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Canadian employers health costs to rise
February 25, 2005
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Canada. -- The 2005 Canadian Health Care Trend Survey by Mellon's Human Resources & Investor Solutions ( HR&IS ) studied medical, hospital, dental and vision costs. Twelve Canadian health insurers participated in the survey conducted late in 2004, Mellon's fifth annual.

Prescription drugs comprise the largest cost component of employer-sponsored health care programs in Canada. Although the employer cost increase is slowing, it remains higher than the general trend in Canada. Total drug spending increased 8.8 percent in 2004, according to estimates by the Canadian Institute for Health Information ( CIHI ).

"Cost increases are slowing because of fewer new expensive drugs entering approved usage, together with the withdrawal of several blockbuster drugs over safety concerns," says Larry Jackson, National Practice Leader with Mellon's health & welfare consulting practice. "This trend is likely to continue as Health Canada and the Federal Drug Administration in the U.S. apply increasing rigor to their drug approval processes, and adjust to increasing pressure to introduce after-market monitoring for long term side effects."

While U.S. and Canadian employers' drug costs are rising at about the same rate, Canadian brand drug prices are still highly attractive to U.S. consumers. Canadian brand drug prices are generally lower than those in the U.S. because of price controls set by Canada's Patented Medicine Prices Review Board. On the other hand, generic drug prices tend to be higher in Canada due to pricing requirements established by the provincial formularies ( e.g., Ontario Drug Benefit formulary ) that tend to dampen competitive pricing among generics in the same drug category.

Canadian employees have not been significantly affected by prescription drug price increases. "For the most part, employers are simply absorbing cost increases," says Jackson. "However, we are beginning to see a limited impact on Canadian consumers as some employers start to implement dispensing-fee caps or increase prescription deductibles."

The Mellon survey shows medical plan costs are expected to increase by 13.76 percent in 2005, down from 15.1 percent in 2004. Hospital benefit costs are expected to grow 10.95 percent in 2005, down slightly from 11 percent in 2004. Dental benefit costs related to utilization are expected to increase by 4.38 percent in 2005, down from 4.96 percent in 2004. Finally, vision benefit costs are expected to increase 3.2 percent in 2005, down from 3.5 percent in 2004.

Mellon's report summarizes the trend factors used to project employers' future health care plan costs for the calendar year 2005, and compares these trends to results for each year back to 2001. Health insurers use trend factors to calculate the premiums they charge to employers. Trend factors are also segregated into two components of total trend — utilization and inflation. ( Dental costs are compared on utilization only until all provincial dental associations have posted their 2005 fee guides. )

The survey results show insurers generally expect that the impact of inflation and utilization on health benefit costs in 2005 will be slightly lower than their expectation for 2004. Utilization is defined as the use of health care related products and services by plan members.

 
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