'Don't start by cutting the benefits'

“I think the biggest issue for employers is potentially increased claims and increased costs.”

So says Lori Brienza, partner at Mathews Dinsdale in Calgary, in discussing legislative changes now in force in Alberta.

As of Oct. 1, the rules governing employer-sponsored drug and health plans in Alberta have changed in two significant ways. Employers can no longer end or reduce prescription drug and supplemental health coverage simply because an employee turns 65. And if both private and government coverage exist, the private plan now pays first, with the province acting as the safety net.

The changes come through Bill 11, the Health Statutes Amendment Act, 2025 (No. 2), which amends the Alberta Health Care Insurance Act.

According to the government, the shift is intended to help ensure the long-term financial sustainability of government programs, and no eligible Albertan will lose access to government-sponsored drug coverage because of it.

A statutory floor at 65

Under the new Part 3 of the Act, employers that sponsor a drug and supplemental benefits plan cannot include a provision allowing them, solely on the basis of a member's age, to terminate membership in the plan or to terminate, reduce or modify the member's benefits. Any plan provision that purports to do so is of no force or effect.

"What we're seeing now is that employers have to continue prescription drug and supplemental health benefits for as long as the employee remains actively employed regardless of age,” says Brienza.

"The big shift here is that that's now a statutory requirement and sets the minimum bar for benefits for employees age 65 and over."

If an employer contravenes the prohibition, the minister may order it to reinstate the member, restore the benefits on the same terms as before, and reimburse the member for amounts paid out of pocket in the interim. An employer that fails to comply can face an application to the Court of King's Bench.

The scope is limited to drug and supplemental health benefits.

"This does not necessarily impact life insurance, disability insurance, or travel insurance, that sort of thing," says Brienza.

Who pays first in Alberta

The second change in Bill 11 reverses the order of payment. Under the new payor-of-last-resort section, no benefit is to be paid under a public drug and supplemental benefits plan if the member is entitled to the same or an equivalent benefit from an "alternative payor" — which includes private plans as well as federal, other provincial and territorial plans. The public plan pays only where the alternative payor paid none or part of the claim, or denied it, and then only up to the unpaid portion.

“Because private plans become the first payer, some costs that may previously have been picked up by government programs could increasingly flow through employer-sponsored plans,” says Brienza.

The province now requires Albertans to tell their pharmacy about all drug and supplemental coverage they hold so the pharmacist can coordinate benefits at the point of dispensing, according to the government.

Jennifer Thompson, partner at Dentons Canada in Calgary, says it's the combination of the two changes that matters.

"If the order of paying had stayed the same, then it wouldn't be as big a deal to put them back on the plans — but it's going to have a bigger impact because of those two things happening at the same time."

Prescription drug coverage

To understand the cost exposure, employers need to understand the two government programs involved, according to Bruce Fletcher, a principal consultant at Mercer Canada in Calgary. The Alberta non-group plan is available to Albertans up to age 65, and members pay premiums to participate. Coverage for seniors begins at 65 and is premium-free.

The government says seniors with active Alberta Health Care Insurance Plan (AHCIP) coverage and a validated age are eligible, and the coverage is added automatically on the first of the month following their 65th birthday.

"Both of these plans cover a variety of benefits, but far and away the coverage that is being provided in these plans is prescription drugs," says Fletcher. "Both of these plans would cover at least 70% of eligible drug costs today."

Many private plans were developed as a wraparound to available government coverage, he says. "For plans that are providing coverage for individuals age 65 and older, they were built in a system that already had the government as first payer."

Who will feel it most

Thompson expects the effects to build over time.

"When renewal time comes up, it is going to mean a lot," she says. "I can't see how it's not going to lead to premium increases."

The impact will depend heavily on the workforce. "Those employers with an older workforce are obviously going to be impacted more than those with a younger workforce," says Thompson. "And it's going to depend on how healthy that workforce is as well."

Among her clients, retail stands out. "I think you get a lot of older employees in retail who want a part-time job while they're retired," she says. "I have some clients who ask me for advice about employees who are in their 80s."

Forecasting is difficult because many of these employees may have been off the plan for years.

"You obviously can't ask people about what their health issues are, what diagnoses they have," says Thompson. “If you suddenly get a whole bunch of employees with something like diabetes, it's a very high-cost illness, it could really push those premiums up."

The scale of exposure varies widely by plan, according to Fletcher.

“They’re all set up differently, right? They all have different focuses; they all have different constraints that they've built into their plans for the costs they're trying to manage today. And I think I feel like they're all going to react a little bit differently.”

If your plan only covers active employees and you have to open it up to individuals beyond age 65, their claiming patterns are going to be added but it’s not likely going to change how the plan sponsor necessarily deals with that, he says.

“When it comes to payer of last resort for a retiree plan, I think those are going to be situations where plan sponsors are going to be visibly watching… very deep into the details for the costs.”

Compliance comes first

So, how should employers and HR be responding at this point? The immediate task is administrative.

"I think what you're going to want to do as an employer is just ensure that you're meeting the statutory requirements from the get-go," says Brienza.

That means finding employees who were previously dropped.

"You have to be prepared to go find those people and re-enroll them in your plans," says Fletcher. "My understanding is that that re-enrollment should happen without any requirements for evidence of insurability. It's a required legislative thing."

Thompson says employers also need to update the paper trail.

"They need to update their policies and procedures and internal documentation that might make reference to people not being on plans anymore who will now be on plans.”

Start with the data

Brienza says employers should resist the instinct to cut.

"I think the reaction that some employers might have is really that potentially they're going to have to reduce or cut their benefits, but I think the real response is don't start by cutting the benefits, start with the data," she says. "Get an understanding of what is actually driving the increase, if there is one, in your benefits costs."

She suggests employers speak to their insurers, review the age provisions in their plans, consider claims experience for employees 65 and older, and look at prescription drug utilization, including high-cost or specialty drug claims.

 "All of these really have a potential impact on premiums at the renewal stage," she says. "If a small number of high-cost drug or disability claims are responsible for a significant portion of the increase, reducing benefits for every employee across the board may not necessarily be the right response and may be too blunt of a response.”

Fletcher says plan sponsors should be able to draw a line at Sept. 30 through their advisor or insurer and compare claims before and after. For larger plans, "that might give you some indication, but not the full picture for where it's going," he says.

So far, he hasn't seen employers move quickly. "I think they're working with their plan actuaries to understand what the expected impact of that change would be so that they can consider what their options are."

"They're all going to need to watch plan experience as it unfolds," he says.

The cost of cutting benefits

Broad reductions carry considerable risks, starting with recruitment and retention.

"Benefits are an important part of total compensation for employees," says Brienza. "Significant reductions can make an employer less competitive, particularly in industries where experienced or specialized employees are going to matter most."

Thompson makes a similar case.

"For the sake of saving a few cents here and there, it may not be worthwhile reducing your appeal to new hires and the impact that it might have on employee morale as well," she says. "If you suddenly start chopping the coverage back, it doesn't just affect the over-65s, it affects the whole workplace."

Legal risks to plan changes

There is also legal exposure.

"Before making any significant changes, you want to think about whether benefit entitlements are part of an employee's agreement," says Brienza, pointing also to offer letters, executive agreements, policies and collective agreements. "A significant unilateral reduction in benefits, if it's deep enough of a change, can in some circumstances create contractual or even constructive dismissal issues."

Thompson says the risk depends on the contract and the size of the change. An agreement may give the employer the right to change benefits with adequate notice, which lowers the risk.

"Generally speaking, small changes, if that's the only change that's being made, are unlikely to be constructive dismissal," she says. But individual circumstances matter.

"If someone's a really heavy user of it, then from a dollar amount perspective, if they're low paid and they're a heavy user, then it could go over that kind of threshold where you go, ‘Actually, this is a substantial change.’"

Human rights obligations also apply, according to Brienza.

"A reduction that applies equally to everyone is different from an age-based reduction, of course, but I think employers have to also consider whether changes can disproportionately affect employees with disabilities or other protected needs and ensure that accommodation obligations can continue to be met.”

Retiree and unionized plans add complexity. Fletcher says reducing coverage for retirees would call for legal advice "because that's potentially a vested scenario with retirees." Where there's a collective agreement, "I could see an acceleration into the discussion with unions pulled from both sides, depending on the implications to them," he says.

Targeted benefit plans

Rather than across-the-board cuts, Brienza expects more employers to use targeted plan design.

"Employers might be able to use options like deductibles or coinsurance or utilization management and other mechanisms to manage costs without necessarily eliminating valuable coverage altogether," she says.

Tiered plans are another option.

"It's not discriminatory to do it based on date of hire, as long as that's the only consideration," says Thompson, adding that employers could also set different plans by type of employment, such as management.

But she cautions that "employees do tend to talk," which can undercut tiered arrangements where many hires come through referrals.

Thompson suggests reminding staff of their right to opt out if they have coverage elsewhere.

"That has to apply to everybody. It can't just be to over-65s, but you could remind all your employees of this opt-out right," she says. Where costs are shared, "some of the over-65s might not want that extra cost if their spouse already has coverage, and that might be a way to reduce some of the increase."

Fletcher says plan features such as stop-loss protection and benefit maximums may also come into play. Stop-loss insurance covers claims above a set threshold, so a plan absorbing more costs could reach that threshold sooner.

"Yeah, but I don't know that it's materially changed by this," he says. "What would be more impactful, I think, is if the plan instead had its own annual or lifetime maximums."

Another consideration is decreasing co-pays, according to Fletcher, while another potential response is to no longer have a plan.

“That's an extreme response. I can't underscore that enough. Plan sponsors will take these decisions very carefully.”

Communicating with employees

Beyond immediate compliance, Brienza says the renewal cycle is the natural moment for a broader review.

"Renewal is definitely the most organic and opportune time to reevaluate whether or not your plan is meeting the needs of your workforce in a cost-effective way," she says, adding that employers should meet with their insurance providers well in advance to collect data.

Communication with employees matters as well.

"Change is hard for people. It can be challenging and not understanding what change means can be concerning to your workforce," says Brienza. She recommends employers clearly explain what the changes are and what they mean for individuals, and "give them a conduit, someone to go to, to speak to if they have more pointed questions about how the changes might impact them personally."

For Brienza, the overarching message is about management rather than retrenchment.

"I think the goal for employers should be better management of their plans, not simply cutting them or looking at what benefits they can reduce or change," she says. "[It’s about] really understanding the drivers of employers' costs and then deciding where changes will have the greatest impact with the least disruption to employees is going to be key."