2007 Annual Meeting ● Assemblée annuelle 2007

Vancouver

2007 Annual Meeting ● Assemblée annuelle 2007

Vancouver

Canadian Institute

of Actuaries

Canadian Institute

of Actuaries

L’Institut canadien desactuaires

L’Institut canadien desactuaires

IP-27 GROUP HOT TOPICS

Health Care Inflation and Utilization Factors used by

Workers’ Compensation Boards

June 29, 2007

Richard Larouche

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Health Care in Group Insurance

• Health care plans in group insurance provide for:• Drugs• Paramedical• Hospital• Vision care• Out of Canada• Other20

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Drugs

Paramedical

Hospital

Vision Care

Out of Canada

Other

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Health Care in Group Insurance

Health Care in WCB’s

• Health care benefits provided by workers’ compensation boards include:• Hospital• Physicians• Drugs• Other professionals (physiotherapists, …)• Medical devices• Independent living• Other

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Hospital

Physicians

Drugs

Other Professionals

Medical Devices

Independent Living

Other

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Health Care in WCB’s

Drug Expenditures

• Drug expenditures represent about 18% of total Canadian health expenditures (about $21 billion)

• Drug costs increase at a rate higher than inflation, as a result of a number of factors:

• Drug price changes• Government policies• New drugs• Aging population• Medical developments• Change in consumption (drug mix, utilization, …)

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Drug Expenditures

• Annual increase in the 8% to 9% range

• Shift towards more expensive drugs• Increase in costs partially offset by

greater use of generics• Utilization accounts for 3% to 4% of

the increase

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Health Care in WCB’s

• Overall, health care costs in WCB’s increase annually by about 6% to 9%

• Increases vary by benefits• Larger increases for benefits paid to

claimants on long term disability, such as:• Independent living• Drugs• Medical devices

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Health Care in WCB’s

• Recent studies done by some WCB’s indicate that:• Inflation rates for all benefits combined

are in the 5% to 7% range• Utilization has increased by about 2%,

essentially for payments on claims several years after the accident

• Small decline in escalation factor in 2004 and 2005, but reversing trend in 2006

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Assumptions Used by WCB’s

• Health care escalation assumptions currently used by WCB’s to value their claim benefit liability:• Higher than general inflation assumption• To recognize additional inflation and

increase in utilization• Rate in addition to general inflation

ranging from 1% to 4.25%, for an average of about 2.5%

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Assumptions Used by WCB’s

• To our knowledge, a “select and ultimate” escalation factor is not used by any WCB

• Could be considered in the future, in line with accounting assumptions

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