1 Canadian Drug Insurance Pooling Corporation Scott Heard Vice-President, Sales and Marketing Group Insurance Toronto: November 21, 2012 A partner you can trust.

2 be recognized by our clients as the best service provider of group benefits Our ambition is to ‘be recognized by our clients as the best service provider of group benefits’.

3 Agenda 1.Rationale for the program 2.Benefits for plan sponsors, plan members, and advisors 3.How does it work? 4.Protection from adverse selection 5.Governance and administration 6.Impact on advisors, next steps, and timelines

4 Rationale for the program

5  Growing concerns over sustainability ESC 2011 Drug Trend Report  Biologic drug claims growing by 12 per cent per year  Expected to account for 33% of drug spending in 2014 CLHIA data  20% annual growth of claims over $25,000 since 2008  Increased duration of recurring, high cost claims Recurring high cost drug claims for relatively young people  Increased incidence of high cost claims High cost medications increasingly prescribed to treat cancer, auto-immune conditions and other rare diseases Highly effective and very costly treatment

6 Rationale for the program  CLHIA poll 1/3 of small-medium employers would consider making changes to their drug plans if premiums were to increase by 25% The industry pooling program ultimately helps ensure that millions of Canadians can continue to access the prescription drugs they need, regardless of whether they or their colleagues require a high cost, recurring drug.

7 Twenty four insurers, who collectively account for 100% of supplemental group health business in Canada are participating as Founding Members Sun LifeUnion LifeWestern Life

8 Benefits for Plan Sponsors, Plan Members, and Advisors

9 Benefits for Plan Sponsors 1.Availability fully insured All fully insured groups will continue to be able to purchase group extended healthcare coverage 2.Affordability At a reasonable price even after the incidence of a large recurring drug claim(s) 3.Transferability Able to select the participating insurer of their choice 4.Competition The solution will continue to encourage active and vigorous market competition

10 Benefits for Plan Members 1.Sustainability of coverage Able to continue to receive coverage through their employer even in the face of a high cost drug claim 2.Job mobility Change of employers won’t jeopardize coverage 3.Protection from financially catastrophic occurence 1,900 individuals covered by fully insured plans in Canada had annual drug claims exceeding $25,000 in 2010

11 Benefits for Advisors 1.Continued market access for group healthcare benefits for fully insured groups 2.Catastrophic claims will not affect price Even after the incidence of a large recurring drug claim 3.Competitive market conditions restored 4.Limited changes to advisors’ operations

12 How does it work?

13 How does it work?  The agreement covers only “fully insured plans"  Fully insured plans do not include Administrative Services Only (ASO) Refund accounting (includes any element of premium refund to client) Stop loss plans

14 How does it work? 1.Insurers must place all large drug claims (fully-insured only) in a self-administered pool EPPP Extended healthcare Policy Protection Plan:EP3 2.Insurers cannot renewal rate based on the experience of a specific group The number or value of pooled drug claims for a particular plan sponsor cannot be considered in setting renewal rates for that group Favorable and unfavorable experience of a particular plan sponsor will be ignored in setting rates 3.Insurers cannot experience rate and price for new business based on a particular plan sponsor’s pooled drug claims

15 How does it work? 4.Individual insurers can set premiums based on The experience of its entire EP3 pool Any other experience criteria that is not client specific 5.Drug and non-drug health benefits can be pooled together drug portion only EP3 rules apply to drug portion only of pooled benefits Insurers are required to have processes that can demonstrate that they are following the rules of EP3 for the drug portion

16 How does it work?  Elements of the EP3 pools can be customized by each insurer include: Pricing Pooling threshold (subject to a cap of $25,000) Pooling at individual level or certificate level  Industry pool managed at certificate level Application of co-payments or deductibles  Subject to a cap of $1,000 for deductibles Formulary design etc.  Insurers can establish multiple EP3 solutions for different market segments

17 How does it work?  Industry pooling is managed at a certificate level  Thresholds that must be satisfied to qualify for the industry pool Drug claims must exceed $50,000 for at least two consecutive years In year two and in each subsequent year where the drug claims exceed $25,000, the industry pool will cover 85% of the amount over $25,000 to a maximum of $400,000 per year The largest drug claim that could be fully pooled for a given cap is $400,000 / $25,000 = $496,558 If a certificate falls below $25,000 for 2 consecutive years, it is no longer eligible and would need to re-qualify Amounts beyond the cap will be 100% borne by the primary insurer.  $50,000 threshold is the "Initial Threshold"  $25,000 threshold is the "Ongoing Threshold"

18 How does it work?  For first three years of the pooling, the thresholds are 2012: $25,000 and $50, : $25,000 and $50,000 (1 st year of pooling) 2014: $27,500 and $55, : $30,000 and $60,000  The CDIPC board will adjust the thresholds to maintain an appropriate balance Ensure that the pool stays a relatively constant size Do not jeopardize the principle of transferability in the market

19 How does it work?  For first three years of the pooling, the industry cap is 2012: $400, : $400,000 (1 st year of pooling) 2014: $400, : $500,000  The CDIPC board is responsible for adjusting the cap as appropriate on a go forward basis

20 How does it work?  Pool 1 – Residents of Alberta Ontario Nova Scotia / New Brunswick / Newfoundland and Labrador / P.E.I. Yukon North West Territories Nunavut  Pool 2 – Residents of Quebec For costs not covered under the Quebec Drug Insurance Pooling Corporation  Pool 3 – Residents of pharmacare provinces British Columbia Manitoba Saskatchewan

21 How does it work?  Participating insurers will share total pooled drug claims Based on each participating insurer’s market share of total paid drug claims for all insured business in the applicable provinces for that pool Any group drug plan that, by design, could never submit a claim to the pool is excluded from the market share calculation for the purposes of sharing pooling costs

22 How does it work? The types of claims that are eligible to be pooled will vary depending on the pool Eligible certificates will come from individuals not covered under seniors care, or other programs (ON, AB, Maritimes, Territories) Enhances the current pooling protection in Quebec Pooled eligible certificates will be for amounts between the Industry Pool Threshold and the Quebec Pool Threshold Eligible certificates will come from individuals with claims for a drug not on the provincial formulary (Quebec) Eligible certificates will come from individuals with claims for a drug not on the provincial formulary (BC, Manitoba, Saskatchewan)

23 Protection from Adverse Selection

24 Protection from Adverse Selection Pre-existing exclusions apply to existing claims of "new" eligible groups (e.g. an ASO group becomes a fully insured group, or a sponsor initiating drug coverage for the first time). Mandatory exclusion from both EP3 and Industry Pool Exclusion must be removed if certificate subsequently falls below Ongoing Threshold for two consecutive years Claim greater than Ongoing Threshold ($25K initially) in prior year Optional exclusion from EP3 pool Pre-ex can be removed at any time - if removed, cannot be reapplied in the future If excluded from EP3 pool, must be excluded from Industry pool Claim less than Ongoing Threshold but greater than EP3 Threshold in prior year Insurer can offer EP3 coverage At end of year one, all high cost claims MUST be audited by carrier to establish if pre-existing Must exclude all pre-existing claims as per rules outlined above New plan – no historical information available Pre-existing exclusions do not apply to existing drug claims of groups with Founding Members that were fully insured group plans as of June 7, 2011

25 Governance and Administration

26 Governance and Administration  A not-for-profit corporation has been established Canadian Drug Insurance Pooling Corporation (CDIPC) Board comprised of 12 members plus 1 Ex Officio (CLHIA) Permanent Executive Director will be hired to manage corporation  CDIPC compliant with Industry Canada standards By-laws and powers have been reviewed and customized by the working group  Aspects of the program that will be overseen and managed by a Board of Directors Eligibility Termination Member rights Board of Directors Administration

27 Governance and Administration TRANSPARENT TO SPONSORS Helps insurers sustain the costs of providing EP3 protection by pooling large recurring drug claims Insurer A Insurer B Insurer C Insurer D Industry Pool EP3 Industry Pool IMPACTS FOR EMPLOYERS Mandates internal pooling for all fully- insured plans Cannot experience rate clients based on pooled drug claims If bidding on new business, cannot experience rate prospective new clients (already with another insurer) based on pooled drug claims All other aspects of design of EP3 are customizable and a source of competition (price, pooling threshold, formulary design etc.) CDIPC TRANSPARENT TO SPONSORS Administers industry pool and ensures insurers comply with EP3 and Industry Pool standards Governance & Admin

28 Impact on Advisors, Next Steps, and Timelines

29 Impact on Advisors, Next Steps, and Timelines  Advisors should be aware that Insurers will be asking for more information than in the past on prospective new business  Copies of plan sponsors’ existing EP3 certificate  Copies of experience reports – including what is included or excluded from the experience Information provided by insurers: respecting privacy requirements  Every eligible group plan will receive each year an inter-company EP3 certificate outlining the broad terms of their Policy Protection Plan (EP3) and any excluded pre-existing claims, respecting privacy requirements

30 Impact on Advisors, Next Steps, and Timelines  Insurers bidding on new business cannot consider the particular plan sponsor’s pooled drug experience  The new insurer Must pool its new clients’ high cost claims in its EP3 pool Can exclude any drug claims that would normally be pooled by its EP3 pool if the drug claim was not covered by the pool of the previous insurer Can exclude from its EP3 plan any pooled drug claim covered under the EP3 of the previous insurer that does not fit within the design parameters of the new plan

31 Impact on Advisors, Next Steps, and Timelines  At Industrial Alliance, current pools will stay the same Standard $15,000 individual threshold for in Canada medical (drugs and non drugs) Other thresholds possible The Industry pool works like a reinsurance coverage for the insurer  Move to a per Certificate basis?  Three regions: Pharmacare provinces Quebec Others  largest cost

32 Impact on Advisors, Next Steps, and Timelines  Canadian Drug Insurance Pooling Corporation established Board is established Searching for Executive Director  Insurers currently developing their EP3 offer and communicating with sponsors and advisors  Eligible group policies must be covered by an EP3 as of their first renewal date on or after January 1, 2013  Eligible drug claim payments to be pooled in the industry pool effective January 1, 2013

33 Questions? The elephant, symbol of our 100 years of strength and longevity.