Drug Pooling Initiative EP3: To insure or not to insure

Jul 09, 2012

The consulting landscape has changed somewhat with the introduction of the new CLHIA Drug Pooling initiative called EP3 that will come into effect January 1, 2013. This is a new initiative where all high cost recurring drug claims will be placed in a common pool shared among all insurance companies. The EP3 agreement  will not only offer employers a higher level of protection against the ever-increasing high cost drug claims, it will also increase the competitiveness and transferability of benefit plans.

One of the major caveats to EP3 is that it only applies to fully insured business which has led to the burning question of whether employers should self insure their health plans. The math behind refund accounting or Administrative Services Only (ASO) has traditionally been easy to demonstrate to employers of a certain size.  Over the long term, an employer who is willing to absorb some risk would be better off financially to move to refund or ASO arrangement because of lower expenses.  The risk of a large drug claim was less of a factor in the decision as all financial lines of business (insured, refund, ASO) were treated the same by the insurance industry.

Unfortunately, it is too late for self insured plans with large recurring claims to switch to insured as EP3 guidelines have included pre-existing conditions to protect against anti-selection. It seems unfair that employers who were able to take on more risk through self insurance are being penalized with their exclusion from the EP3.

When is the right time for companies to self insure? Will insurance companies agree to insure the drug benefit and leave the remaining extended health benefits self insured? Will CLHIA find a way to integrate EP3 to self-insured plans?

Do you insure or self-insure, that is the question… but what is the answer?

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