Romanow report viewed as positive for pension plan sponsors

(November 29, 2002) The Romanow report’s recommendations, particularly its suggestions for reducing the impact of drug costs and taking the financial burden of home care off employers’ shoulders, should be good news for pension plan sponsors, consultants say. Roy Romanow tabled his report on the future of healthcare in Canada yesterday.

The report proposes that in an effort to provide Canadians with access to the prescription drugs they need, five steps should be taken. These include a federally funded catastrophic drug transfer — to protect individuals from high drug costs; a national drug agency which would review drugs and ensure that the most effective and cost effective medications be used in Canada; a national formulary which would develop a list of prescription drugs that are covered under all provincial drug plans; a new medication management program and a patent review, which would increase access to generic drugs.

It also addresses home care, proposing that home mental health case management, intervention services, post-acute care and palliative care be covered under the Canada Health Act. This would mean that employers no longer have to pay for these services.

As a result, consultants say, the news is good for plan sponsors. If the recommendations are implemented, many costs would be picked up by the federal government, such as catastrophic drug coverage.

“I think employers will embrace Romanow because he has brought in a $1,500 stop loss cap per person per year,” says Fred Holmes, a senior consultant and practice leader, health and welfare, with Buck Consultants in Toronto. “Those employers with a lot of HIV-positive employees as well as those with severe osteoarthritis problems are going to be ecstatic.”

Todd McLean, group benefits practice leader for Eckler Partners in Toronto, agrees. “There are provinces in Canada that don’t have a provincial drug plan. So that certainly may provide some relief to employers.”

Adds Jayne Bonnett, Watson Wyatt’s practice leader, central market, group and healthcare in Toronto, “This expansion in coverage could mean that employers can decrease their level of coverage as the Canada Health Act takes on more.”

McLean says that the report gives employers a reprieve. “I think in a lot of ways what Mr. Romanow is doing is taking back the territory of healthcare that’s been offloaded to a certain extent on the private plan sponsor side,” says McLean.

Home care is another area Romanow says the federal government should take back. “Things like home care have hit a lot of plan sponsors – expenses arising out of home care via private duty nursing and on the drug plan,” says McLean. He says Romanow’s focus on providing medical support to individuals who have been temporarily disabled will also help get employees back to work sooner, raising productivity in the workforce.

The question now is implementation of Romanow’s proposals. Plan sponsors are concerned about how the provinces will deal with funding issues and what role they will play under the proposed system.

Funding issues are at the top of the list. “An area of interest is the idea of expanding funding for drug coverage and how that would be delivered,” says Jeff Schmidt, Aon Consulting’s senior vice-president, health and benefits strategies practice. “That’s obviously an area of concern to plan sponsors.”

The fear is that the provinces may follow Quebec’s lead with Bill 133 and force employers to pay for the first $1,500 of drug coverage, says Holmes.

Another issue plan sponsors are concerned about is representation on the Health Council of Canada, Romanow’s proposed federal watchdog. Bonnett says that because plan sponsors pay for 30% of the drug expenditures in Canada, they should have an important role on the council. “We would certainly to see plan sponsors represented on that health council.”

Currently, there is much speculation as to if and how the recommendations will be implemented, and what the impact will be on employers.

According to Holmes, the picture looks rosy for plan sponsors who may opt for alternative benefits arrangements. “One scenario by the private sector employers, which would include public sector employers as well, is that the traditional extended healthcare plans, as we have known them could well disappear as drugs are drawn into a national formulary.

“We could see employer offerings to employees taking the form of health spending accounts where the first $1,500 must be used for drugs and anything thereafter can be used for the remainder of the health package. ” Holmes says this outcome would allow employers to exit the “cost escalation game.”

Whatever happens, Holmes is certain intense public pressure heightened by media coverage of the Romanow report will effect change.

“The general concept of Romanow on prescription drugs of having a catastrophic limit of $1,500 per person per year, will be played up by the press and create a very high public expectation that will be very difficult for the provinces to fight against.”

And there is the political factor. Many believe Prime Minister Chretien’s legacy will be healthcare. Says Wayde Harding, managing partner, western region for Morneau Sobeco in Vancouver, “Mr. Chretien is looking for a legacy. Rescuing medicare is probably a good one.”