The Pooling Problem

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Pooling, as far as Benefits programs go, is not a very sexy topic.  A pooling provision is kind of like insulation in your house – it’s there, it’s important, you don’t see it, and you’d probably rather spend money on something splashy and fun, like a plasma TV or granite counters.

Large Amount or Stop Loss pooling provisions are arrangements with an insurer where excess claims beyond a predetermined threshold become the responsibility of the insurer rather than the plan sponsor.  Including one of these provisions on any self-insured health benefit to cap your liability is a very good idea.

The intent of pooling is really to protect the plan against the incidence of a random catastrophic claim – a plan member gets cancer or has a serious accident, incurs large treatment costs, recovers and the claims and their associated costs are over.   Historically, these provisions were not designed for, nor have they been priced for, recurrent high cost claims.

But, the Canadian Health landscape is changing.

Two primary issues are driving high cost drug claims to private health plans, and they both centre on biologics.  Biologics are medicinal products that are developed using a biological process, rather than a chemical synthesis.  Some biologics, like vaccines or insulin, don’t come with a high price tag.  Others, like Remicade or Soliris, are very expensive.  Biologics are an important tool for health care practitioners and patients alike in that they provide very effective therapy where either a therapy did not previously exist, or where the existing therapy was either not entirely effective or brought with it a number of side effects.  Biologics are very often life changing therapies, and for many people, make the difference between living and simply existing.

Biologics are usually injectable, and are administered to patients in a hospital environment, where the associated costs are then picked up by the provincial healthcare program where the patient lives.  There are a number of biologics both relatively new to market and presently awaiting approval that are orally administered.  Now, while this is again progress in both patient comfort and therapeutic delivery, oral biologics also move the responsibility for cost from the provincial healthcare purse into the purse of the patient.  When the patient is a member of a private drug plan with an open formulary, the cost of the biologic lands there.  If the private drug plan is of the self-insured variety and has a Large Amount Pooling or Stop Loss provision, the cumulative cost of therapy can hit the threshold very quickly.  The cost of the drug over the threshold is now taken out of the plan experience, and placed into the insurer’s pool along with other plans from their book of business.  This happens with several groups and suddenly, insurers have substantially higher pooled claims, and a problem.  Do they change the mechanics of their pooling provision, or do they raise their charges for pooling for everyone?

I have attended two conferences in the second half of this year, both of which held sessions on this very topic.  Both sessions raised this as an issue that will need to be dealt with soon, but neither offered solutions.  Insurers are paying attention and are girding themselves.

How will your plan deal with the Biologics issue?