The Ontario government's decision to tie drug benefits to income levels could mean that fewer employers will offer retiree health care coverage and the price of benefits will rise, the CEO of Sun Life Financial suggests.
Finance Minister Dwight Duncan said Tuesday that he doesn't expect any backlash to the move, but insurance executives suggest it might have side effects.
Ontario's decision follows a recommendation from its economic advisor Don Drummond, who noted in his recent report that the province was covering nearly the entire cost of drugs for seniors, to the tune of $2.7-billion. Mr. Drummond suggested that the province could save anywhere from $300-million to $1-billion a year by reforming the system so that those who can afford it pay more out of their own pockets.
In Tuesday's budget, the government said that it will start income-testing seniors who receive prescription medicine through the Ontario Drug Benefit. Those who have incomes above $100,000 will pay a larger share of their prescription drug tests. Changes will also apply to senior couples with a combined income over $160,000.
The province says about 5 per cent of seniors will wind up paying more for their medicine.
But much of that cost will flow through the seniors to their benefit providers.
Life insurers made about $22.4-billion worth of payments to Canadians for private health and disability insurance benefits in 2010. Annual spending on drugs amounted to $7.5-billion.
In some instances life insurers simply administer plans – essentially adjudicating and paying claims, while employers are on the hook to pay the costs. But insurers also offer corporations and groups fully insured plans.
If Mr. Drummond's recommended changes take effect, then "if we didn't change the prices we'd have claims losses," Dean Connor, the CEO of Sun Life Financial, said in a recent interview. "So, you'd see price increases, because you'd have a much larger flow of claims coming through that book, and that would increase premiums in that portion of the business."
That wouldn't be the only impact. "The longer run question is for employers who still provide retiree health care coverage, if you're told all of a sudden your plan is going to pick up a larger share of seniors drugs in Ontario, you have to ask if it continues to make sense to provide that coverage," Mr. Connor said.
Many companies have already been cutting back their benefit plans because of rising drug costs and the slumping economy.
The changes in Ontario are scheduled to take effect in August, 2014.