Pharmaceutical Costs on the Rise

Canadian group plan sponsors (employers) dread the annual renewal - or quarterly updates from their agent/broker/actuary/third party administrator, since the cost of the plan - and consequently the premium trend upwards. It is no surprise that 11 major Canadian insurers* report a 15.19% increase in drug costs in 2009 - according to a Buck Consulting survey.

Typically drugs costs account for about 80% of the group plan... a little napkin math and you are looking at 12% increase in costs alone!

That is pretty substantial for a corporate balance sheet item which generates 0 revenue - particularly in the current economic condition.

There are two things which are critical for plan sponsors:

1) Understand that a large portion of the group health plan is a cash-flow tool to assist employees in paying their health costs

• The plan pays ALL employee's health costs
• The employer contributes some portion to the plan
• The plan spreads the remaining cost across ALL employees

2) Put in place measures to control the costs which are paid for by the plan.

Would you think that it is possible to control costs after they are incurred. Of course not! So then why is it that a common reaction is to go and shop the plan to another insurer for a lower rate?

Costs have to be controlled proactively which means equipping the spenders (employees) with the tools and incentive to ensure that the health dollars are spent wisely. According to the survey:

When employees share in the cost of medical
services, they tend to appreciate the actual cost and are
more judicious in their health care purchases.

Strategies include:

• Pharmacy program to address drug plan cost and optimize drug utilization
• Strategic use of generic drugs
  
• Incentivising employees to seek lower cost drug options where available.
  

These should ideally be aligned with a plan sponsor's overall Healthcare Productivity Management Strategy - the employer's plan to focus healthcare related expenses to maximize Return on Investment and Employee Satisfaction for the greatest number of participants.

What measures are YOU taking to control these spiralling costs?


*The 11 partipating insurers:
Alberta Blue Cross
Desjardins Financial Securities
Great-West Life
Green Shield
Manulife Financial
Medavie Blue Cross
Pacific Blue Cross
Saskatchewan Blue Cross
SSQ Financial
Standard Life
Sun Life Financial