One person. One year's drug prescription. One massive bill for $8-million (U.S.) to Sun Life Financial Inc. in 2016.
The mounting costs of specialty drugs that treat rare conditions have been adding up for insurers across North America in recent years and Toronto-based Sun Life is no exception. As more eye-watering claims roll in, the company has been repricing some of its U.S. group insurance products in a bid to boost profit, its chief executive said on Thursday. It's also assessing how to help clients manage this risk in the future.
Sun Life said in its second-quarter results, released late on Wednesday, that its U.S. business made a comeback in the second quarter of the year, up to $101-million (Canadian) in net income from just $37-million in the first quarter of the year. Dean Connor, CEO of Sun Life, said the company had been helped in part by increasing its prices on insurance products that protect employee benefit plans against increasingly expensive medications.
"This is a dynamic you're seeing around the world. And I think as an industry our job is to help our clients figure out how to manage that," Mr. Connor said.
Last year, Sun Life found itself with an issue relating to its U.S. stop-loss insurance, which is aimed at companies that provide health and medical benefits to their employees. These contracts protect employers if they are hit with unexpected, outsized health claims beyond their planned budget. But at the start of 2016, Sun Life – and many others in the industry – set prices for these one-year policies too low for them to be profitable.
"And one of the reasons they were too low is that we've seen a real spike in drug costs," said Mr. Connor, pointing to medications known as "orphan drugs" that treat small populations with rare conditions as culprits. The insurer saw a significant rise in the incidence and the price of these special drugs and said on a conference call with analysts on Thursday that its rate increases are averaging more than 17 per cent this year.
This issue of increasingly pricey drugs has also had an impact on the Canadian market, where a growing number of patients are similarly in need of treatments not only for rare diseases, but also for late-stage cancers and chronic conditions such as rheumatoid arthritis and high cholesterol. More pharmaceutical companies are investing in these higher-cost treatments as the last wave of blockbuster drugs come off patent. Specialty drugs are making up a larger proportion of the total dollars spent on prescription medication.
That has put a burden on patients, governments, insurers and corporate benefit plans in recent years.
Mr. Connor said that Sun Life took a hit as a result of the rapid approval of new treatments for Hepatitis C in 2015. "We couldn't get it into our pricing fast enough, so that caused some significant losses," he said. "But we now have that pretty well fully baked into our pricing."
Another change that made an impact on the company in the United States was when the the Affordable Care Act, known as Obamacare, stopped insurers from setting lifetime dollar limits on medical expenses in company health plans.
Mr. Connor said he expects the question of how to pay for these high-cost treatments will garner more attention from governments, insurers and their corporate clients in the coming months.
"Often these are tough situations where a person or their child needs that drug – it could make a huge difference in their lives or even save their lives," he said.
Sun Life's overall earnings exceeded market expectations in the second quarter with net income climbing to $574-million or 93 cents a share, up from $480-million or 78 cents a year earlier. The company also announced a plan to repurchase up to 11.5 million of its shares.