The Future of Canadian Employee Benefits

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The Future of Canadian Employee Benefits

• Positioning for Success

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DONT FORGET TO ASK QUESTIONS
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Life Company Priorities1970s
Policyholder Employee Shareholder
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Life Company Priorities1980s
Shareholder Policyholder Employee
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Life Company Priorities1990s
Shareholder Canadian acquisitions Independent
Advisors
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Life Company Priorities2000s
Shareholder International Acquisitions
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Current Group Insurance Landscape
Great West Life 6,448.0 Sun Life 6,267.4 Manu
life 6,022.3 Desjardins Financial 1,753.7 Gre
en Shield Canada 1,144.7 SSQ
Life 1,089.0 Pacific Blue Cross
963.7 Medavie Blue Cross 835.6 Industrial
Alliance 807.6 Standard Life 609.0 Industry
Total 29,730.7
Source Benefits Canada April 2009
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World View
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Whats going on and what does it all mean?

• Financial meltdown
• Globalization
• Environmental degradation
• Technology changes

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The Global Evolution

• We are in a global market. What happens in Asia
  impacts us and vice versa.
• Markets are now very correlated
• Global trade has made us all co-dependent
• Current culture of fear of the future

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Environmental Impact

• Levels of pollution will impact mortality and
  morbidity
• Climate change
• Impacts of new diseases (e.g. West Nile, Swine
  Flu)
• Spread of pandemic easier

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Emerging Market Technology

• Technology very advanced
• 0.10 solution
• Robot doctors (Fast Company)
• Cell phones have global reach
• Uses are changing
• Stores value (money)
• Medical assistance

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Emerging Market Technology

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Canadian Group market

• Consolidation
• Year Premium Top 3 Profit
• 1996 12 billion 33 0.1 billion
• 2007 27 billion 66 1.1 billion
• (Source DGA
  estimate profit Fraser Group for market size)
• With financial meltdown Canadian insurers have to
  increase earnings
• Employers are squeezed and will want cost
  reductions

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Canadian market

• Expect new entrants and new methods
• Payroll firms
• Banks (Perhaps BMO?)
• Other
• Enrollment and administration process can be
  changed to simplify
• Outsourced
• Automated

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Canadian Market

• In the long run
• Expense levels will decrease
• Service requirements will increase
• Distribution methods will change
• Can you compete?

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Is the Current Benefits Model Sustainable?
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Crisis What Crisis?
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The Health Care Landscape
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Future SHOCK
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Public System

• Current healthcare spending split is roughly 70
  government and 30 private
• CLHIA report states demands for healthcare system
  expected to rise exponentially
• Current healthcare spending is approximately 10
  of GDP
• If current trends continue, provincial government
  spending on healthcare will exceed 50 of total
  revenue in 6 out of 10 provinces by 2020.
• Ontario 70 of revenue by 2022
• BC 71 of revenue by 2017
• Frank Swerdlove (CLHIA President) Canadas
  current healthcare system is not sustainable at
  its current rate of spending

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Canadian Drug Trends Total Public and Private
Plan Spending on Prescribed Drugs
( increase from prior year)
( 000,000)
Source Canadian Institute for Health Information
(CIHI) National Health Expenditure Trends 1975
2008
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Canadian Drug Trends Per Capita Public and
Private Plan Spending on Prescribed Drugs
( increase from prior year)
( per capita)
Source Canadian Institute for Health Information
(CIHI) National Health Expenditure Trends 1975
2008
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Rising Drug Costs
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• What is the public system to do?

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Public Sector Drug Cost Management

• The Transparent Drug System for Patients Act 2006
  (also known as Bill 102)
• Introduced significant drug cost saving
  initiatives for the Ontario Drug Benefit (ODB)
  plan
• Decreased payments to pharmacists. Lower mark-up
  from 10 to 8 and reduced rebates from drug
  manufacturers.
• Decreased Generic drug price to 50 of brand
  price.
• Decreased brand drug price through rebates paid
  to ODB details unknown
• Pharmacy / drug manufacturers are attempting to
  recover income lost by the governments cost
  saving measures by increasing costs to private
  plans

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Public Sector Drug Cost Management

• The Transparent Drug System for Patients Act 2006
• Impact on employer sponsored drug plans in
  Ontario
• Different drug prices for ODB than for private
  payers
• Much higher dispensing fee in some pharmacies
• Higher mark-up details not known
• Higher generic drug ingredient price pharmacy
  has developed two generic drug pricing schedules,
  a lower price for the province and a higher price
  for the private sector
• Higher brand ingredient price group plans on
  their own

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Private Sector Drug Cost Management

• Standard approaches for private plans
• (generally lower savings)
• COB Positive enrolment
• Generic Substitution
• High dispensing fee cap (i.e. 8)
• Pre-authorization of certain drugs
• Small Coinsurance / Deductible
• Combine with out-of-pocket maximum

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Private Sector Drug Cost Management

• More aggressive approaches for private plans
• (generally higher savings)
• Mandatory generic drugs or LCA wording
• Expanded prior authorization/exception drug
  status
• Low dispensing fee cap (i.e. 3)
• Dispensing fee deductible
• Maximum allowable cost (MAC) in therapeutic
  category
• High co-insurance / deductible
• Managed formulary restricted drug list
• Tiered formulary higher reimbursement for
  cost-effective drugs
• Defined Contribution

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Positioning for Success
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The Good News?
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Benefits In Demand

• Despite economic challenges, most employers are
  not cutting benefits
• Long term shortage of skilled workers in Canada
• Employees place high value on benefits plans
• 2009 Sanofi Aventis Survey asked employees what
  would you rather have benefits or show me the
  money
• How 10,000? 56 chose benefits!
• Maybe 15,000? 52 chose benefits!
• Last offer 20,000? 45 would still chose
  benefits.

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The Bad News?
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Theres Competition
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Supplier Landscape

• Full line insurers (e.g. GWL, Manu, Sun,
  Desjardins Financial, etc.)
• Niche insurers (e.g. RBC Insurance, Green Shield,
  Blues)
• The Quebec companies are coming!
• TPAs (e.g. BBD, Encon)
• TPAAC Member?
• Others? (e.g. Benefits Trust, Benecaid)

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Whats an advisor to do?
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Partner Strategically
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How Else Can You Differentiate Yourself?
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Swim In Blue Oceans
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Standing Out From the Crowd

• Defined Contribution vs. Defined Benefit
• Wellness
• Employee Assistance Programs
• Health Assessments (usually 50 employees)
• Critical Illness
• Funding models
• Insured
• ASO
• Refund or Retention Accounting
• Executive benefits (GSI, private health, etc)
• Cost of compensation analysis

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There are Four models for funding cash flow
benefits
Fully Insured
ASO
Health Care Spending Accounts
Retention Accounting
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Traditional Group Insurance Contract
Under a traditional insurance plan, the Cash Flow
Benefits (like Drugs, Dental and Vision), are
comprised of
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Administrative Services Only
Whats been eliminated/reduced?
Under an ASO contract the Cash Flow Benefits are
comprised of
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Stop Loss Contract
Individual Catastrophic Protection
How Does Stop Loss protect the employer from
individual catastrophic claimers?
The Insurer Pays claims above 10,000 per year
per family
The Employer Pays claims under the 10,000 Stop
Loss Limit per year per family
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• Retention Accounting is identical to Fully
  Insured in the way the premium rates are
  developed, but there is a financial accounting
  completed at the end of the policy year
• The employer has the call on any surpluses
• Insurer agrees to pay for the cost of the actual
  claims plus their reserves and admin fees
• Employer pays a set premium for a period of 12
  months to ensure rate predictability for 12
  months

Retention Accounting
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Health Care Spending Accounts

• A Health Care Spending Account (HCSA) is a
  pre-determined dollar amount established by an
  employer for his or her employees to be used on
  health and dental items not covered by a group
  plan and considered eligible by the Canada
  Revenue Agency
• Amounts can be established by class of employees
  or by single/couple/family status

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HCSA Tax Advantages

• Deposits to a Health Care Spending Account are
  tax free for employees (except those in Quebec)
• Contributions to a Health Spending Account are an
  eligible business expense for employers

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Top-up Health Spending Account to Traditional
Health and Dental

• Options that help to reduce costs and control
  future costs
• Implement a high deductible under Health ie.
  500 single / 1,000 family
• Remove or reduce paramedical practitioners
• Remove vision care
• Reduce co-insurance
• Add top-up Health Spending Account to help cover
  these changes
• Here are some of the benefits
• Reduce inflation under both Health and Dental
• Reduce expenses
• Help to control utilization
• Increase flexibility

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Mirror, Mirror on the Wall Am I the Most Valued
of Them All?
Author Leo J. Pusateri
The Value Ladder
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The Value Ladder
7. Why should I do business with you? 6. What
makes you different? 5. Who have you done it
for? 4. How do you do what you do? 3. Why do you
do what you do? 2. What do you do? 1. Who are
you?
Real Value Differentiation Client
Successes Process Business Beliefs Unique Value
Proposition Background
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QUESTIONS