Employers leery of new private health costs
When the Supreme Court of Canada struck down a ban on private medical care last summer, insurance companies started looking at ways to step into the breach. But, so far, they haven’t found an insurance plan that’s viable.
Part of the problem is it’s too early and the law is still unsettled around the question of a two-tiered system. Plus, the services most likely to be delivered outside the public health system are too few and too specific to be offered in an insurance plan, said Tim Clarke, senior benefits consultant at the Toronto office of consulting firm Hewitt Associates.
“Looking down the road, if there are private clinics out there that offer a very broad range of services such that you can get faster treatment for any one of 100 different services, then there’s a potential for selling an insurance product around it. You’ve got people with different health-care needs buying it for different kinds of services,” said Clarke.
If the private delivery of medical services becomes available, the implications for employers would be both positive and negative. On the positive side is the option for speedier recovery and return to work, which employers may wish to pay for through a provider. On the negative side is increased pressure on employers to assume the cost for a whole new set of services formerly funded by the public sector.
The Supreme Court’s ruling in the Chaoulli case last June cracked open the possibility for private delivery of health care. The court ruled Quebec’s prohibition against private care violates the right to life and personal security if the ban results in patients languishing on waiting lists. It gave Quebec one year to bring in measures to respond to the decision.
In February, Quebec responded by keeping in place the prohibition against private health care. But it did make exceptions for hip replacements, knee replacements and cataract surgery. The Quebec health minister also hinted the list of privately performed procedures may expand in the future.
According to a recent Hewitt survey of more than 200 Canadian employers, nearly two-thirds said they have yet to decide how to respond to the option of private medical care. But there’s little appetite for assuming new costs. More than one-half (59 per cent) said they don’t intend to cover the cost of private health care under any circumstance.
But Clarke said there’s one type of coverage employers may be interested in paying for, and that would be any kind of plan that delivers faster service so employees could go back to work sooner. At the moment, that’s already happening in a limited fashion. For services that are currently delivered in private clinics, such as magnetic resonance imaging (MRI), insurance companies often weigh the costs of buying the private service against the cost of paying disability benefits and opt for the former, he said.
As more and more people work beyond 65, the age where many employer-funded benefit plans end their coverage, there will be increasing interest in the industry to provide an employee-funded group plan for this cohort, said François Joseph Poirier, benefits consultant at Watson Wyatt.
Another segment of the market may be found among the retirees whose medical benefits are reduced or eliminated altogether, he said. If at some point a carrier can pool together a large enough group of retirees, so that risk is spread around, “they may be willing, with some design constraints, to offer (this group) some insurance.”
Although there may not be a lot of movement now in the insurance industry, the market would respond very quickly if the legislation made it possible to provide a particular service that has wide demand, said Poirier.
If a court ruling opened the doors for operations to be performed privately after a given waiting time has passed, then it might be worthwhile, he said.
“That’s when you would have large volume,” said Poirier. “It’s coming. It’s just a matter of time, I believe, before the market opens up more.”
When that happens, he thinks a number of employers would be willing to pick up the tab for those products, he said.
“The question is, to what extent? Will they be sharing additional costs with employees?”
Quite apart from the Chaoulli decision, demand will grow for employee-funded coverage that supplements what’s available in the public health system, said Marilee Mark, vice-president for marketing group benefits at Toronto-based insurance provider Manulife.
“There’s definitely more interest in critical illness. (People are) reading about it in the papers, and they think, ‘What if I get cancer and I can’t get the drug I wanted?’ People are concerned that if they have a critical illness, they always thought a safety net between the government and their health benefit program would cover everything. Now they’re worried that maybe it won’t.”
Some examples of what may be provided in an optional plan would include cash to spend on illness-related costs other than drugs, such as help around the home or top-ups for disability plans or even co-payments to the employer-provided group plan, said Mark.
But Mark also noted that whatever insurance plan the company comes out with, the insurer has to remain sensitive to employers’ concerns about the overall impact on their obligation.
“If you make it easy and there are products and solutions out there, you’re going to see the government continue to delist things,” said Mark.
Good news, bad news
Benefits cost increases slow, but still double digit
While health-care costs aren’t increasing as much as they have in the past, the rate of increase is still in the double digits and health-care costs are the fastest growing portion of Canadian organizations’ budgets, according to ACS HR Solutions.
The human resource consultancy’s sixth annual Canadian Health Care Trend Survey found that 2006 represents the fourth year of consecutive declines in the increase of the cost of health-care benefits. However, the overall increase for this year is expected to be 13.2 per cent, so organizations aren’t out of the woods yet, said Larry Jackson, a senior ACS consultant.
“If the increases continued at the current year’s low, over the course of the next 10 years organizations’ overall compensation costs are probably going to triple,” said Jackson.
While the survey found usage rates for medical services, except prescription medications, is about half the rates in 2002, Jackson said he expects that trend to change in the next five to 10 years as the workforce ages. But once the baby boomers retire, organizations should see lower usage rates, he said.
However, retirement benefits for those same baby boomers present a significant cost factor for organizations and that’s why Jackson said employees can expect to see more cost-sharing initiatives.
“Organizations might not be able to eliminate retirement benefits but future retirees are going to pay a portion of the cost,” he said.
Another option organizations are considering is revising retiree health-care benefits to decrease liability, said Jayne Bonnett, principal at Mercer Human Resource Consulting. “At the extreme end they’ll just give retirees a set spending account with a set amount of health-care dollars and when they run out that’s it.”
Most employers are concentrating on controlling drug costs because it is the largest expense. This year costs are expected to increase 14.3 per cent.
One way to control drug costs is to move toward reference-based pricing, where insurance companies provide a formulary that separates drugs into categories. Employees can buy any drug they want, but they will only be reimbursed for the cost of the least expensive drug, said Bonnett.
Another option is reducing the amount of the dispensing fee covered by the plan or eliminating this coverage altogether.
“This is a non-intrusive benefit change that has the effect of reducing plan costs overall,” said Jackson.
While these measures, along with flexible benefits and cost sharing, should help stabilize cost increases, the ACS survey stated organizations can save more money by increasing employee wellness, which in turn decreases health benefit usage.
Part of the problem is it’s too early and the law is still unsettled around the question of a two-tiered system. Plus, the services most likely to be delivered outside the public health system are too few and too specific to be offered in an insurance plan, said Tim Clarke, senior benefits consultant at the Toronto office of consulting firm Hewitt Associates.
“Looking down the road, if there are private clinics out there that offer a very broad range of services such that you can get faster treatment for any one of 100 different services, then there’s a potential for selling an insurance product around it. You’ve got people with different health-care needs buying it for different kinds of services,” said Clarke.
If the private delivery of medical services becomes available, the implications for employers would be both positive and negative. On the positive side is the option for speedier recovery and return to work, which employers may wish to pay for through a provider. On the negative side is increased pressure on employers to assume the cost for a whole new set of services formerly funded by the public sector.
The Supreme Court’s ruling in the Chaoulli case last June cracked open the possibility for private delivery of health care. The court ruled Quebec’s prohibition against private care violates the right to life and personal security if the ban results in patients languishing on waiting lists. It gave Quebec one year to bring in measures to respond to the decision.
In February, Quebec responded by keeping in place the prohibition against private health care. But it did make exceptions for hip replacements, knee replacements and cataract surgery. The Quebec health minister also hinted the list of privately performed procedures may expand in the future.
According to a recent Hewitt survey of more than 200 Canadian employers, nearly two-thirds said they have yet to decide how to respond to the option of private medical care. But there’s little appetite for assuming new costs. More than one-half (59 per cent) said they don’t intend to cover the cost of private health care under any circumstance.
But Clarke said there’s one type of coverage employers may be interested in paying for, and that would be any kind of plan that delivers faster service so employees could go back to work sooner. At the moment, that’s already happening in a limited fashion. For services that are currently delivered in private clinics, such as magnetic resonance imaging (MRI), insurance companies often weigh the costs of buying the private service against the cost of paying disability benefits and opt for the former, he said.
As more and more people work beyond 65, the age where many employer-funded benefit plans end their coverage, there will be increasing interest in the industry to provide an employee-funded group plan for this cohort, said François Joseph Poirier, benefits consultant at Watson Wyatt.
Another segment of the market may be found among the retirees whose medical benefits are reduced or eliminated altogether, he said. If at some point a carrier can pool together a large enough group of retirees, so that risk is spread around, “they may be willing, with some design constraints, to offer (this group) some insurance.”
Although there may not be a lot of movement now in the insurance industry, the market would respond very quickly if the legislation made it possible to provide a particular service that has wide demand, said Poirier.
If a court ruling opened the doors for operations to be performed privately after a given waiting time has passed, then it might be worthwhile, he said.
“That’s when you would have large volume,” said Poirier. “It’s coming. It’s just a matter of time, I believe, before the market opens up more.”
When that happens, he thinks a number of employers would be willing to pick up the tab for those products, he said.
“The question is, to what extent? Will they be sharing additional costs with employees?”
Quite apart from the Chaoulli decision, demand will grow for employee-funded coverage that supplements what’s available in the public health system, said Marilee Mark, vice-president for marketing group benefits at Toronto-based insurance provider Manulife.
“There’s definitely more interest in critical illness. (People are) reading about it in the papers, and they think, ‘What if I get cancer and I can’t get the drug I wanted?’ People are concerned that if they have a critical illness, they always thought a safety net between the government and their health benefit program would cover everything. Now they’re worried that maybe it won’t.”
Some examples of what may be provided in an optional plan would include cash to spend on illness-related costs other than drugs, such as help around the home or top-ups for disability plans or even co-payments to the employer-provided group plan, said Mark.
But Mark also noted that whatever insurance plan the company comes out with, the insurer has to remain sensitive to employers’ concerns about the overall impact on their obligation.
“If you make it easy and there are products and solutions out there, you’re going to see the government continue to delist things,” said Mark.
Good news, bad news
Benefits cost increases slow, but still double digit
While health-care costs aren’t increasing as much as they have in the past, the rate of increase is still in the double digits and health-care costs are the fastest growing portion of Canadian organizations’ budgets, according to ACS HR Solutions.
The human resource consultancy’s sixth annual Canadian Health Care Trend Survey found that 2006 represents the fourth year of consecutive declines in the increase of the cost of health-care benefits. However, the overall increase for this year is expected to be 13.2 per cent, so organizations aren’t out of the woods yet, said Larry Jackson, a senior ACS consultant.
“If the increases continued at the current year’s low, over the course of the next 10 years organizations’ overall compensation costs are probably going to triple,” said Jackson.
While the survey found usage rates for medical services, except prescription medications, is about half the rates in 2002, Jackson said he expects that trend to change in the next five to 10 years as the workforce ages. But once the baby boomers retire, organizations should see lower usage rates, he said.
However, retirement benefits for those same baby boomers present a significant cost factor for organizations and that’s why Jackson said employees can expect to see more cost-sharing initiatives.
“Organizations might not be able to eliminate retirement benefits but future retirees are going to pay a portion of the cost,” he said.
Another option organizations are considering is revising retiree health-care benefits to decrease liability, said Jayne Bonnett, principal at Mercer Human Resource Consulting. “At the extreme end they’ll just give retirees a set spending account with a set amount of health-care dollars and when they run out that’s it.”
Most employers are concentrating on controlling drug costs because it is the largest expense. This year costs are expected to increase 14.3 per cent.
One way to control drug costs is to move toward reference-based pricing, where insurance companies provide a formulary that separates drugs into categories. Employees can buy any drug they want, but they will only be reimbursed for the cost of the least expensive drug, said Bonnett.
Another option is reducing the amount of the dispensing fee covered by the plan or eliminating this coverage altogether.
“This is a non-intrusive benefit change that has the effect of reducing plan costs overall,” said Jackson.
While these measures, along with flexible benefits and cost sharing, should help stabilize cost increases, the ACS survey stated organizations can save more money by increasing employee wellness, which in turn decreases health benefit usage.
