2007 Annual Meeting ● Assemblée annuelle 2007 Montreal

1. Canadian Institute of Actuaries L’Institut canadien des actuaires 2007 Annual Meeting ●Assemblée annuelle 2007 Montreal

2. PART IHEALTH AND DENTALPRICING AND COST CONTROL

3. Prescription drugs – Outside Quebec Trend assumption generally set to provide for both utilization and inflation Inflation driven by new drugs Utilization driven by aging As population ages, need to separate utilization from inflation and test separately Requires separate analysis for each and perhaps new considerations e.g. should factor vary by age or gender? Bill102 in Ontario affects private plans ODB now lists Generics at 50% of reference brand price (down from 70% or 63%) Private insurers who use the ODB as a reference may see cost reductions Interchangeability is extended to non formulary listed drugs (used to be ODB listed drugs only) Reductions in allowable mark-up for ODB drugs – possible savings 2007 Annual Meeting Assemblée annuelle 2007 Pricing and Cost Control

4. Prescription drugs – Outside Quebec (cont’d) In pricing, might begin to consider whether different adjudicators produce predictably different claim costs If so, how can this be measured and built into pricing of new groups? Is it big enough to matter, given new group pricing practices? Possibility of steering high claimants back to public plans Medical costs Many carriers are seeing rapid increases in ancillary benefits e.g. paramedicals, orthotics Strict application of COB for cost control Plan design is being reconsidered in light of such increases Internal maximums can limit exposure Have you considered the possibility of fraud? Could be provider fraud or insured employee fraud Develop means of identifying possible fraud and investigating Where recoveries result, need to define a protocol for returning to ASO or retention clients 2007 Annual Meeting Assemblée annuelle 2007 Pricing and Cost Control (continued)

5. Aggregate stop-loss Little use of aggregate stop-loss at present Seems odd, given the possibility of very large drug or medical claims Sponsors might be interested – there appears to be a need Why is it not being met? Health Care Spending Accounts Require less stringent adjudication than insured plans Why are adjudication charges not reduced? Is it costs of tracking the HCSA amounts? HCSA's shift costs to employees – will there be any backlash? Some carriers are breaking experience down into medical sub-benefits for pricing purposes How is credibility assigned to sub-benefits? Does it differ from that applicable to the benefit as a whole? If so, should it differ? 2007 Annual Meeting Assemblée annuelle 2007 Pricing and Cost Control (continued)

6. Pricing and Cost Control (continued) • Prescription drugs – Québec RAMQ/ SCAM pooling results • Evolution in number of large drug claims • Found at www.pooling.ca

7. Pricing and Cost Control (continued) • Prescription drugs – Québec RAMQ/ SCAM pooling results • Evolution in threshold per cert Group Size (10 yrs annual rate of growth)

8. Pricing and Cost Control (continued) • Prescription drugs – Québec RAMQ/ SCAM pooling results • Evolution in threshold in pooling charge Group Size (10 yrs annual rate of growth)

9. Impact of the new prescription drugs policy Four main themes: Access to drugs Establishment of fair and reasonable drug prices Maximize drug utilization Maintenance of a dynamic biopharmaceutical industry in Québec Implementation plan over three years 2007 Annual Meeting Assemblée annuelle 2007 Pricing and Cost Control (continued)

10. Policy and Guidelines Drug advisory panel No reference pricing policy Permanent discussion forum between the industry and the government Financial Indexation of drug prices Implementation of a maximum payable price Reduction of generic drug prices From 70%-63% to 60%-54% Negotiation of agreements 6. Qc new drug policyImmediate effects

11. Effective April 18, 2007 Listed on the drug formulary ≥ 2 years Maximum allowable increase = CPI increase (2.03% for 2007) Obligation to provide Quebec with the best price available in Canada Must enter into a contribution agreement to mitigate the impact of price increases 6.Qc new drug policy (cont’d)Indexation of Drug Prices

12. Difference between (price paid vs MPP) paid by patient Difference not accounted for in the calculation of the maximum contribution Exceptional measure if price increase exceeds the allowable rate Possibility of exceptional grounds to justify an increase exceeding the allowable rate If accepted, included in calculation of the maximum 6.Qc new drug policy(cont’d)Maximum Payable Price (MPP)

13. Facilitate the “Limited Use” medication process Grouping of RX Coding Online request Drugs acquired in ambulatory care and administered at the hospital (except chemotherapy) Access to drug after research Rare genetic metabolic diseases Evaluation framework Commitment by manufacturers and wholesalers Management of wholesalers’ maximum mark-ups Priority evaluation if significant potential savings for the public plan 6.Qc new drug policy(cont’d)Medium-Term Financial Effects

14. Dental Care Rate increases exceed Fee Guide – is it utilization? Watch for "diagnosis creep" In a Fee Guide-ruled world, dentists are subject to different pressures than medical care providers New techniques are being developed New = more expensive Carriers may contemplate more use of dental pre-determination to reduce exposure Fraud issues Strict application of COB for cost control 2007 Annual Meeting Assemblée annuelle 2007 Pricing and Cost Control (continued)

15. Market practices-Gaps Combination of inflation and aging may fall short of factors used by carriers at renewal Little detailed guidance for selection of assumption(s) (CIA sub-committee is investigating the need for guidance) Historical record does not support immediate grading down (nor the ultimate level) Market practices – concerns Little explicit guidance from CIA CICA 3461 states that assumptions are to be "management's best estimate" In practice, sponsors rely on consultants to define acceptable assumptions 2007 Annual Meeting Assemblée annuelle 2007 Post-Retirement Assumptions

16. Market practices – concerns (continued) CICA 3461 states that assumptions are to be "management's best estimate" Assumptions vary by consultant, so changing consultant can change assumptions So do they really constitute "management's best estimate"? 2007 Annual Meeting Assemblée annuelle 2007 Post-Retirement Assumptions

17. Non-emergency health Services by hospitals, physicians and other medical professionals, (so services covered by provincial plan) Reflects experience within a single province Trends vary by age, type of service and gender, (but variance is not large) For working ages, annual trend varies from about 5.25% to nearly 8% for hospital and from 7.5% to about 9.5% for other expenses Experience trends show variance by province, as well as by age, gender and type of service Variation is large – highest provincial trends net of CPI may be as much as 5 or 6 times lowest Highest tend to be experienced in remote areas e.g. the Territories, (but from since 1997, many of the western provinces have experienced higher than average trends in these costs) 2007 Annual Meeting Assemblée annuelle 2007 Experience Trends

18. PART IIGROUP HOT TOPICS

19. Higher dollar maximums Less number of days Impact of currency at par with the USA Trend to “individualizing” the benefit: for example: pre-ex stability clauses Including “symptoms” as well as treatment Alcohol abuse to be excluded Must call within 24 hours or else benefits reduced 2007 Annual Meeting Assemblée annuelle 2007 Group Hot topicsGroup OOCM trends

20. Boomers dangerously close to retirement age will lead to shortage of human resources. Effect of removal of mandatory retirement at age 65 on Life and LTD  Both phenomenon will require Group to offer/ extend LTD benefits past age 65 Group Hot topics (cont’d)Social and demographics

23. Cost increase Life vs LTD (relative scale only)

24. Impact of delayed retirement vs Group size- Example of one key employee age 61 staying vs retiring

25. The Canadian insurance industry, led by Manulife, have introduced a standard template for the gathering of concentration of risk data for groups over 500 lives. Manulife has recently started using the tool. Other insurers are waiting to follow. Hot topics (cont’d)Life Concentration of Risk

26. May not be appropriate for Group Life Hot topics (cont’d)2007 New MCCSR requirements

27. Inclusion to EHC of certain benefits already theoretically already covered by Medicare (Cat-Scans, MRI, orthopedics surgery, etc) LTD cost containment: insurers pay more to get faster medical access to treatment/ surgery to stop disability payments quicker Hot topics (cont’d)More health care privatization

28. Recent court decisions have widened the definition of "accident". Being paralyzed as a result of a mosquito bite carrying the West Nile virus; Being paralyzed after acquiring Herpes Simplex Virus through unprotected sex with three women; Heart attack while playing basketball Will have implications on AD&D pricing and plan design  Hot topics (cont’d)AD&D Legal Issues

29. Employers seem to have finally understood the value of this product May be a solution to AD&D legal issues Hot topics (cont’d)Group Critical Illness