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Canadians pay more for private insurance, getting less, report says

‘The insurance market is not working for small businesses and individuals,’ says Michael Law, a professor in the Centre for Health Services and Policy Research at the University of British Columbia

Stefan Mladenovic/The Canadian Press

When it comes to private insurance for drugs, dental care and other services not covered by the public health-care system, Canadians are paying more and receiving less than they did 20 years ago, a new report has found.

Individuals and companies paid $6.8-billion more in premiums to for-profit insurers than they received in health-related benefits in 2011, a significantly wider gap than existed in 1991, when the difference was $1.2-billion, according to an analysis published Monday in the Canadian Medical Association Journal.

That prompted the authors of the analysis to call for better regulations of for-profit health insurers.

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"The insurance market is not working for small businesses and individuals," said Michael Law, a professor in the Centre for Health Services and Policy Research at the University of British Columbia and co-author of the new paper. "There's pretty clear evidence … that small businesses and entrepreneurs are not being well-served by this arrangement."

The industry group that represents Canada's health and life insurance companies disputed the paper's findings, calling the analysis "misleading."

Prof. Law said his research was sparked by a change to the rules for private insurers in the United States under the new Affordable Care Act, better known as Obamacare.

American health insurance providers are now legally required to pay out 80 to 85 per cent of the premiums they collect in the form of benefits; if they miss the targets, they have to provide rebates to their customers.

Prof. Law wondered how Canada's for-profit insurers stacked up against their American counterparts.

He and his co-investigators combed through 20 years of data from annual reports published by the Canadian Life and Health Insurance Association, the same industry group that dismissed the study's findings.

The researchers found that, for group plans that serve small and medium-sized businesses, the percentage of premium revenue paid out in benefits dropped to 74 per cent in 2011 from 92 per cent in 1991 when adjusted for inflation, as all the figures in the analysis were.

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For individual insurance plans, the figure dropped to 38 per cent in 2011 from 46 per cent in 1991.

There was one exception to the trend: Large corporations and organizations that self-insure, meaning that they pay an outside company only to administer their plans, saw their numbers improve slightly over the 20-year period.

In 2011, they paid out 95 per cent of their premium revenue in benefits, up from 94 per cent in 1991.

That led the authors of the new report to hypothesize that for-profit insurance companies increased their mark-ups during the study period, especially after a legal change in the late 1990s allowed large insurance providers to convert from mutual companies owned by policy-holders to publicly traded companies.

"They get this double accountability at that point. You're accountable not only to your plan holders, but you're accountable to your shareholders as well who are going to demand a return on investment, increases in dividends, all these sorts of things," Prof. Law said. "It's our hypothesis in the paper that those things are pulling the companies in opposite directions."

He stressed, however, that researchers did not have enough information to say definitively why premiums are up and benefit payouts are down. Prof. Law requested details that were not disclosed in CLHIA's public reports, but he was rebuffed.

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The CLHIA took issue with the analysis because it did not include not-for-profit insurers such as Blue Cross and Green Shield and because it lumped benefits such as short– and long-term disability in with health-care coverage for dental and eye care and pharmaceuticals.

Prof. Law responded that it made no sense to look at non-profits in a study of the for-profit insurance industry. "If I want to study apples, I shouldn't study oranges," he said.

The CLHIA said the health insurance sector is working hard to rein in the cost of providing benefits by introducing a drug pooling arrangement to try to lower the cost of drugs and tackling health-care fraud, among other actions.

"Canada's life and health insurance industry recognizes that the cost of providing health care benefits is escalating and is taking action," Stephen Frank, vice-president of policy development and health for the CLHIA, said by e-mail.

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Health reporter

Kelly Grant is a health reporter with The Globe and Mail. More


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