Reinsurance Can Help Mitigate the Risk of High Drug Costs
Over the last few years, a number of changes that have the potential of significantly altering the funding, pricing and delivery of prescription drugs have been under consideration in Canada. The reform to the Patented Medicines Pricing Review Board and the implementation of a National Pharmacare are examples of these changes. The onset of the pandemic has increased the uncertainty surrounding the implementation of some of these modifications and has created new challenges that must be addressed by the Canadian insurance industry.
The Risks That High-Cost Drugs Present
The risks that high-cost drugs present are real risks, as some insurance companies know too well. These statistics illustrate only some of the challenges that insurers are facing:
- Private drug plans saw an increase of 7.6 percent in eligible monthly costs in 2019, which is the highest increase in these costs over the past five years.
- The cost per certificate for specialty drugs has risen by an average of 10.9 percent annually for the past 10 years.
- Merely 1.1 percent of claimants accounted for 30 percent of eligible costs in 2019, partly because of high-cost drugs these claimants took.
Moreover, these issues will likely only worsen in the coming years. Gene Therapies are also expected to emerge in coming years but the financial impact they will have remains uncertain. Eligible costs for cancer drugs have grown by double digits, and cholesterol drug costs will soon become more problematic even though recent dual-nature plans have temporarily stemmed the tide.
In addition to the broad trend of increased high-cost drug treatments for chronic conditions, releases of new medications create spikes in costs. Just in the past seven years, a new cure for Hepatitis C in 2014 and a new migraine medication in 2018 created surges of claims for high-cost drugs.
Should these current trends continue, high-cost drugs are expected to account for nearly 46 percent of average monthly certificate costs by 2025.
Insurers’ Exposure to High-Cost Drugs
Of course, there currently are various programs and measures in place to help address the high-cost drug issue that insurance companies are facing:
- Provincial Programs covering individuals over age 65, with some provinces providing coverage to all residents.
- Industry pools cover certificates from particularly costly claimants provided they meet certain criteria.
- Annual and lifetime maximums limit how much any one person can receive from an insurer.
- Cost-containment strategies such as prior authorization and preferred pricing arrangements.
There are gaps in these programs, however, and risk remains even with these measures.
Reinsurance Shifts Some of the Risk Away from Insurance Companies
When properly used, reinsurance can effectively help fill in the gaps that the aforementioned measures leave behind and reduce an insurer’s risk exposure. Through reinsurance, primary insurers can shift risk away from them so that they have a level of risk exposure that they’re comfortable carrying.
To learn more about reinsurance options for high-cost drugs and how they might help your company, contact one of our representatives.
Source: 2020 TELUS Health Drug Data Trends & National Benchmarks