Talking About Financial Matters That Affect You and Your Organization
Having an Open and Unlimited Benefit Program
Jan 4th, 2018
Most benefit programs have an open formulary and many offer unlimited drug coverage for any drug that legally requires a prescription. Open and unlimited are the key words here. Not only is there no maximum to cost, there is also no control over the introduction of new medications, cognitive fees or governmental legislative de-listings.
Implication: With an open benefit formulary, employers are subject to an implied acceptance to terms of legislative changes. Healthcare is ever evolving. Continual provincial and federal amendments to health programs result in a continual downloading of risk and expense to employee benefit programs.
Prior to 2004, we remember when eye exams, physiotherapy and chiropractic visits were provincially funded. Once de-listed, these programs were assumed to be covered by employee benefit programs and many unions filed grievances for the inclusion of these services within employee benefit programs. Most insurers and employers just rolled it into their program coverage.
Solution: Implement a closed benefit formulary in the policy wording.
Implication: With an unlimited healthcare maximum, employers are subject to unlimited risk. The introduction of biological drugs in the formulation of life sustaining drugs has pushed the dosage cost of some drugs into the stratosphere. Most employers are having difficulty keeping up to the cost of healthcare today. It is sad to say, this is only the beginning of a new age of healthcare costs.
So, what do you do? First and foremost, know what your program covers! Many small to mid-sized employers have unlimited drug programs and they are a claim away from a catastrophe! Many look at their stop-loss program as being the saviour to their problems but few recognize what has to happen for the stop-loss attachment to be triggered.
The greater majority of insurers have a $10,000 minimum stop-loss attachment. That means that an employee, spouse or dependent child will individually incur $10,000 of claims against the program claims experience before the stop-loss program kicks in. For most small to mid-sized employers a $10,000 claim would be a massive increase to their average claims level. And here is the kicker - most stop-loss claims today are for maintenance medications which means that once you trigger the stop-loss attachment, you just permanently increased your program claims by $10,000.
Put another way, let's use a renewal I did just last month.
# of employees - 32
Annual Healthcare Claims Experience - $27,481
Assume a new stop-loss claim of $35,000 - Remember all claims are included in the claims experience summary <$10,000, while anything >$10,000 is pooled.
Resulting Annual Healthcare Claims Experience - $37,481
Increase in claims - 36.4% ($37,481/$27,481)
Remember - Claims activity drives renewal costs. Can your program afford a 36% increase in claims and cost?
Solution #1 - Many employers have recognized the ever-increasing cost to include stop-loss coverage in their unlimited healthcare program and have begun to implement healthcare drug caps. With a healthcare drug cap, employers eliminate the need for stop-loss coverage (a savings of 15-25% of the healthcare rate).
Concerns: Of course, no change to a program goes unnoticed. Employers that implement a healthcare drug cap are making a profound statement that catastrophic drug costs should be the responsibility of the Province of Ontario as opposed to employers. Employees that max out on the program would then apply to the Ontario Trillium Drug Program for coverage of their drug cost over the maximum. The deductible for this program is approximately 4% of net household income, details are at the link below: http://www.forms.ssb.gov.on.ca/mbs/ssb/forms/ssbfo...
Solution #2 - Some employers have chosen to maintain stop-loss coverage but pass the cost of the stop-loss coverage to the employee. After all, if stop-loss rates continue to increase by 30% per year, is this the employer's responsibility? The employer is on the hook for the $10,000 of claims up to the stop-loss, so with this solution they are sharing the risk and the cost with the employee. In effect the employer has provided a healthcare drug cap of $10,000 with employee premium participation.
In the end, employees do not always choose to be unhealthy. Many of the conditions that would have disabled an employee in the past (Rheumatoid Arthritis, Multiple Sclerosis, Cancer) are being treated with expensive biological drugs, keeping the employee at work and productive.
So, there you have it. Open and unlimited benefit programs are risky, yet there are solutions to mitigate the risk. Employers only need to be aware of their risks and insure accordingly.
If you are looking for a second opinion on your benefits coverage and are open to an audit of the risk within your current program, please reach out to me at firstname.lastname@example.org.
Kevin Routley is Vice-President at Selectpath Benefits & Financial - one of Canada's largest independent employee benefits consulting firms. His clients benefit from his straight forward approach to total compensation strategies where he challenges the traditional models of employee benefits. His innovative strategies have transformed the marketplace, breaking from tired, traditional solutions to create measurable long-term savings for his clients. He has been an invited speaker in Canada and the United States. He sits on agent advisory councils with various insurance companies where his industry knowledge and foresight of the marketplace helps change the employee benefits landscape.