GroupNews – April 2020
Eckler’s GroupNews monthly newsletter provides commentary on the issues affecting Canadian group benefit plans.
In this edition:
Manitoba pauses increase to pharmacare deductible
On March 25, 2020, the government of Manitoba announced that it will defer the pharmacare deductible increase scheduled for April 1 and maintain the 2019/20 deductible throughout 2020/21.
The following table provides a breakdown of the deductible rates:
|Adjusted Family Income||Deductible Rate: |
2019/20 & 2020/21
|$0 – $15,000||3.17%|
|$15,001 – $21,000||4.49%|
|$21,001 – $22,000||4.53%|
|$22,001 – $23,000||4.61%|
|$23,001 – $24,000||4.67%|
|$24,001 – $25,000||4.72%|
|$25,001 – $26,000||4.79%|
|$26,001 – $27,000||4.84%|
|$27,001 – $28,000||4.90%|
|$28,001 – $29,000||4.94%|
|$29,001 – $40,000||4.97%|
|$40,001 – $42,500||5.39%|
|$42,501 – $45,000||5.52%|
|$45,001 – $47,500||5.64%|
|$47,501 – $75,000||5.71%|
|$75,001 and greater||7.15%|
The annual deductible is determined by multiplying the adjusted total family income by the applicable deductible rate. When the minimum deductible of $100 is met, pharmacare will pay 100% of eligible expenses.
Impact: Private plans that cover the employee deductible for eligible members will not experience increased costs for the 2020/21 benefit year.
Changes to parental leave in Saskatchewan
Saskatchewan is increasing parental leave from 78 to 86 weeks to ensure that employees who are entitled to the shared parental Employment Insurance (EI) benefit have job protection while accessing benefits. In effect since March 2019, the parental sharing benefit provides an additional period of EI parental benefits for parents who share parental leave. The amendment will come into effect on proclamation of the Saskatchewan Employment Amendment Act, 2019.
Impact: Saskatchewan requires pension and benefit accrual to continue during a leave period, subject to the employee making the required contributions under the plan. Saskatchewan employers should ensure that their pension and benefit plan coverage complies with these requirements.
Ontario releases proposed amendments to Ontario Drug Benefit program
On March 30, 2020, the Ontario government issued a bulletin outlining proposed amendments to the effective date of changes that would allow private label products (PLPs) to be funded under the Ontario Drug Benefit (ODB) program. It would also allow PLPs to be designated as interchangeable products on the ODB Formulary.
In response to concerns by pharmaceutical manufacturers and retailers about the potential for disruptions in the supply chain, and potential drug shortages as a result of COVID-19, Ontario will amend the start date of approved regulatory changes to allow PLPs to be designated as interchangeable products on the ODB Formulary and allow funding through the ODB program before July 1, 2020.
The current proposal, if approved, would change the effective date of the regulatory changes for PLPs from July 1, 2020 to April 1, 2020.
Impact: Making PLPs eligible for public funding under the ODB program earlier than anticipated will make it easier for Ontario pharmacies to sell PLPs to private plan and cash paying clients sooner, which could help offset the potential shortage of certain drug products. It is not expected to increase operating or administrative costs but it could require plan administrators to review their current policies on PLPs.
Ontario amends Drug Benefit Act
Ontario has filed O. Reg. 123/20: GENERAL amending the Ontario Drug Benefit Act (Act). The regulation amends the Act to change the requirements for products submitted for designation as an interchangeable drug product with a listed drug product. Previously, if three or more original products were designated as listed drug products, the drug benefit price of a product submitted for designation as an interchangeable drug product was required to be less than or equal to 25 % of the drug benefit price of the original product as set out in the Formulary “on the date when the third product became designated as interchangeable with the original product, if three or more products have already been designated as interchangeable with the original product.” If no more than two products had been designated, each product could be priced as on the date the product is first proposed for designation as a listed drug product.
The amendments state the drug benefit price of a product submitted for designation as an interchangeable drug product is required to be less than or equal to 25% of the drug benefit price of the original product as set out in the Formulary “in all other cases, on the date when the first product became designated as interchangeable with the original product.”
The regulation also adds that, despite restrictions in the Act, the price of an original product on which the price of an interchangeable product is based can be adjusted based on the price of the original product in other jurisdictions.
Impact: Previously, interchangeable drug products were required to be priced at a level less than or equal to 25% of the drug benefit price of the original product as set out in the Formulary once three other products had been designated. By allowing interchangeable drug products to be priced at a level to 25% of the drug benefit price of the original product as set out in the Formulary when a first product was available, it is possible that new interchangeable drugs could see drastic changes in pricing compared to previous interchangeable products, which would be passed on to the consumer.
COVID-19 impact on benefit plans remains to be seen
While at this time it is difficult to predict the full impact of COVID-19 business closures and social distancing on benefit plans, early indications do suggest some significant impact in the short term.
The impact on benefit plans will depend on the length of time the virus continues to spread within communities as well as how long government-mandated social distancing rules apply, and on when certain services become available again.
Given that plan members are unable to access a significant number of routine health care and dental services, we anticipate a decrease in plan costs in 2020 for most non-drug health and dental expenditures. While some paramedical practitioners offer virtual services, others are closed temporarily, and dental offices are shuttered except for emergency services. While the current 30-day dispensing limit on drugs and other medical supplies has generally resulted in increased dispensing fees, the overall impact on health care plans is expected to be a net decrease in claims. At a minimum, this is likely a reduction of two months’ worth of claims but it could extend to six months or longer. For typical health and dental plans this could mean a combined 5% to 20% reduction in costs for 2020. Some insurers are currently offering temporary monthly credits of insurance premiums at differing levels for fully insured health and dental plans to support the expected decrease in claims. While it is anticipated that plan members will access services as soon as they are available again, they likely won’t be able to claim the extent of services missed. At this time, it is expected that once mandated closures and social distancing measures are eased or lifted, claims will revert back to roughly pre-COVID-19 levels.
For life insurance plans, the effect of COVID-19 is not anticipated to change the mortality rates used to price or project the expected claims under group life benefit plans in the near term.
The impact of the pandemic and social distancing measures on group short and long-term disability plans is very hard to predict at this time. However, it’s expected that the number of claims for short term disability could increase, possibly significantly, for several reasons including claims for those who are sick from COVID-19, are experiencing mental health distress, or are making claims as a way to avoid potential employment layoff. The duration of these claims is hard to estimate at this time, but it’s likely that some will continue through to long-term disability and therefore impact the cost of those plans as well.
The anticipated changes to claim levels will impact valuations and plan cost projections, and actuaries who are completing such valuations and projections may consider the impact differently depending on the type and purpose of the valuation. The impact of changes in claim patterns is anticipated to be most acute in 2020 and less significant in subsequent years. For long-term benefit cost projections, the impact of different claim patterns in the first year of the projection period could be inconsequential to the total result and therefore assumption changes may not be necessary.
For short-term benefit cost projections, the impact of different claim patterns in the first year of the projection period could be very material and therefore changes in assumptions should be assessed and tested so that appropriate decisions on the impact can be made by plan sponsors. The biggest challenge will be in any projections of short- and long-term disability claims as the number and durations are unknown at this time. Actuaries will need to rely on their judgment for now as it will take many years to study the resulting impact on disability incidence and termination rates and factor them into actuarial pricing, valuations and reserving.
For benefit plans that set aside assets to cover future liabilities, the recent impacts of reductions in asset values and investment returns, and the possible delayed recovery in the economic market will likely far outweigh any savings on the health and dental benefit cost side and will possibly play a larger role in benefit plan decisions. For self-insured disability plans with assets, the implications may be very challenging with increased claims and decreased assets. These plans will need to be monitored closely.
Overall, while there is some good news with respect to benefits plan costs as a result of reduced health and dental costs, this could be offset by increased disability costs for 2020 and beyond, and potential investment losses. When the pandemic is over, a “new normal” will emerge, and actuaries will be able to begin the process of studying the empirical implications on the design and pricing of benefit plans.
This publication has been prepared by the GroupNews editorial board for general information and does not constitute professional advice. The information contained herein is based on currently available sources and analysis. The data used may be from third-party sources that Eckler has not independently verified, validated, or audited. They make no representations or warranties with respect to the accuracy of the information, nor whether it is suitable for the purposes to which it is put by users. The information is not intended to be taken as advice with respect to any individual situation and cannot be relied upon as such.