[vc_row content_width=”grid”][vc_column][vc_column_text]For insurers and administrators of employee benefit plans[/vc_column_text][/vc_column][/vc_row][vc_row content_width=”grid”][vc_column][vc_column_text]
Ed. Note: this information bulletin does not have the force of law. It represents 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=”Explanation of Recent Changes in the Parameters of the Risk Pooling System “][/vc_column][/vc_row][vc_row content_width=”grid”][vc_column el_class=”pie”][vc_column_text css=”.vc_custom_1461631995764{border-bottom-width: 1px !important;padding-bottom: 20px !important;border-bottom-color: #e4e4e4 !important;border-bottom-style: solid !important;}”]
The legislative amendments made to the Act Respecting Prescription Drug Insurance in 2006 were the opportunity for the Quebec Drug Insurance Pooling Corporation to make a survey of private individual and group insurance plans and non-insured employee benefit plans in effect in Quebec which offered drug insurance coverage. The addition to the Act Respecting Prescription Drug Insurance of the new sections 15.1, 42.1 and 42.2 meant that new groups might become subject to the requirement to pool the risks arising from prescription drug costs and that the composition of certain groups already participating in pooling could be changed.
With an eye to ensuring that the pooling system remains fair and continues to have the industry’s support, the Quebec Drug Insurance Pooling Corporation undertook an in-depth review of the terms and conditions of pooling. This review made it clear that the pooling model needed to be adjusted in order to meet the industry’s current needs more closely. This bulletin explains these changes.
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Looking back at the observed facts used for setting up the terms and
conditions of pooling in 1996
The facts identified and used in 1996 to set up the terms and conditions of pooling were 1) that large groups had the financial ability to assume all inherent risks for medication costs or could protect themselves through pooling formulas negotiated with their insurer; 2) that only small groups were vulnerable to fluctuations in claims; and 3) that pooling would not create an increase in premiums for private plans, but would level out the effect of poor risks over a broader population.
Therefore, the hypotheses used in setting up the terms and conditions of pooling were:
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Since its creation, the risk pooling system has been reviewed annually by the Quebec Drug Insurance Corporation (the Corporation) and the parameters adjusted as necessary. But like any field, the business context for the life and health insurance industry has evolved, and the facts observed in 1996 no longer reflect current reality.
[/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][eltdf_tabs tabs_layout=”eltdf-tabs-regular”][eltdf_tab title=”The current situation”][vc_column_text]In drawing up a new risk pooling model, the Corporation still seeks to meet the system’s original objectives. These are to meet the requirements of the Act Respecting Prescription Drug Insurance and of the industry, to reflect the new reality of costs, and to facilitate pooling through fair and robust processes that are not open to misinterpretations or abuse.
In order to meet its objectives1, the Corporation reviewed its findings, in 2008-2009, in order to improve the existing pooling system. As a result of this exercise, the Coporation made the following observations:
[/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=”The 20% Test”][/eltdf_tab][/eltdf_tabs][/vc_column][/vc_row][vc_row content_width=”grid”][vc_column width=”1/2″][vc_column_text]Since 1996, the 20% Test has sought to ensure that the groups subject to risk pooling, no matter what their size, would not experience an increase in supplementary health insurance premiums of more than 20% before inflation as a result of a single claim for drug costs above the pooling threshold. This test, simulating a contract renewal, is applied when the pooling factors are determined, in order to confirm that the proposed parameters comply with the rule. It is important to state that no consideration is given to price reductions somtimes granted by insurers when submissions are made.[/vc_column_text][/vc_column][vc_column width=”1/2″][vc_column_text]
In practice, the 20% Test mainly makes it possible to say that the current pooling process and the terms and conditions arising from it have been established using hypotheses and scenarios that include a test for reasonability in rate increases.
[/vc_column_text][/vc_column][/vc_row][vc_row content_width=”grid”][vc_column][vc_empty_space height=”13px”][vc_column_text]Based on the observations identified in 2008 and 2009, the parameters of the 20% Test were updated as follows:
[/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][eltdf_tabs tabs_layout=”eltdf-tabs-regular”][eltdf_tab title=”Changes that were made”][vc_column_text]After consulting with the participants in the pooling process and the following an in-depth review, the Corporation believes that the pooling system should be slightly adapted to the current market.
Thefore, the conditions specific to plans of less than 250 certificates remain:
The compensation formula, based on repetition of risk, remains a layered “pyramidal” formula which makes it impossible to avoid forcing a given size of group to absorb an unusual volume of large claims. Rather, claims are shared across the entire pooled population.
Hoewever, the conditions specific to plans of 250 certificates and over become as follows:
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For plans of 250 to 1,499 certificates
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For plans of 1,500 certificates and over
These plans will be left to the free market. Pooling does not apply to insured or non-insured plans of this size.[/vc_column_text][/vc_column][/vc_row][vc_row content_width=”grid”][vc_column][vc_column_text]The compensation formula remains at 80% of claimed drug costs above the pooling threshold, up to a maximum annual disbursem ent. Once the maximum is reached, compensation increases to 100% of the amount exceeding the threshold. Pooling thresholds have been established so that rate increases for a group with poor experience following a very large claim will be less than 20% before inflation in the cost of medications. The target loss index remains at 90%.
It is particularly in order to maintain the industry’s support while responding to the requirements of the Act Respecting Prescription Drug Insurance that the Corporation annually examines how group insurers and administrators of employee benefit plans should fulfill their obligations with respect to pooling. The pooling model that was set up in 1996 is flexible and its preservation is closely linked to the collaboration of all participants.[/vc_column_text][vc_column_text]C’est notamment dans un souci de maintien de l’adhésion de l’industrie au système de mise en commun des risques et de conformité aux exigences de la Loi, que la Société se questionne annuellement sur la façon, pour les assureurs en assurance collective et pour les administrateurs de régimes d’avantages sociaux, de remplir l’obligation de mutualisation qui leur incombe. Le mécanisme de mise en commun élaboré en 1996 est souple et sa préservation est étroitement liée à la collaboration de tous les participants.[/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][eltdf_tabs tabs_layout=”eltdf-tabs-regular”][eltdf_tab title=”In the next issue”][vc_column_text]In the Corporation’s Information Bulletin No. 2011 – 6, read about “Communicating the pooling parameters to clients”.[/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][vc_row][vc_column][vc_column_text]
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