Romanow: Cap payer drug costs

Putting a $1,500 limit on drug costs, and having the government pick up the rest of the tab, could have a significant positive impact on employer-sponsored plans
By David Brown
|Canadian HR Reporter|Last Updated: 09/04/2003

It's not clear what, if anything, will become of the Romanow and Kirby reports on health care, but there is some reason for employers to be hopeful about proposed changes, say workplace benefit experts.

Both the Romanow Commission and the Kirby report call for changes that could have a significant positive impact on employer-sponsored drug costs — one of the fastest growing burdens for private health-plan sponsors. Both reports identified rising drug costs as a problem and propose the government cover the cost for prescriptions beyond a certain point.

The Standing Senate Committee on Social Affairs, Science and Technology chaired by Senator Michael Kirby released its report,

The Health of Canadians — The Federal Report

, in late October. That was followed up a few weeks later by the report from the commission on the future of health care in Canada, established by Prime Minister Jean Chretien and chaired by former Saskatchewan Premier Roy Romanow. It’s widely expected the Romanow report will have the greater impact on government policy.

If the Romanow recommendations are implemented, “a lot of plan sponsors would be ecstatic,” said Fred Holmes, former national practice leader of group health and welfare with Buck Consultants.

Kirby suggested the government cover any catastrophic prescription expenses beyond $5,000, and Romanow wants any cost more than $1,500 to be covered by the government.

“If you cap the cost at $1,500 per person, then effectively an employer’s obligation for drugs is $1,500,” said Holmes.

“That could be a huge savings for plan sponsors,” agreed Karen DeBortoli, a lawyer with Watson Wyatt’s Canadian Research and Information Centre. “Essentially, it would make the federal government the first payer (for some prescription drugs).”

However, assuming the government agrees to go ahead with such a change, its effect would depend on the comprehensiveness of a national drug formulary, another recommendation for change, said DeBortoli.

But a lack of detail about the proposed shift in drug coverage leaves it unclear just how much of an impact it would have on plan sponsors, said Wade Harding, managing partner, western region for benefits consulting firm Morneau Sobeco. Any changes to drug coverage would have the most significant direct impact on employers because the cost of drugs makes up such a large part of most plans, he said. Even a small change to prescription drug coverage could have a much greater effect than large changes in other areas, he said.

He also said it is not at all clear how a catastrophic coverage program would be designed. “I think many of us are still having some difficulty understanding how the Romanow prescription drug impact would affect plan sponsors,” he said.

Morneau Sobeco, in a paper explaining the potential effects, stated, “Plan sponsors could see their costs decrease if there is an opportunity to remove employee out-of-pocket maximums and individual high limit pooling from their current plan design.”

DeBortoli also said that for Romanow, catastrophic drug coverage would be only a first step. Romanow believes prescription drugs should eventually be included as part of the public health-care system.

“Given the expanding role of prescription drugs in Canada’s health-care system, a strong case can be made that prescription drugs are just as medically necessary as hospital or physician services,” said Romanow. Immediately covering all prescription drugs in the public system would be too much. Rather, the goal should be to move in a gradual way to include “prescription drugs more fully into the continuum of care,” with the “ultimate objective of bringing prescription drugs under the Canada Health Act.”

The lack of detail about catastrophic drug coverage was a problem throughout the Romanow report, said Harding.

Kirby’s report seems to have the most potential to affect change for plan sponsors if only because it is the most realistic about the situation, he said.

“If you compare the two reports, Kirby is much more revolutionary in terms of its approach and the Romanow (report) is a much more evolutionary (approach). The message from Romanow is that the system isn’t terribly broken; let’s make some adjustments and in fact expand on what is already there.”

“If both plans were to be implemented in parallel, the Kirby report would probably get to a point much quicker where it would impact plan sponsors,” said Harding.

“The system is sick and it really does need some surgery,” and Kirby was very clear on what should be done while Romanow was not.

For example, Romanow firmly closed the door on any possibility of a greater role for private care providers, while not everyone agrees, said Harding. Romanow went so far as to denounce current practices designed to get workers back to work faster. He said the growing use of private MRI clinics is troubling. “So too is the current practice of some workers’ compensation agencies of contracting with private providers to deliver fast-track diagnostic services to potential claimants.”

Health promotion

Besides the proposed changes to drug coverage, the other good sign for employers in the Romanow report was the focus on prevention as an important strategy for controlling health-care costs, said DeBortoli. Right now, employers are one of the most important players in the area of wellness and health promotion programs. Romanow should have recommended some federal funding go to employers to encourage those sorts of initiatives, but unfortunately there was little input from employers or plan sponsors during hearings for the Romanow commission, she said.

“The government should be talking to employers going forward to design some sort of financial incentive program where wellness programs qualify for some tax deduction or subsidy to defray the costs of the program,” she said. “That would be wonderful.”

Home care and waiting lists

Though less obvious, some of the other changes being considered would also improve the situation for plan sponsors. “There is no doubt that the lack of home care is leading to increased (workplace) absenteeism,” said Hardy. And right now, many people end up on disability for protracted periods of time because they can’t get the surgery they need, and when they are on the waiting list they are taking medication which adds to the costs for employers. Any reductions in waiting lists would be good for employers, he said.

Of course, none of this is a fait accompli, said Holmes. Jean Chretien wants to be remembered as the Prime Minister who saved Canada’s health-care system, but he has to come up with an actionable strategy to implement these changes before his time in office runs out.

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