The Canadian Life and Health Insurance Association has responded to a new report by Innovative Medicines Canada on the cost drivers behind private drug plan costs, arguing that it creates inaccurate impressions about how fast premiums are increasing.
“The report has a stated objective of identifying and quantifying the key cost drivers in the private drug market,” said CLHIA President and CEO Stephen Frank in a letter to IMC President Pamela Fralick. “However, it appears to have gone well beyond its scope, which unfortunately creates some inaccurate impressions … that premiums may be rising at three times the rate of drug costs.”
Frank referred to Figure 20 of the IMC report. Covering the years from 2012 to 2016, the chart compared a “healthcare trend factor” — a forecast increase of health claim costs that the report said insurers use in determining health premium rates — and actual drug-cost increases that came to pass over the same period.
For the year 2016, insurers had reportedly used a trend factor of 12.09% for its anticipated increase in prescription-drug claim costs. The actual increase in prescription drug costs during that year, as reflected in the chart, was 4.2%.
Frank pointed out in his letter that the trend factor IMC cited was based on data from three insurers, and the report compared the trend factor directly to aggregate inflation in drug costs. Referring to CLHIA Health Survey data, he said that total industry premiums actually trend closely with total benefit costs.
In 2012, extended health insurance claims paid amounted to $21.5 billion while the corresponding premiums were $25.1 billion; by 2016, claims paid were $2.3 billion while premiums stood at $29.3 billion.
“[E]xtended health benefit premiums have grown at an annual rate of 3.9% over the period 2012 to 2016 while costs actually rose at a slightly higher rate of 4.2%,” Frank said.
Noting that plan sponsors’ efforts to control costs are a key focus for insurers, he said that insurers charge premiums and other prices at levels that clients will understand and support.
“Given the above, I think it would be appropriate for IMC to take steps to modify the content of your report to ensure that readers understand clearly the current reality in the market when it comes to premium growth and levels,” he said.
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