Many companies have been introduced to ASO plans over the last few years by brokers and carriers. ASO plans can greatly reduce administrative costs, and if a company sets up its benefits plan design can minimize a client’s exposure to unnecessary cost and abuse. But are insurance companies deliberately trying to push clients back to insured benefit plans with the EP3 Drug Pool?
It’s been well documented that the biggest threat facing the sustainability of benefit plans today is the potentially high cost of prescription drugs, with the advent of biological drugs pushing the costs of drugs into a new stratosphere something needed to be addressed. There are drugs on the market today that can cost more than a half-million dollars a year. This represented a huge threat to the sustainability of most drug plans.
Enter into the scene the largest insurance companies in the benefits business. They have established a drug pool for these potential high claimants. Any individual who has more than $50,000 per year goes into the high pooling category. The cost of any claim above $50,000 is spread amongst these insurance companies. This is commonly known as the EP3 Drug Pool (Extended Health Care Policy Protection Plan). This EP3 Drug Pool intends to ensure that no single insurance company takes the entire “hit” on a catastrophic claim. This EP3 drug pool is only available on insured benefit plans; therefore, ASO plans are not eligible for this EP3 Drug Pool.
What about Stop-Loss Insurance?
Some may say that Stop Loss will help mitigate against catastrophic drug claims. This may be true on the surface. However, Stop Loss is experience-rated. If a company has a catastrophic claim, stop-loss insurance will kick in at the stop loss level. What many will not tell you, upon renewal, your stop-loss premium will be adjusted to reflect the claims that it just protected you against. The stop-loss insurance will soon be priced so high that you won’t be able to afford the stop-loss coverage.
So Why Not Go Back To Insurance?
If the cost of stop-loss becomes out of reach, why can’t you go back to an insured plan? You can always go back to an insured plan and be protected by a “Large Drug Amount Pooling” insurance. This Large Drug Pooled is insurance and not experience-rated. However, any companies moving from ASO to Insured that has high drug claimants are no longer eligible for the EP3 drug pool. This would mean that all drugs from a high claimant would now hit the sponsor company’s experience. These premiums would become astronomically high. Very few companies are made aware of this potential consequence when they move from an Insured plan to an ASO plan.
So What Does This Mean?
Potentially any company that is in a situation where they are in an ASO model with a high claimant and needs to
realize that Stop-Loss doesn’t mitigate against their total exposure for a high drug claim. This could give rise to huge litigation against carriers and brokers who changed companies to ASO without proper counsel.
There’s an opportunity for another insurance product to underwrite Stop-Loss insurance from this occurring. I haven’t seen anything on this to date, but I’m sure there will be a hefty price tag associated with it should a product be introduced in the future.
You may see companies that are in an ASO funding model putting drug caps in place, so the exposure to the company and stop-loss insurance is limited. Anyone who surpasses the drug cap would then be pushed to coordinate with one of the provincial drug plans.
You may see companies opting to insure its drug plan and any other catastrophic components and putting their elective benefits (dental, paramedical, vision) into an ASO or HSA format. This would allow companies to have greater cost certainty for some of its benefits and insure the components of greater risk.
Did Insurance Companies Do This On Purpose?
With the creation of the EP3, the insurance companies wanted to protect any individual carrier from too much exposure but were this self-serving? Insurance companies make much more money on insured cases versus ASO or Retention Accounting funding models. With the creation of the EP3, did it help to push the fear button of many companies back to an insured plan? One thing is certain; a wave of litigation is sure to follow when companies are made aware of what having their drug plans in an ASO model can potentially cost them in the future.
EP3 Drug Pool
Chris Coulter is the Founder and President of The Finish Line Group. He works with business owners to leverage their businesses to increase their wealth, reduce corporate and personal taxes, create viable succession strategies, enable employee retention strategies and allow them to exit their businesses on their terms.
Chris’ passion for what he does evolve from the mistakes he made in his first business; by not diversifying his risk and not utilizing a lot of the opportunities within his business to create significant wealth. Chris found out the difficult way and now educates business owners on how to avoid many of his former oversights and ultimately control where their finish line ends.