Slight dip in health-care plan increases

Generic drugs help, but aging workforce will push costs up
By Sarah Dobson
|Canadian HR Reporter|Last Updated: 04/17/2008

Canadian private health-care plans will continue to face double-digit cost increases in 2008, according to a nationwide survey of insurers and Blue Cross agencies by HR consulting firm Buck Consultants.

But the overall health-care trend (including prescription drugs, medical plans, hospital coverage and dental care) should decrease slightly to 13.76 per cent for 2008 from 13.94 per cent in 2007, according to the eighth annual

Canadian Health-Care Trend Survey.

However it’s expected health-plan costs will rise at double-digit rates for the next five to 10 years, due to an aging population and an increased awareness of, and therefore stronger demand for, medical therapies.

The 2008 survey analysed responses from 10 major Canadian group insurers representing 84 per cent of the group health providers’ market in Canada. The increases result from several factors, including cost inflation, utilization of services, new technology and services, changes in the mix of services and shifting costs from the public to the private sector.

But the largest impact on the downward trend comes from prescription drugs, which make up 70 per cent of a typical health plan, excluding dental, said Larry Jackson, a senior consultant of health and welfare at Buck Consultants in Toronto.

The 2008 cost increase for prescription drugs is anticipated to be 14.09 per cent, a slight drop from 14.26 per cent last year, though prescription drug costs still represent the largest portion of employer health-care costs.

Prescription drug costs were rising considerably five or 10 years ago but now they are starting to level off, he said, citing a fall from 15.6 per cent in 2004 to 14.09 per cent today.

Generics gaining ground

Growth in the pharmaceutical industry has slowed and generic drugs continue to gain market share, as many leading brand-name products lose market exclusivity.

And increased focus on safety has lengthened the time it takes for drugs to enter the market, says the survey, and, in some cases, has meant some products are removed from the market.

“There are not as many blockbuster drugs in the past few years and some of the brand names are starting to go off patent, so there’s more generics coming out,” said Jackson.

As a result, more plan sponsors are trying to cut costs by putting in generic substitutions as a requirement and, in a number of provinces, pharmacists are required to substitute generics, he said.

“A lot of major employers, bigger companies, have taken steps in the last few years, introducing more cost-sharing with health-spending accounts, so the employee then feels the impact at the point of purchase,” he said. “If he doesn’t have enough money in his health-spending account to cover it, he might think twice about it or go with a less expensive product.”

The survey also predicts the cost increase for medical plans alone (excluding prescription drugs) will decrease to 13.09 per cent for 2008 from 13.43 per cent last year. But utilization is on the rise as paramedical-practitioner treatments grow in popularity.

Hospital coverage should see a slight gain, at 12.44 per cent for 2008. The costs are based on the rates of semi-private rooms, which are increasingly unavailable, said Johnston.

And dental-care usage is predicted to see increases of 4.98 per cent this year, up from 4.11 per cent in 2007. Estimated average annual fee guide increases for dental-care services performed by general practitioners vary by province, but all except Ontario and the Maritime provinces have increased fee schedules more than last year. Fee guides ranged from highs of 6.5 per cent in Saskatchewan and 5.9 per cent in Alberta to lows of two per cent in Ontario and New Brunswick and 2.29 per cent in Prince Edward Island.

“As the population ages, they’ll get into more expensive dental-treatment requirements,” said Johnston.

To better control health-care costs, more companies are getting into the wellness arena, he said, which has been a difficult sell because of limited information on the cost-and-benefits return.

There are also more pharmacy benefits managers being used by insurers and tiered formulas are becoming more popular, which see employees reimbursed more for generic than brand-name drugs.

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