Health Cost Trends in 2019

A recent survey of Canadian Life & Health insurance companies by Accompass Inc. indicates they expect health costs to rise by 11.55% this year.

A number of factors were taken into account including legislation and reforms, economic events and forecasts, demographic trends, risk margins and high-cost specialty drugs. This insurer health trend factor has remained between 11.1% and 11.7% for the past eight years. Other factors being used by insurance companies when they are establishing renewal rates include 1.9% for inflation, 2.6% for salaries, 5.62% for dental, and 11.57% for drugs.

The report also found two in three plan sponsors have implemented mandatory generic drugs and that eight of the ten insurers have integrated pharmacogenetic testing into their plans.

Specialty Drugs Driving Costs

In the annual Express Scripts Canada drug trends report, the primary driver for costs are specialty medications and high-cost drugs for common conditions. While the average annual drug spend per plan member was up just 0.9%, after a deeper dive into the data, there was actually a decrease of 1.8% in spending on traditional medications but an increase of 6.9% in spending in specialty medications.

The report found that specialty drugs only accounted for 2% of drug claims in 2018 but 33% of the drug spend. However, there is a light at the end of this tunnel with the biosimilars starting to grow in use. For example, Grastofil, the biosimilar for Neupogen which is used to promote the production of white blood cells usually after chemotherapy, grew to represent 43.6% of claims, up from 15.8% in 2017. Patent expirations are also expected to drive future savings as generic versions are developed.

Reduction of RST in Manitoba

Manitoba is reducing its retail sales tax from 8% to 7% effective July 1, 2019. While neither Administrative Services Only (ASO) nor Health Care Spending Accounts (HCSA) will be affected, group insurance contracts including those covering group life, optional and dependent life, accidental death & dismemberment, disability and critical illness will be.

Nova Scotia Increases Dispensing Fees

Effective April 1, 2019, Nova Scotia increased the regular dispensing fee from $11.95 to $12.10 and the compounding fee from $17.92 to $18.15.

This will only impact those drug benefits that have a dispensing fee cap as their plan members will see the amount they pay at the pharmacy increase.

New Employment Insurance Parental Sharing benefit

In the last Federal budget, a new 5 week incentive for second parents to take parental leave was introduced. This will take effect June 2019 and be available to eligible two parent families, including adoptive and same-sex couples, to take at any point following the arrival of their child.

The benefit will increase the duration of the Employment Insurance (EI) parental leave by up to five weeks in cases where the second parent agrees to take a minimum of five weeks of the maximum forty weeks available using the standard EI parental benefit based on 55% of earnings for 12 months. As an alternative, for those families who opt for the extended parental leave at 33% of earnings for 18 months, the second parent would be eligible to take up to eight weeks of additional parental leave.

In Quebec, where similar benefits have been in place for awhile, in 2016 for example, 80% of new fathers claimed parental benefits. However, in other parts of Canada which does not provide second parent leave, this figure is 12%.

The next question for employers is whether to “top-up” the EI benefit. In Quebec, the replacement rate is 75% so an employer is looking at 20% to 25% versus the rest of Canada where a top-up will be 40% to 45% of weekly earnings.

Federal Budget Impact on Pension Plans

In this same budget, the federal government made changes that will impact some registered savings plans including:

• Increasing the Home Buyers’ Plan (HBP) withdrawal limit under an individual Registered Retirement Savings Plan (RRSP) from $25,000 to $35,000 effective March 19, 2019,
• Increasing the withdrawal amount under the HBP for a couple from $50,000 to $70,000 also effective March 19, 2019
• Expanded access to HBP withdrawals for individuals, even if they do not meet the first-time homebuyer requirement if they and their spouse are no longer together which are effective January 1, 2020
• Additional types of annuities available under Defined Contribution, RRSP, Registered Retirement Income Fund and Deferred Profit Sharing Plans as of 2020
• Restrictions on transferring commuted values under a Defined Benefit Pension Plan to an Individual Pension Plan effective March 19, 2019

For additional details on how these changes can impact you and/or your registered plan, please contact us.

Provincial Budget Impact on Pensions

Effective December 6, 2018, the Ontario government adopted Bill 57 which amends the Ontario Pension Benefits Act with the following changes:

• A pension plan administrator can permit members, former members and retired members to designate beneficiaries electronically, and
• The commuted value of a pension plan can be paid to a former member who is a non-resident of Canada for the purposes of the Income Tax Act (there will be new forms that are to be available on the Financial Services Commission of Ontario website)

At this time, there were still corresponding regulations that are not yet available however we will continue to monitor.

Ontario Labour Relations Board Outlines Severance Pay Calculation Rules

In a December 2018 decision in Doug Hawkes v. Max Aicher (North America) Limited, the Ontario Labour Relations Board (OLRB) addressed the issue of whether an employer’s global payroll should be considered in determining an employee’s entitlement to severance pay under the Employment Standards Act, 2000 (the ESA).

Section 64 of the ESA requires an Ontario employer who terminates an employee’s employment without cause to provide that employee with severance pay, where the employee has five or more years of service and the employer has a payroll of at least $2.5 million. While the employee argued that payroll outside of Ontario should be included, the OLRB ruled as follows:

• While an employer may have operations and payroll outside Ontario, it is only Ontario-based employment and operations that is captured under the ESA

This decision confirms that an Ontario employer will not be liable for severance payments if the company’s Ontario payroll is less than $2.5 million