Private group insurance plans continue to bear the brunt of increasingly higher cost prescription drugs in Canada due to the continued absence of a government sponsored catastrophic drug program.


In 2013, the Canadian Life and Health Insurance Association and all member insurers developed an industry-wide pooling agreement to help mitigate the impact of high cost drugs on their pools of business. This agreement, called the Extended Healthcare Policy Protection Plan (EP3), was developed for the benefit of the insurers in that it allowed them to share the cost of these high cost claims. In turn, the EP3 resulted in added protection for all fully insured clients as insurers were no longer able to adjust their pooling charges based on an individual client’s experience. Instead, they were restricted to applying a standard pooling charge to all fully insured clients based on the results of their block of business thereby mitigating the impact of any large drug claims and protecting those who have a high claimant from significant increases in catastrophic pooling costs.

Over the past few years, advances in medical treatments have resulted in a significant increase in the number of expensive prescription drug therapies. While these treatments provide major health improvements for patients, they come at a significant cost to both the employee (if coverage is not at 100% co-insurance and if there is a plan maximum for drugs), and to their employer sponsored benefit plans.


According to the Canadian Life and Health Insurance Association (CLHIA), in 2013 there were over 4,200 individual claims with annual costs in excess of $25,000 absorbed by the industry pool. There were a number of extremely high cost drug therapies included with four contributing costs in excess of $400,000 annually and one in excess of $1.0 million annually. While the number of individual claims eligible for the industry pooling remained fairly stable in 2014 with over 4,000 individuals with annual claim costs in excess of $27,500, there was a 45.8% increase in the total cost of drug claims pooled between 2013 and 2014.


Seventeen new drugs were introduced to the industry pool in 2014. Auto-immune diseases and new-to-market treatments for diseases such as cystic fibrosis and hepatitis C topped the list of the high cost specialty drug costs. These latest results indicate that the incidence and cost of highly expensive and recurring drug treatments is on the rise.


The prevalence of high cost drugs is expected to accelerate in the coming years as more high cost specialty drugs enter the marketplace. Treatments for auto-immune diseases such as Rheumatoid Arthritis and Crohn’s Disease can have annual drug costs well over $25,000 annually and can be expected to continue long term. In the absence of a governmental catastrophic drug program, the EP3 pooling arrangement will continue to provide fully insured employer group plans protection from the potential devastating financial impact of even a single ongoing expensive drug treatment.

Currently only group insurance plans that are fully insured are eligible to participate in the EP3 pooling arrangement. Group plans managed under a Refund Accounting, Self-Insured (Administrative Services Only) basis, Simplified Retention or International Pooling arrangements, where there is no “insurance” contract in place, are not eligible for EP3. Non-insured plans will continue to carry an increased financial responsibility for high cost drug claims, and be at potential risk for the full financial impact of these claims to their catastrophic pooling charges.


Clients currently managed under a refund accounting or self-insured (ASO) basis would do well to consider the financial risks of continuing to offer unlimited drug coverage, and whether it may be time to consider revising their financial arrangements to a fully insured approach.