Do High-Cost Drugs Save Money in the Long Run?

Posted by on April 14, 2014 | Be the First to Comment

What happens when employers are forced to choose between their earnings per share and the opportunity to cure employees facing serious illness via expensive medication? That’s a very real dilemma that may soon face companies, thanks to the tidal wave of expensive specialty drugs in development, soon to be launched into the marketplace.

One such drug is Sovaldi, an oral treatment for hepatitis C that was approved in December 2013. This medication, featured in a recent Wall Street Journal article (subscription required), is typically offered as a 12-week therapy, with a treatment price tag of approximately $84,000. Unlike any other medications currently available, Sovaldi eliminates the hepatitis C virus in nearly 90 percent of patients. This is important news because if not treated successfully, the resulting liver disease may require a liver transplant down the road—which is even more costly than the expensive medication. As a result, the answer to the $84,000 question is yes, Sovaldi may actually save money for employers.

Better still, the continued development and introduction of new specialty medications, offering competition for Sovaldi and other equally expensive specialty drugs, spells good news for employers and their health plans. A more competitive specialty drug marketplace will provide the ability to negotiate with manufacturers to achieve lower prices.

If creating a strategy for handling the high cost of specialty medications is a priority for your organization, see what Sarah Martin, Senior Actuarial Consultant in Lockton’s Pharmacy Analytics Practice, has to say about Sovaldi and other specialty drugs in our latest Benefits Insight & Guidance.

Please click to read How a High-Cost Drug Helps Avoid Higher-Cost Complications.

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Russia/Ukraine Crisis: Managing the Risks

Posted by on April 10, 2014 | Be the First to Comment

Ever since Ukrainian President Viktor Yanukovych was ousted in February and the subsequent annexation of Crimea by Russia, tension remains elevated in Crimea and the surrounding regions of the Ukraine and Russia. In recent days, a number of foreign governments, including the United States, posted travel warnings advising their citizens to avoid travel to Ukraine. As of March 28, 2014, U.S. citizens are discouraged from traveling into the Ukraine. Visitors currently in the impacted zone should evacuate as soon as possible while it is safe to do so.

Crimea

Map from BBC News

While the situation is still fluid, companies with investments and/or holdings in the region must be aware of potential loss to assets through political violence and political risks should sanctions against Russia become broader. For political risks, there is no new capacity and existing policyholders are anxious to see if the policies they currently have will remain in force and respond, if needed. This is in addition to actions that could jeopardize the safety and security of a firm’s people, assets, and supply chains.

Financial Impact on Multinational Corporations

The conflict between the transitional government in Kiev and Russian president Vladimir Putin’s regime caused the aid packages by Russia to the Ukraine to be suspended. Consequently, this may lead ratings agencies to downgrade Ukraine’s country rating, making payment difficulties for creditors to Ukraine-based companies. At the moment, insurers are expecting further trade sanctions and waiting to be instructed to stop supporting trade with Russia.

Furthermore, the currency exchange rate has devalued approximately 30 percent since early January which may render the local policy to be inadequate. Therefore, risk managers may consider issuing the local policies in U.S. currency or similar hard currency.

Although risks related to political instability, or any situation, cannot be completely eliminated, multinational corporations can take steps to limit the potential effects on their operations. Businesses with operations in Ukraine, especially those in Crimea, should check their crisis response and insurance programs to ensure they sufficiently mitigate these effects.

Protecting People and Assets

Protecting human capital resources is crucial, and businesses are encouraged to take the following actions:

  • Take inventory of travel plans for all employees, and if there are employees currently in the Ukraine region, make travel arrangements to evacuate the area as soon as practicable.
  • Provide employees with regular updates about local government travel advisories.
  • Monitoring airlines’ flight schedules and statuses.

Communication is critical and companies should remain in contact with their employees often. It is possible that local governmental actions may disrupt power or damage communication networks. Therefore, it is important to engage employees by multiple means including email, mobile phone (both business and personal) and even through social media so employees can be reached through as many channels as possible.

Business Continuity and Crisis Management

During such a crisis as this, it is important to set up real-time crisis support committee, providing 24/7 expert guidance to manage your corporate response, protect brand and reputation, and work with the product risk and supply chain groups. Business continuity planning (BCP) and crisis management are crucial elements for all companies. Organizations should identify their essential functions and assess the potential impact of unrest, taking into consideration customers, employees, and other key stakeholders.

Insurance Considerations

Before a loss, multinational organizations must consider the following questions:

  • Is coverage in each territory where we have operations in compliance with local insurance laws?
  • If a claim arises, will the loss be adjusted and paid directly to the local loss bearing entity or, alternatively, to the parent company?
  • Would my property policy respond if further sanctions are levied against Russia?

Answering these questions can help organizations understand how their claims will be handled and manage exposures related to income tax (imposed on claim proceeds received by the parent), premium tax, and regulatory compliance.

Most property policies exclude war and terrorism, and the wordings are broad enough that what is happening in the Ukraine/Crimea would fall under the War/Terrorism Exclusion. However, each situation has its own facts and circumstances, and deciding whether there is coverage or not must be addressed on the merits of the case. A thorough review of the applicable policy wordings is necessary, and organizations should clearly understand their policy limits and sublimits, deductibles, covered perils, exclusions, loss reporting requirements, and any other restrictions.

Furthermore, should Russia becomes fully sanctioned by the U.S. federal government, as defined by the Office of Foreign Assets Control (OFAC), insurance payments and all business transactions between the U.S. and Russia must cease immediately.

Claims Preparation and Filing

In the event of a loss, organizations should begin to gather data for a claim filing. This includes capturing potential loss information and additional costs associated with the claim, including temporary repairs, extra expenses, and business interruption loss of income costs. Businesses should record photographic and/or video evidence of damage and maintain open lines of communication between employees, insurers, and claims advisors to support policy loss mitigation and notification terms.

How Lockton Can Assist Our Clients

Please engage the International Resource Group, property specialists, tax and forensic accounting specialists, and claims experts to assist your clients relating to this situation.

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Reframing the Question of Preventive Care

Posted by on April 2, 2014 | Be the First to Comment

Although the idea of workplace wellness programs as a strategy for reducing costs and absenteeism is no longer new, certain questions remain prevalent among our employer clients and prospects. On a fairly regular basis, Lockton’s Health Risk Solutions Consultants are asked to address concerns regarding the cost of preventive care. For example:

 “If a wellness program will make more people schedule doctor visits more often,won’t that increase my costs?”

 When you put it that way, it’s no wonder some employers are hesitant. After all, the idea of encouraging all employees to schedule regular preventive care visits seems to fly in the face of saving money. Or does it?

 If this is an issue you face in your organization, and you’re looking for answers, see what Lockton’s Dr. Eric P. Justin, Chief Medical Officer, has to say. In our latest Benefits Insight & Guidance, he provides clarity on the costs of preventive care…and the higher costs associated with avoiding it. He’ll leave you asking yourself this kind of question instead:

 “Would I rather pay for an employee’s follow-up visits for high blood pressure todayor for the costs associated with a heart attack in a year or two?”

 Please click to read Preventive Care: Pay Now or Pay (More) Later.

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Possible Expiration of TRIA Causes Insurance Marketplace to React

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With the expiration of the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) approaching at the end of 2014, the Insurance Information Institute has issued an updated white paper, “Terrorism Risk: A Constant Threat: Impacts for the Property/Casualty Insurers.” The paper updates the developments surrounding the TRIPRA legislation and highlights the increased takeup of this coverage since the enactment of the initial legislation in 2002. 

As TRIA has evolved, private insurers and businesses have assumed a greater share of their terrorism risk. The current program- The Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA) – is slated to expire at the end of 2014, which could significantly undermine the terrorism risk insurance market. The insurance marketplace is already reacting to the potential nonrenewal of this legislation by curtailing writings, in certain cases instituting sunset clauses that effectively terminate coverage if the legislation is not renewed, and implementing increased pricing. Ancillary pressure on other placements, such as captives formed to access reinsurance capacity under the TRIPRA legislation, are also being impacted and alternate avenues are being investigated  to secure coverage.  

There is no certainty that this legislation will be extended upon its expiration at the end of 2014, and accordingly, we recommend a proactive approach to this exposure. Lockton works with its clients to develop ways to mitigate and manage terrorism risk for the long term.

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TRIA Successfully Stabilized Market but Questions Remain

Posted by on March 18, 2014 | Be the First to Comment

Congress passed the Terrorism Risk Insurance Act (TRIA) of 2002, bringing stability to a market turned upside down by the terrorist attacks in New York, Pennsylvania, and Washington D.C. on September 11, 2001. TRIA provides up to $100 billion of reinsurance protection in the event of catastrophic losses from an act of terrorism.

 While the program has been successful in balancing the marketplace and increasing the rate of businesses that buy terrorism coverage, several questions remain. Insurers still don’t know how to accurately model a terrorist attack. Some are concerned about the ability for the private markets to meet their obligations, should the program come to an end. Others wonder how losses would be paid for in the event of an attack. Would the federal government advance the funds or would an insurer pay and then seek reimbursement?

 A recent article in Leader’s Edge Magazine, Uncertain Disaster: Workers Comp Carriers Face a Murky Future if TRIA is not Extended, offers an overview of the situation, including my thoughts as well thoughts from other leading insurance professionals.

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