Risk Management

For most plan sponsors, group insurance represents a significant and generally escalating cost. Although inflation in the economy is low by historical standards, health care costs continue to increase at a rapid pace. Several factors have contributed to this trend including the following:

  • Cost-Shifting: The federal government’s contribution to health-care continues to drop on a percentage basis. As a result, the burden on the provinces has increased which is in turn passed on to individuals and to private health plans.
  • Increased Outpatient Care: The length of hospital stays has been declining and more patients are being treated with medication on an outpatient basis. More patients at home on medication results in more private health-care usage.
  • Changing Demographics: We are all aware that the population as a whole continues to age. Increased age results in increased health-care costs.
  • New Medications: New drugs and services are often expensive. While some drugs may offer improved therapeutic value, others are just repackaged versions of existing drugs (e.g. tablets vs. capsules and time-released formulas). Greater availability and variety generally result in greater usage.
  • Lifestyle Drugs: New lifestyle drugs that treat impotence, nicotine addiction, obesity and other medical problems have a very significant impact on the costs of a benefit plan. Many group plans have excluded smoking cessation products and infertility drugs as they are considered “lifestyle” not “life-sustaining” drugs.
  • Changes to Fee Schedules: The fee schedules for many professional services (e.g. chiropractor, physiotherapy, etc.) are periodically adjusted as is the level of reimbursement by insurers. A fee schedule adjustment is also made annually by the dental association of most provinces.

Health care inflation is expected to significantly outpace inflation in the general economy for the foreseeable future. Many plan sponsors will experience a doubling of benefit plan costs every four to six years which may threaten the viability of some plans. This rapid escalation in benefit plan costs emphasizes the importance of an effective cost containment strategy.

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