GroupNews – February 2022
Eckler’s GroupNews monthly newsletter provides commentary on the issues affecting Canadian group benefit plans.
In this edition:
- Nova Scotia announces move to biosimilar drugs for Pharmacare program
- Alberta expands coverage for diabetes
- Ontario government seeking advice on benefits plan tied to workers, not employers
- High-cost drugs continue to dominate the new drug market
- Are other post-employment benefit liabilities going unreported?
Nova Scotia announces move to biosimilar drugs for Pharmacare program
On February 4, 2022, the government of Nova Scotia began switching certain biologic drugs covered under the provincial Pharmacare program to a biosimilar version. The move follows similar changes in other Canadian jurisdictions, including British Columbia, Alberta, Quebec and New Brunswick.
The switch to biosimilars will include drugs such as Humira, Enbrel, Remicade, Lantus, Humalog, NovoRapid, and Rituxan, used to treat conditions like diabetes, Crohn’s disease, rheumatoid arthritis, and psoriasis. While biosimilars have been used in the province’s Pharmacare program since 2016, over 5,000 Nova Scotians in the program are currently on biologics that will need to be switched. Pharmacare beneficiaries will have 12 months to work with their healthcare providers to switch to the biosimilar version of their drug.
Impact: The Nova Scotia government expects to save an estimated $13 million annually once the switch to biosimilars is fully implemented. With the trend of more Canadian jurisdictions switching to biosimilars for cost relief, it is anticipated that private plans may also adopt similar initiatives to expand the use of biosimilars to support sustainable costs.
Alberta expands coverage for diabetes
The Alberta government is expanding coverage for children with type 1 diabetes. Effective February 1, 2022, continuous glucose monitors, wearable devices that replace the traditional finger-prick method to provide up-to-date glucose readings, will be funded under the government health plan for eligible children (up to 18 years old) that require ongoing use of insulin or insulin pump therapy.
Alberta follows several other provinces including British Columbia, Quebec, and Saskatchewan to include coverage for continuous glucose monitors under a provincial health plan.
Impact: Coverage of continuous glucose monitors will help self-management of diabetes, potentially reducing the need for further healthcare treatment. This expansion will also result in some potential cost savings to private plans that cover continuous glucose monitors.
Ontario government seeking advice on benefits plan tied to workers, not employers
The Ontario government has announced it is seeking input on designing a benefits plan for workers in the province that will reside with the employee rather than the employer. The plan is intended to provide coverage for retail workers, hospitality workers, independent contractors, and employees in the gig economy who often are not covered by an employer-sponsored benefits plan.
The government plans to appoint an advisory panel to recommend a system that would support a portable benefits plan that provides coverage to workers in industries that traditionally offer fewer benefits. The establishment of the advisory panel was a key recommendation of the Ontario Workforce Recovery Advisory, which was responsible for several proposals in the recently released Working for Workers Act, 2021. The panel is expected to be approved and appointed by spring 2022.
Impact: The proposed portable benefits plan is the first of its kind in Canada. While it may not affect private employer-sponsored benefit plans, it is an important step towards recognizing the changing nature of employment and will offer benefit support to those who are often lacking coverage.
High-cost drugs continue to dominate the new drug market
On January 11, 2022, the Patented Medicine Prices Review Board (PMPRB) released a report, Expensive Drugs for Rare Diseases: Canadian Trends and International Comparisons, 2011-2020. The report provides an overview of the market for EDRDs, including a comparison between Canada and PMPRB comparator countries.
EDRDs are defined in the report as medicines with at least one orphan designated indication through either the US Food and Drug Administration or European Medicines Agency, and with estimated treatment costs exceeding $100,000 per year for medicines or $7,500 per 28 days for oncology medicines.
Highlights of the report include:
- The pace of EDRD approvals in Canada has increased over the past decade with the majority, 56 of the 104 EDRDs currently on the market, being approved after 2015.
- Between 2011 and 2020 EDRD sales in Canada grew at an average annual rate of almost 32%.
- Oncology medicines which make up 54% of the 104 EDRDs approved in Canada accounted for 76% of EDRD sales made in 2020. While the range of 28-day treatment costs for oncology EDRDs has not substantially increased in the past five years the median cost of treatment increased from less than $11,000 from 2011-2015 to more than $13,000 from 2016-2020.
- EDRDs account for a sizeable segment of recent international approvals, with new EDRDs launching in Canada at a rate similar to comparator countries
Impact: This PMPRB report suggests that privately sponsored benefit plans continue to face substantial pressures from rising drug costs, particularly due to the continued trend toward high-cost medicines. As the federal and provincial governments continue to work toward a national strategy for drugs for rare diseases, private benefit plans should continue to review their own strategies for prescription drugs that treat rare diseases.
Are other post-employment benefit liabilities going unreported?
Employers who sponsor post-retirement benefit (“PRB”) plans generally report them in their financial statements. However, other post-employment benefits (“PEBs”) are often not reported. PEBs are benefits provided to members who are not actively at work but not yet retired, or benefits paid upon termination of employment. Common examples include:
- Self-insured disability income benefits
- Self-insured workers’ compensation benefits
- Continuation of medical, dental, and life insurance benefits during disability or other extended absence from work
- Compensated absences, such as sabbaticals
- Vesting or non-vesting sick leave
Other benefits that employers provide that should be reported but don’t fit neatly into the above description include long service awards, deferred compensation or bonuses, and banked vacation days. Service awards from employers typically include gifts of value when employees achieve milestone years of service or retirement.
Why are PEBs supposed to be reported on the balance sheet?
Extending compensation or benefits to employees who are not actively at work represents a liability to the employer. Accounting standards followed by Canadian employers require recognition of related PEB liabilities on their balance sheet and an expense on their income statement. Separate from post-retirement benefits, the subset of post-employment benefits requires a different accounting treatment. This includes immediately recognizing any gains or losses that occur during a given year through the expense charge to income. This can make the expense quite volatile and difficult to understand.
Why are they going unreported?
All employers likely have post-employment benefit liabilities, but the question is, are they material? Although a particular PEB’s liability may be deemed immaterial in isolation, it is important to determine whether the total cost of all PEBs provided would be considered material and therefore should be recognized in an employer’s financial statements.
For example, let’s say a large employer measured their continuation of benefits liability for employees on disability at $1M which they deemed immaterial. However, they determined they also have non-vesting sick leave and self-insured workers’ compensation benefits with a combined liability totalling $50M. The combined liability of all PEBs offered then became material and was required to be recognized on their financial statements.
How is materiality determined?
It is not the role of the actuary to determine materiality of liabilities, but the responsibility of the organization and their auditor. Auditors generally rely on a percentage of a key benchmark, such as revenue or expenses, together with professional judgement, in determining materiality for the financial statements as a whole. It is not necessarily whether the PEB liabilities alone are material or not, but rather consideration must be taken for the PEB liabilities as well as all other aggregate misstatements.
The actuary’s role is to support the organization in the determination of their benefit plan liabilities and the actuarial value of any associated assets. Costs for these benefits must be considered from a long-term perspective allowing for probabilities of various outcomes and therefore require calculations that actuaries are well qualified to perform.
What should plan sponsors do about their PEBs?
Plan sponsors should review all documentation related to their group benefit plans (such as benefit booklets and collective agreements) to identify all PEBs they provide. The next step would be to work with their actuary to determine the magnitude of the liabilities for each PEB that is not currently reflected in their financial statements.
Once this exercise is completed, the auditor can help determine materiality and next steps. Generally, the outcome would be one of two options:
- The sum of the liabilities is material and should be reflected each year in the financial statements, with a potential adjustment in the first year of recognition.
- The sum of the liabilities is currently not material, but should be reviewed every few years to ensure whether it remains the same or should be included in the financial statements sometime in the future.
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.