An EP3 is a statement that defines how pooling coverage works and is available to all fully insured non-refund clients. An EP3 usually summarizes the current pooling arrangement.

To manage the pooling operation and avoid any biases in coverage, the following criteria must be met:

– Insurers must offer EP3 pooling protection to their fully insured non-refund groups.

– The EP3 must pool eligible drug claims above a certain level.

– When quoting new business, any plans covered by an EP3 would not be subject to experience rating of the pooled drug claims, and pre-existing pooled drug claims cannot be excluded from coverage.

Each participating insurer can set its own EP3 according to these rules:

– In 2016, EP3 pooling level must be $32,500 or less (this level is subject to change annually).

– Eligible drug claims above the relevant pooling level are pooled.

– Pooled drug claims cannot be experience rated.

Insurers cannot experience rate based on the amount of any eligible drug claim that is pooled in an EP3. This provides tremendous protection for plan sponsors.

All eligible drug claims must be pooled in an EP3, even though not all eligible drug claims will go to the industry pool. The purpose of this requirement is to ensure consistent treatment of plan members and plan sponsor premium rating. In any pooling agreement, the insurer maintains a significant part of the risk to ensure all are motivated to manage claims appropriately.

According to the rules of the framework, insurers must quote consistent pooling rates and arrangements and cannot generally exclude pre-existing claims from pooling that are pooled by a transferring insurer.

One of the most common questions is whether the experience over the pooling level needs to be provided for a new quote. Insurers can still request all information and the more detailed the information, the more accurate the decision to quote will be.

There are guidelines on EP3s, but that doesn’t mean that all EP3s are the same. For example, one insurer’s EP3 might have a $15,000 pooling level while another may be $12,500. If the insurer with the $15,000 pooling level is quoting on new business, annual drug claims under $15,000 can still enter into their underwriting guidelines.

Another common question relates to why EP3s can still vary in the market. The purpose of the industry pool is to spread the risk of very high cost drug claims, avoid anti-selection risk, and ensure that insurance is available for plan sponsors whose plan members have had large drug claims. With that framework, a competitive environment needs to exist.

Chances are a plan sponsor won’t know when a drug claim is shared by the industry pool. The plan sponsor’s insurance carrier will remain the payer and adjudicator of the drug claim and any submission to the industry pool is done behind the scenes.

To be covered, the amount of the drug claim payment must exceed $65,000 annually (the Initial Threshold), for two consecutive years, and then be above $32,500 in each year thereafter (the Ongoing Threshold). Like any pooling or reinsurance arrangement, the insurer must retain a significant portion of the risk.

In this agreement the insurers retain the following risk:

– Drug claims that don’t meet the Initial Threshold or that fall below the Ongoing Threshold.

– For drug claims that meet the Initial Threshold, the insurer must keep the amount under the Ongoing Threshold ($32,500), plus 15 per cent of the excess, up to a maximum pooled amount of $500,000.

Smaller plans, which tend to be non-refund, aren’t able to diversify risk as well as larger plans which tend to be refund or ASO.

Pooling levels, which largely form the basis of EP3s, are relatively consistent across the industry in the non-refund segment. This isn’t the case with refund or ASO, and the issue of how to account for variable pooling levels is challenging.

No, the impact of industry pooling to insurers is expected to be revenue-neutral, as pooled claims are spread evenly among all carriers. The administration costs of the new pooling corporation add some expense.

CDIPC Industry Pooling is supplemental to QDIPC and QDIPC continues to take precedence in Quebec. Eligible claims not covered by QDIPC pooling will be submitted for Industry pooling.