Private drug plans are one of the biggest cost drivers to your group benefits plan. Managing your group drug plan costs is key to keeping your overall employee benefits package cost-effective. There are two main costs to consider:
- Base Drug costs – total drug claims paid that include the pharmaceutical company’s list price, the pharmacy markup and dispensing fee
- Drug plan costs – factor in usage, plan advisor commissions, administration fees, along with profit and trend factors
Your underwriter will take a look at these two costs historically to determine your future premiums for the next 12 months.
What drives base drug costs?
Drugs are usually categorized as traditional or specialty medications. Traditional drugs are usually in pill form, self-administered and require less monitoring. These could be used to treat high blood pressure, minor heart conditions, etc. Specialty drugs are injectable and non-injectable medications used to treat more complex conditions, such as rheumatoid arthritis, multiple sclerosis, cancer, diabetes, etc.
Specialty drug costs have continued to rise while traditional drugs are being lowered because of government generic price reform. In Canada we have what is called the Patented Medicine Prices Review Board (PMPRB) that overseas prices that pharmaceutical companies charge.
Specialty drugs are driving drugs costs because of increased usage, increased in-home administration and scientific advances in medicine. Doctors are now able to treat complex diseases that they couldn’t in the past with more specialized medicine, which leads to further advancement in the field, which leads to newer more expensive drugs. For example, biologic drugs have had a large impact on drug plan costs at a growth rate of 14% (of the overall claims) per annum in Canada. However, biologic drugs also provide a significant improvement in health outcomes for non-Hodgkins lymphoma and rheumatoid arthritis.
Managing your group drug plan costs
As a business owner, you have no control over advances in medical technology or which ailments your employees may or may not contract. However, there are steps you can take to protect your interests and manage the risk associated with high cost drug plans. One excellent tool is pooling your plan to spread the risk of a high-cost claim to a more manageable level.
Group buying power is one of the keys to DENT Benefits overall group benefits plan strategy. To learn more about managing your group drug plan costs, contact us today for a consultation!
The information in this material is derived from various sources. Material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources; however, no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please contact us for benefit, pension and insurance advice based on your corporate or personal circumstances.