There’s always lots of news in the prescription drug marketplace, whether in product, program design, or government policy. But for thirty years, employers and insurers have been focused on just the basics – cost control, clean transactions, and employee satisfaction through high quality plans. While still important, those motivations are ‘yesterday’, and private payers have to be seen as big fish ready to swim in the big pool.

 

Let’s step back. In September 2004, the First Ministers’ National Pharmaceutical Strategy (NPS) promised both a national catastrophic plan and a national formulary, among other tactics. At some level, catastrophic risk would be pooled and absorbed by government.

 

This is good for employers, because it would eliminate the risk for high-cost claims that wreak havoc with loss ratios. But when? Ottawa has been paralysed for months. The NPS has no completion deadline. Almost a year later, private payers (insurers, employers, and consumers) haven’t been consulted, even though they contributed an estimated $9.5 billion for prescription drugs in 2004.

 

A national, drug pooling facility is overdue. The driving forces for this integrated public-private drug plan pool are not just rapid increases in plan cost, or the inability or reluctance to implement fundamental changes to plan design. Perhaps first among equals, the rapid growth and changed mindset encouraged by the new biologic drugs will prove to be the tipping point.

 

 

So, why is pooling important for small and mid-sized employers? Advisors are telling bh that more of their clients are making “bad” decisions in their quest to control drug plan cost. One specialty retailer just introduced a $3,000 annual drug maximum. A smaller employer with an existing HIV/AIDS claim implemented a $25,000 annual maximum, below the amount needed to pay for the person’s drug treatment. Others terminate employment and with it, drug coverage, when an employee goes on any-occupation long term disability. The result? The coverage disappears just when it is needed most. These approaches don’t add up – not for patients or payers, and not for our society.

 

Of course, it’s tough to balance economic and ethical interests. Big, recurring drug claims can mean real financial hardship and threaten business viability. There’s a unique emotional dimension too. Small employers often operate like big, extended families and they tend to look after their employees. Add in the legal and public relations aspects, and employers are between a rock and a very hard place.

 

Today’s risk pooling products provide a partial solution. The cost is not prohibitive, although some employers still don't buy it. Even when pooling protection is purchased, advisors tell us that the pool only confers protection to companies with average or below average claim levels. When high-cost illness or injury strikes, insurers may propose premium increases that make the plan unaffordable for targeted small- and mid-size employers. This approach, to the extent it happens, misses the real point of buying insurance protection.

 

 

A new solution is needed. In 1997, Québec’s drug plan effectively integrated private and public drug benefits, and introduced both a minimum standard of coverage, and a pooling mechanism for large (catastrophic) individual drug claims. The pool was jointly funded by private insurers active in the province.

 

The Québec model suggests the answer is to take away choice. A mandatory, national catastrophic risk pool serves the interests of patients who need secure access to treatment, plan sponsors who need low-cost pooling protection, and insurers who need a wide, stable spread of risk. Eventually, the public plans may devise their own solution, but why wait? The combination of immediate need, increasing cost pressures, expanding markets for biologics, and an existing, reasonably effective model would seem to indicate the stars have aligned and a viable solution is before us.

 

The last tough question is: who can make this happen? From our perspective, the insurance industry has all the necessary tools. Working with regulators, insurers can convince plan sponsors that compulsory participation in the clear, sustaining waters of a protective pool really works. Big coverage worries melt away, unwanted liability is shed, costs are reduced and stabilized, and plan members are protected from serious financial loss. What’s not to like?