was extended to insured plans only with 125 to 249 certificates. For these plans, pooling applies to all medications covered by the private plan. Moreover, for insured plans with 125 certificates or more, and as of January 1st, 2003, for insured plans with 250 certificates or more, a protection for large amount claims is available (threshold of $60,000 in 2010) for drugs covered under the basic formulary only.
In 2008, the Corporation undertook an in-depth review of the terms and conditions of pooling in order to ensure it was applied fairly and would respond to the industry’s needs. The Corporation then set up a plan to extend pooling to all non-insured employee benefit plans. Beginning on January 1, 2011, pooling will therefore be extended to non-insured groups of the ASO type only, with up to 1,499 certificates. Information Bulletin No. 2010 – 5 explains these changes.
Under the Act, individuals who qualify for membership in a group established because of an employment tie (former or current), a normal occupation or a profession and to which a group insurance contract applies must be covered by the contract unless they hold coverage elsewhere in a private plan.
Below we describe three categories of groups, namely employer/employee, multiemployer, and associations. A person can be a member of an association or of an employer/employee type of group but not of a group of the multi-employer type.
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Employer/Employee Groups
As its name implies, an employer/employee group is generally made up of employees of the same employer. The union or the employer may be the policyholder, and the eligible persons are the employees who fulfil the plan’s eligibility requirements. Self-employed workers are excluded from this category and must enrol in the public plan unless they have access to a private plan through their profession (through membership in an association or professional order) or through a spouse.
For all plans, the creation of coverage categories intended to isolate one or several people claiming high amounts does not reduce the group size. Since the policyholder assumes the financial responsibility, the group size for the benefit of pooling is determined according to the total number of contracts and then on the total number of persons covered rather than for each contract based on the number of certificates they cover individually following such a transaction.
An exception is made, however, in the case of a canadian plan. For example, for a plan that includes 130 certificates, 30 of which are from Quebec, the size of the group is 130 and the corresponding pooling threshold for the 30 Quebec certificates which can be pooled is that for groups of 125-249 even if only 30 certificates can be pooled. On the other hand, this plan sponsor could choose to cover the Québec employees under a separate plan to comply with the Quebec legislation and put in place a contract of 30 certificates in Quebec and another contract with 100 certificates outside of Quebec — then the size of the group is 30 and the corresponding threshold is that for groups of 25-49 for the 30 Quebec certificates which can be pooled.
In an employer/employee group, the criterion that determines the pooling threshold and pooling factors is the number of physical persons jointly and entirely responsible as to risk.
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Multi-employer Groups
A multi-employer group is composed of legal persons. The group will be subject to pooling according to the total number of certificates it holds, if the participants are jointly and entirely responsible as to risk, meaning that responsibility for all claims is assumed by all employers in the group and consequently, by all certificates issued, without exception. However, if one or more subgroups are partly rated according to their own experience and partly according to the whole group’s experience, whether by the insurer or the intermediary, they are separate groups which must pool separately. Consequently, the pooling threshold is established for each sub-group within the overall group, based on its own size.
For example, a number of employers working in the same field may group together in order to share products and services, including group insurance. Each participating employer may subscribe to the group’s insurance or go it alone. In this multi-employer context, we may find a so-called flexible, modular or cafeteria-style plan that includes a mandatory basic drug insurance plan that is identical for everyone, and an optional complementary plan for medical expenses. When all the employers participating in the group insurance coverage are jointly and entirely responsible as to risk, they form a single group. Otherwise, it is a multitude of groups.
Certain groups are called prevention mutual groups, referring to the concept of risk management used by the CSST. This describes several employers who have preventive services in common in order to reduce disability costs. However, these groups do not meet the definition of a multi-employer group.
In a multi-employer group, the criterion that determines the pooling threshold and pooling factors is the group of legal persons jointly and entirely responsible as to risk.
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Association Groups
The RAMQ specifies that a purchasing group for goods and services does not constitute a group that can offer prescription drug insurance. Thus, chambers of commerce, a Businesswomen’s Association, a business owners’ association or a group where a broker acts as policyholder, are not groups able to offer drug insurance.
Thus, an association must, a priori, exist for a reason other than to provide insurance for its members, and its members must be natural persons linked by a profession or normal occupation. If the association offers drug insurance coverage, the members must belong to it unless they have private coverage through their job, profession or spouse. The pooling threshold corresponds to the size of the group, determined by the total number of members with drug coverage.
Those interested in the rules surrounding association groups may consult the Quebec Superior Court’s judgement number 500-05-030244-972, dated July 23, 1997.
In an association group, the criterion that determines the pooling threshold and pooling factors is the number of physical persons jointly and entirely responsible as to risk.
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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 if only certificates in Quebec are pooled. Thus, a group will not be considered as a stand-alone if it is financially dependent on another group. In such a case, it is the total number of certificates for the two groups together that will determine the group size for risk pooling purposes. Financial dependence means that all the participants are jointly and entirely responsible as to risk. This financial dependence must be proven. If certificates are issued during the year (including those issued on January, 1), the group size will be established on the basis of the number of certificates existing on December 31 of the covered period.
In 2009, the Corporation reviewed the method for establishing the in-force of a group terminating during the year. Thus, beginning with the 2010 pooling process, for each group that terminates during the year, the in-force (determining the group size) will be established using the average of the in-force on December 31 of the preceding year, and the in-force on the date the plan ends. If a terminated group has come into force during the year, the in-force will be established using the average of the in-force at the date the plan came into effect and the in-force at the date the plan ends. This will be done using a simple arithmetical average, without any weighting.
Additionally, it is up to pooling participants to ensure consistency between the group size used for rating and that used for risk pooling. They could be required to demonstrate this consistency on the Compliance Certificate submitted during the pooling process or during an audit of their files destined to be pooled.
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Maintaining a Group’s Legitimacy
Normally, the legitimacy of a group with regard to the applicable laws is validated when the contract is established. Then, unless the text of the contract states otherwise – through automatic renewal clauses, prior notice provisions or renewal timeframes – a temporary group contract must be checked for compliance at each renewal. Therefore, since group insurance contracts are generally renewable contracts issued for a one-year term, the validation of a group’s legitimacy must be done annually.
Moreover, although the requirement for membership falls upon the individual, the insurer and the employee benefits administrator are required to ensure that all who have access to a private plan are indeed members. Consequently, when an individual asks to be excluded from a group insurance plan on the grounds that he holds other coverage, the policyholder keeps on file the information justifying this exemption from participation. Since by definition a group contains at least two certificates, the declaration of a “group of one” signifies that information justifying the exemption of the other member(s) is available.
[/vc_column_text][/eltdf_tab][/eltdf_tabs][/vc_column][/vc_row][vc_row][vc_column][vc_empty_space][/vc_column][/vc_row][vc_row content_width=”grid”][vc_column][eltdf_tabs tabs_layout=”eltdf-tabs-regular”][eltdf_tab title=”Dans le prochain numéro”][vc_column_text]In the Corporation’s Information Bulletin No. 2011 – 3 read about the “Changes to the Act respecting Prescription Drug Insurance made in December 2005 and their impact on risk pooling”.[/vc_column_text][/eltdf_tab][/eltdf_tabs][/vc_column][/vc_row][vc_row content_width=”grid”][vc_column][vc_empty_space][/vc_column][/vc_row]
