GroupNews – November 2022

Eckler’s GroupNews monthly newsletter provides commentary on the issues affecting Canadian group benefit plans.

In this edition:

• Saskatchewan introduces biosimilars initiative
• Quebec Drug Insurance Pooling Corporation releases pooling terms and conditions for 2023
• Federal Government expands the Medical Expense Tax Credit
• National Dental Care Program Update
• Update on Leaves of Absence: Federal and Nova Scotia
• Canadian Institute for Health Information report examines national health expenditure trends
• The impact of the current high-inflation environment on your benefit programs

Benefit plan management

Saskatchewan introduces biosimilars initiative

The Saskatchewan Ministry of Health (Ministry) has introduced a biosimilars initiative that will ensure Saskatchewan residents have access to high-quality medications at a lower cost. It is the seventh province/territory to do so.

Approximately 24,000 existing residents already receiving an original biologic drug are expected to transition to a biosimilar version by April 30, 2023. Exemptions will be considered for those who cannot use a biosimilar for a medical reason. The Ministry estimates that the province will see annual savings of approximately $20 million when the transition has been completed.

Impact: With more Canadian jurisdictions switching to biosimilars for cost relief, it is anticipated that private plans may also adopt similar initiatives that require plan members to switch to available biosimilars in an effort to sustain affordable plan costs while continuing to provide safe and effective medication options.

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Benefit plan management

Quebec Drug Insurance Pooling Corporation releases pooling terms and conditions for 2023

Every year, group insurers providing coverage to residents of Quebec must participate in an industry-wide pooling plan that protects sponsors of private benefit plans (covering less than 6,000 plan members) against the financial impact of large drug cost claims. Based on pooling results for previous years, the Quebec Drug Insurance Pooling Corporation (Corporation), a non-profit entity that is responsible for managing the pooling plan, sets the pooling parameters for the upcoming year.

The following table compares the 2022 and 2023 maximum threshold per certificate and annual factors:⁽¹⁾

⁽¹⁾ Annual factors represent the annual pooling cost expectations, as set out by the Corporation based on previous experience and upcoming high-cost drugs. Insurers are not required to charge those amounts, but plan sponsors should refer to those factors when assessing if they are paying a reasonable fee for their pooling protection in Quebec.

Impact:

The pooling level is increasing from:

• $8,000 to $10,000 for groups with less than 25 certificates
• $16,500 to $18,000 for groups with 25 to 49 certificates

Annual factors remain unchanged for groups with less than 49 lives, increasing for groups with 50 to 249 lives and decreasing for groups above 250 lives.

Following significant increases in annual factors over the past years, the Corporation expects costs to remain relatively stable for 2023, which is generally attributed to increased utilization of biosimilar drugs in the province. Savings generated from increased utilization of biosimilars are counterbalanced, however, by an expectation that utilization for Trikafta, a drug used to treat cystic fibrosis, will increase over the coming years. Trikafta was approved for those 12 and older in June 2021 and for ages 6 to 11 in April of this year. The drug costs approximately $300,000 per year.

Also, the pooling level increase for small groups, from $8,000 to $10,000, was deemed necessary considering medical inflation in recent years, as the $8,000 threshold has been in effect since 2012. Had the $8,000 threshold been maintained, Eckler estimates the annual factor for 2023 would have been increased by approximately 10%.

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Legal and legislative news

Federal government expands the Medical Expense Tax Credit

As first discussed in the September issue of GroupNews, the government of Canada has introduced legislation to amend the Medical Expense Tax Credit for certain medical expenses related to surrogacy, fertility clinics and donor banks.

On November 4, 2022, Bill C-32, Fall Economic Statement Implementation Act, 2022, which includes several measures announced in the 2022 and 2021 federal budgets, allows for the following additions to the list of qualified medical expenses for the purpose of claiming a medical expense tax credit:

• expenses for the acquisition of sperm or ova for use by an individual in order to become a parent, and
• paid medical expenses with respect to surrogate mothers or donors for purposes of donating sperm or ova, or maintenance and transport of an in vitro embryo.

The measures will apply to the 2022 and subsequent taxation years.

Impact: The changes will help reduce the high costs of in-vitro fertilization and medical expenses related to surrogacy and childbirth. This move also allows individuals to submit these expenses for reimbursement under their healthcare spending accounts.

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Legal and legislative news

National Dental Care Program update

The new Canada Dental Program was first announced in the federal budget to provide dental care for children under the age of 12 with an annual family income of less than $90,000 who do not have access to private dental care coverage.

The government is moving forward with the program and on November 17 passed Bill C-31: Cost of Living Relief Act, No. 2. As reported in the September issue of GroupNews, Bill C-31 includes the details of the first stage of the new Canada Dental Program.

The government expects the program to be expanded next year to children under 18 years of age, seniors, and persons living with a disability, and is committed to full implementation for households with incomes under $90,000 by 2025.

Impact: While we do not expect the first stages in the Canada Dental Benefit program to have an impact on private plans, Eckler will continue to report on upcoming details of the expanded program provided by the government in the coming months.

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Legal and legislative news

Update on leaves of absence: Federal and Nova Scotia

On November 7, 2022, the government of Canada published final regulations (regulations) on paid medical leave. All federally regulated employees including part-time, casual and contract employees, as well as employees engaged in multi-employer employment, are entitled to paid medical leave.

The regulations amend the Canada Labour Code and will allow federally regulated employees who have been continuously employed for at least 30 days, access to three days of paid medical leave effective December 31, 2022. As of February 1, 2023, employees will acquire a fourth day of paid medical leave and will continue to accumulate one day each month up to a maximum of 10 days per year.

Any days of medical leave with pay that an employee does not take in a calendar year will carry forward to the next calendar year, and each day carried over will reduce the number of days that can be earned in that next year. The government recently confirmed that employees entitled to paid sick days under a collective agreement will not be able to ‘stack’ days under medical leave with pay under the Canada Labour Code if certain conditions are met.

On November 9, 2022, Nova Scotia Bill 203, Labour Standards Code (amended) received royal assent. Effective January 1, 2023, the bill provides unpaid leave of absence of up to five working days to those who experience a miscarriage or up to 16 weeks if the pregnancy ends after the 19th week.

Impact: Paid sick days will provide workers with increased security and help prevent employees from going to work while they are sick. In turn, this could help reduce the potential for prolonged illness and extended absences from work.

Both the federal government and the province of Nova Scotia require pension and benefit accrual to continue, subject to the employee making the required contributions.

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Research

Canadian Institute for Health Information report examines national health expenditure trends

The report on National Health Expenditure Trends, 2022 recently released by the Canadian Institute for Health Information (CIHI) provides an in-depth view of Canada’s health expenditure trends, including annual spending on drugs, hospitals, and physician services. This year’s report provides final health expenditures for 2020 and preliminary estimates for 2021 and 2022.

Highlights from the report:

• Health spending in Canada is expected to reach $331 billion for 2022 – growth of just 0.8% following much higher growth in spending during the pandemic of 13% in 2020 and 7% in 2021. Prior to the pandemic, growth in healthcare spending averaged 4% per year.
• Total average spending on healthcare in 2022 is expected to be $8,563 per person. In 2020 (the latest year for which comparable data is available) Canada ranks fourth among the 38 OECD countries in terms of per person spending on healthcare.
• Spending on hospitals (24%), drugs (14%) and physicians (14%) continue to be the largest health spending categories and together are expected to account for more than 50% of total health spending in 2022.
• Of the total health expenditures for 2020, the government pays for approximately 75% while the private sector accounts for the remaining 25%.

Impact: Continued growth in healthcare spending is expected as care that was deferred during the pandemic returns, resulting in an increase in the number of healthcare services provided compared with pre-pandemic years. In addition, demographic factors such as population aging and population growth will continue to contribute to spending growth.

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Actuaries’ corner

The impact of the current high-inflation environment on your benefit program

Inflation is typically defined as a general increase in prices and fall in the purchasing value of money. In Canada, it is common to quantify inflation by reference to the Consumer Price Index (“CPI”), which represents changes in prices as experienced by Canadian consumers. It measures price change by comparing, over time, the cost of a fixed basket of goods and services. Given how much media attention CPI has garnered this year, more Canadians than ever are familiar with what it is – and how it impacts their daily lives.

While CPI peaked at 8.1% in June of this year, and we have seen marginal decreases, as of October, CPI remains obstinately high at 6.9%. For Canadian employers, and those who sponsor benefit programs, worry is compounded by concern about the financial implications of a high-inflation environment on their rewards strategy, including their benefit programs.

Over the past decades, it has been common to model healthcare cost trend as CPI plus an additional component to capture the costs associated with utilization increases and macro-economic factors such as gross domestic product, national wages, and unemployment levels. Given this tendency to view the healthcare cost trend as higher than CPI, plan sponsors’ assumptions about the financial impact on the cost of their benefit programs seems logical. However, sometimes what seems obvious is not always reality. After a review of cost increases incurred by several benefit programs, Eckler noticed that increases over the last year depended significantly on the plan provision and benefits provided. In most cases, costs increased in aggregate at a slower pace than CPI. To understand why, we need to do some basic comparison about the underlying drivers of CPI.

The basket of goods in the general CPI calculation is significantly different from the basket of benefits offered via a benefits program. High CPI is driven by a few sectors that have a lesser impact on the cost of medical services or drugs. For example, shelter, food, and transportation represent over 60% of the basket of goods included in the CPI calculation. In comparison, the total cost of a private benefit program is comprised, among other things, of drugs claims, dental claims, paramedical claims, life insurance and disability coverage. Most of these things are not significantly connected to the CPI basket of goods. As such, the factors influencing increased healthcare costs can be significantly different from the factors influencing the general CPI and could be lower than the general CPI when looking at specific periods.

The grass is not all green, however. The cost of benefit programs is expected to continue to grow due these factors:

• CPI-related cost increases for medical items (diabetic supplies, mobility aids, hearing aids, etc.) and services (dental care, mental health supports, physiotherapy, for example)
• Costly new drugs and services
• Increased utilization due to increased instances of mental health-related illness, diabetes and cancer
• Pricing from insurers that reflects uncertainty about future claims levels

To ensure programs can weather periods of high inflation and remain sustainable, plan sponsors will want to:

• Have a robust governance structure that includes relevant policies to support decision making about plan design and level of spending;
• Perform data analytics to understand where their dollars go, as well as high inflation areas within their plans to validate insurers’ pricing; and
• Implement cost control measures or adjust plan provisions to better align with plan usage and member needs. For example, mental health-related costs have increased significantly since the beginning of the pandemic and plan sponsors providing disability coverage (short-term and/or long-term) might be set for significant premium increase as insurers brace for the post-pandemic impact on the workforce. To help cushion the potential impact, some plan sponsors have realigned their benefits spend to improve mental health support.

While there is no one-size-fits-all solution, there are a number of measures that plan sponsors can take to help mitigate the impact of rising benefit plan costs. Talk to your Eckler consultant to better understand your risk exposure and evaluate the potential solutions.

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