Why do insurers pay high-cost drugs wrong?

Why do insurers continue to pay high-cost drugs incorrectly and as a result, push costs onto Ontario employers?

Got your attention? I hope so and, YES you heard me correctly.

Since the mid-1990's (yes... 35+ years) insurance companies and drug claim payers have been incorrectly processing the drug claims of benefit plan members across Ontario. This “mistake” is to the detriment of Ontario benefit plan sponsors (Ontario employers) resulting in significantly higher drug plan costs.  It is to the financial benefit of insurance companies and drug claim payers.

This issue, first identified in 2012, was reconfirmed again at a recent Canadian Group Insurance Brokers session in November 2025.  When this slide (above) was shared. It confirmed that once the Trillium Drug Plan (TDP) deductible is reached then the TDP becomes the FIRST payer for the remaining cost of the drug claim. This is NOT the way insurers pay claims currently.  Insurance companies remain the first payer today and push the remaining drug claim costs onto employers, the plan sponsors.

The provincial government public document "A Guide to Understanding the Trillium Drug Program" confirms this payment process on page 11:

If you have private insurance • Prior to reaching your quarterly deductible: All prescription drug claims must be first submitted to your private insurance, either by you or by the pharmacy. Once your prescription drug claim has been processed by your private insurance, you should submit your prescription drug receipt, along with the statement from your private insurance that tells you what they covered, to the TDP. The costs you paid out-of-pocket (not covered by your private insurance) count toward your TDP deductible. • After reaching your quarterly deductible: The TDP will pay your ODB eligible prescription costs. Your pharmacy will be able to submit your claims electronically to the TDP until the end of the quarter. 3693-87E_Guide (2025/07) Page 11 of 24

What this means is that drug claim payers (insurers) should be paying the drug claim ONLY until the plan deductible is reached and then submit the remainder of the drug claim costs to the province for payment under TDP.  If this process was followed correctly it would result in a a considerable savings to employers. It would also reduce the need for plan sponsors to implement reduced drug coverage, coinsurance levels, drug caps, and exclusionary formularies. In short, it would help support the sustainability of drug plan pricing.

An example of what this would look like, when properly adjudicated, is shown in this short video: http://www.mainstayinsurance.ca/mainlinkimages/Trillium%20example.m4v

Why does this matter? Apart from the obvious that Ontario employers are paying for drug claims they should not be paying for?  The cost of stop-loss insurance that is in place is escalating rapidly. In fact, stop-loss coverage has become the number one highest profit maker for group insurers.  This is occurring with no transparency being provided about the premiums being collected or the claims being paid. A quick survey of small group insured plans confirmed this price increase with both Sun Life and Manulife (as a quick sample) having regular pooling costs of 40-46%+ for groups under 10 lives. In fact, we found a five life case with a 78% pooling charge AND NO HIGH COST CLAIMS! This is leaving employers with fewer and fewer dollars to pay regular claims each year.

The increasing cost of stop-loss insurance is influencing plan sponsors (and their advisors) to come up with "creative" solutions to maintain the affordability of their benefit plans. We are seeing more and more plans utilizing drug caps (now up to about 24% of plans -Telus, ESI, BCHCS) and that number is UNDER stating the problem as many plans are moving away from the big insurers (to smaller insurers, TPA’s etc.) to obtain solutions like exclusionary formularies, or are moving to defined contribution plans (HSA’s). The likelihood is that the number of plans using drug caps and exclusionary formularies is closer to 30-35%.

In recent years we have seen annual drug maximums (caps) as the “easy answer” to deal with high-cost drugs. EASY for the advisor to explain and EASY for the plan sponsor and their employees to understand (even if they are not thrilled by the idea). The problem with drug caps is twofold. First, the employee is left to fend for themselves to find and understand the options that may be available to them and how to make best use of those options (e.g, patient assistance programs). They then ping-pong back and forth annually (or in the case of Trillium quarterly) between their private coverage and their alternative coverage, making things more difficult. Secondly, most insurers refuse to remove or properly reduce the stop-loss premium charged (which is no longer utilized due to the drug cap). This means that drug caps protect the insurers most and in a totally non-transparent manner.

So why don't insurers have the province pay these large costs? We thought Manulife was a leader on resolving this issue back in June 2012 when they issued a communication piece called "Helping you get the most from your provincial drug plan". We were impressed with them taking this step forward and placing clients first, but when questioned further, they said they would not be coordinating the coverage in Ontario. The reason? Too much work.

Your Manulife Financial drug plan supplements the coverage provided by provincial plans, giving you coverage for expenses not typically covered under government programs. Now, enhancements to the pay-direct drug system used in drug stores means the pharmacist will be able to advise you if the drug may be covered under a provincial program when you get your prescription filled. This means you’ll be able to take even greater advantage of the coverage opportunities available in your province and help manage the cost of your company drug plan at the same time.

Here is a 2015 posting that I made about the many reasons why Trillium Coordination will fail in Ontario. Ten years later and very little has changed except we have more drugs costing over $10,000 annually and insurers have further increased stop-loss insurance costs to unimaginable levels.

Following CGIB seminars that provided a comprehensive overview of the Ontario Trillium Program, we have learned that drug plan integration with the existing TDP may not be possible for a variety of reasons, primarily related to a lack of interest from a majority of the stakeholders impacted.

·       Insurers – Coordinating drug claim payments involves additional work. The commensurate reduction in claims may cause a reduction in stop-loss rates, which are a source of higher profit margins.

·       Trillium/Ontario MOHLTC – Additional plan integration will result in an increase in claims and costs to the province, which is already over budget.

·       Pharma companies – Patient assistance programs offered by brand name drug companies provide eligible individuals with cost relief for certain drugs and as a result, they do not meet the TDP deductible requirements.  Discussions around bulk buying and negotiated pricing programs by provinces may also reduce revenues.

·       Brokers - A reduction in employer paid claims may result.  This could drive a reduction in stop-loss rates resulting in a reduction in employer costs and potentially in broker commissions.

·       Pharmacists – Adjudication of claims through the TDP will or could result in additional administrative work to manage the proper order of payers.   Also, a reduction in compensation may result due to provincially controlled markups and pricing and reduced dispensing fees.

·       Employees – Until Employers implement drug caps or restrictive drug plans, there is little benefit to employees to have the TDP integrate the employer portion with Trillium.  As long as either the TDP or the drug companies help pay their portion of drug claims, employees have no motivation to integrate further.

·       Employers – Insurers are not communicating the option to integrate with the TDP to employers. So many employers are finding the only option provided is implementing drug caps that can result in greater savings and simple administration.  Caps may be seen as an easy option to avoid dropping a plan altogether.

As drug costs continue to escalate and insurers move to further increase stop loss attachment points, keeping drug plans insured and affordable will be both more important AND more difficult.

A concern is that ALL players are making a mistake by hoping for short-term gain at the risk of long-term pain. Should these stakeholders refuse to integrate the TDP and employer plans, there is the potential that we will see an increase in the number of drug caps (or alternate plans to avoid these costs) implemented by employers. This will cause an increase in those subscribing to the TDP and will also put political pressure on the province to provide greater financial support not just for both the existing TDP drugs (over the drug caps) but also for the other drugs that the employers have been paying for but may no longer cover.

The stakeholders MUST realize that once employers implement drug caps (or other alternatives), it will be extremely difficult to convince them to reverse that practice in the future.

If there are opportunities to support employers, such as through an existing program like the TDP, it is essential that, as brokers, we communicate this type of information to all impacted.

If you are NOT aware of the Trillium coordination and you work in any area of the benefits pr pharma industry, you need to learn more about it.  We need this issue resolved and the coordination to work as it was intended.  This work is not going to happen on it’s own.  Advisors, plan sponsors and their employees need a unified voice to speak on behalf of them.