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Patrick Burkart - Benefits Consultant - TRG Group Benefits
The most recent update on the consumer price index, Canada’s prominent measure of inflation, increased 0.8% for the 12 months ending November 2012. Inflationary trends in the benefits field are unfortunately much higher. Prescription drugs are the primary drivers of increased prices due to numerous reasons; increased drug utilization, aging population, rising costs (both in drug pricing and in dispensing fees) and increased use of high cost biologic medicines all contribute to a rate of increase much higher than inflation. Private payer plans are all experiencing upward cost pressures although the estimates amongst insurers differ greatly. These estimates currently range from 9.4% to 14% annually (Dental and Visioncare are much lower).
In order to price the plan appropriately year over year, the insurer must estimate the rate of inflation at the start of the year and then build this into the rates. Empirically, however, we know that actual inflation is closer to 6%. Why then would insurers charge up to 8% more? The answer lies in both the competitive market and in sound business practices. In terms of the latter, insurers need to build in some protection into the rates of smaller firms to avoid the financial shock of a high claiming company leaving the insurer in a loss position. From a market standpoint, simply put, the rates noted above are competitive. For example, when one of the three major insurers reduced their inflationary trends recently, the other two followed suit in short order.
An area of possible savings for a larger client then, is in the area of how these inflationary trends are applied in the rate setting process. Your TRG Consultant can guide you to the best vehicle for your company’s size and risk tolerance, possible even bringing your actual applied trend down to the aforementioned 6%.