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Preparing To Be Prepared

By: Joseph Riccuiti & Greg Durant

The Supreme Court of Canada decision in Chaoulli has some believing the door to a two-tiered health system in Canada will soon be open. Joseph Riccuiti and Greg Durant, of Watson Wyatt Worldwide, share their views on what this decision means for Canadian plan sponsors.

Reports of the demise of the public healthcare system in Canada have been greatly exaggerated. While there is definitely room for improvement, Canada is far from falling into a private or even two-tier model.

There are many issues yet to be resolved following the recent landmark Supreme Court of Canada (SCC) ruling in Chaoulli v. Quebec (Attorney General) (Chaoulli). Regardless, plan sponsors should consider the promises they’ve made to their employees and review their benefit programs now to accommodate the new future of public healthcare in Canada.

The Background
In 1998, George Zeliotis (a patient and advocate) and Dr. Jacques Chaoulli (a physician who had been unsuccessful in attempts to obtain a license to operate an independent private hospital) challenged the validity of a prohibition contained in section 15 of the Quebec Health Insurance Act (HEIA) and section 11 of the Quebec Hospital Insurance Act (HOIA) preventing a provincial resident from securing insurance for private healthcare services already available under the public healthcare plan. Zeliotis and Dr. Chaoulli claimed that the impugned provisions violated their rights under section 7 of the Canadian Charter of Rights and Freedoms (Charter) and section 1 of Quebec’s Charter of Human Rights and Freedoms (Quebec Charter) by depriving them of their rights to life, liberty, and security of the person. After their claim was rejected by two lower courts, the case made its way to the SCC.

The SCC Decision
On June 9, 2005, the SCC awakened a not-so-sleepy giant by siding with Zeliotis and Dr. Chaoulli. In a 4-3 decision, the SCC concluded that the legislative prohibitions in theHEIA and HOIA are inconsistent with both the Canadian and Quebec Charters.

Justice Deschamps determined that “in the case of certain surgical procedures, the delays that are the necessary result of waiting lists increase the patient’s risk of mortality or the risk that his or her injuries will become irreparable.”

The goal of the prohibitions in the HEIA and HOIA is to preserve the public healthcare system.

While noting that this is a “pressing and substantial objective,” and that banning private insurance was rationally connected to this goal, Deschamps was unable to conclude that the system could not be adequately protected by any of a “wide range of measures that are less drastic and also less intrusive” than an absolute ban on private insurance. The decision further cited evidence from several countries where a private insurance system operates alongside a public program, with no negative infringement or detriment on the public system. While the SCC decision was restricted to Quebec, it can be expected to serve as a catalyst for similar actions in the other provinces, as many have similar provisions in their provincial legislation.

In a separate concurring decision, Chief Justice McLachlin and Justices Bastarache and Major wrote that “the prohibition against private healthcare insurance and its consequences of denying people vital healthcare result in physical and psychological suffering” and thus breaches the charter.

Despite first impressions, this decision does not necessarily signal the beginning of the end of Canada’s publicly-funded healthcare system. Justice Deschamps noted that it “does not question the appropriateness of the state making healthcare available to all Quebeckers.”

Interestingly, Zeliotis and Dr. Chaoulli did not ask the SCC to order any remedy to the problem with waiting lists in Quebec following the decision. As such, there is significant uncertainty regarding the direct implications of the ruling. Further, the Quebec government applied for and was granted a suspension of the decision for one year, thus delaying any changes in that province until at least next June. It is up to the Quebec government to remedy the problems that gave rise to this case and they now have time to determine the best course of action.

Government Solutions
Given the uncertainty of the environment after Chaoulli, no one can accurately predict the future landscape. However, maintaining the status quo is unlikely.

The main target of the decision was the inappropriateness of long waiting lists to obtain certain treatments or procedures through the public system. An obvious solution is to reduce waiting times. However, the various governments face a number of complicating factors in respect to this solution, including:

Private Individual Insurance Plans
What about the possibility of new private insurance plans being offered to Canadians? In fact, there are already some such plans, most being supplemental in nature. However, there are a few that offer insurance for services that are available under provincial health plans.

First, it is important to distinguish between ‘private insurance’ and ‘private coverage.’ Private coverage exists today. If you can afford it, you can seek treatment from clinics throughout North America or Europe on a direct-payment basis. This is not insurance, but merely an alternative to facilitate faster, different, or experimental treatment.

Private insurance, in contrast, requires an assumption of risk by an insurance company in exchange for a predetermined amount of money (premium) paid by an individual.

One problem with private insurance will be determining what exactly is to be insured. Because waiting times are affected by availability of, and demand for, a service, they vary considerably across jurisdictions and over time. Thus, trying to put together a product to provide insurance for a variety of medical services could be like trying to hit a moving target. Await time deemed to be excessive one month could become acceptable the next, making it difficult to maintain the integrity, pricing, and profitability of the product.

Another issue relates to medical advances. Consider an example of an insurance policy sold to cover hip and knee replacements, services currently associated with long waiting times due to current technology. Suppose that five years after the initial sale of the policy, a medical breakthrough is achieved whereby invasive surgery is no longer required and joint replacement or repair becomes a standard out-patient procedure, covered under the public health system. If waiting times for these procedures are no longer an issue, what happens to this policy? Will the individual demand their money back? Will the insurance company be obliged or required to comply?

Private Group Insurance Programs
Group insurance programs are supplementary plans that generally cover services not available through public plans and allow plan sponsors to determine what services to cover. They are, in effect, private insurance programs. As a result, Chaoulli poses a risk to plan sponsors.

Plan sponsors across Canada continuously deal with provincial healthcare plans de-listing services that were covered previously. Following Chaoulli, the question arises of whether inadequate access to care as a result of excessive wait times may make certain procedures ‘de facto de-listed services.’ Imagine a situation where an individual is deemed to have his rights infringed and is eligible for coverage of a $100,000 medical service through a private group insurance program because the service is deemed unavailable and, therefore, effectively de-listed. Few plan sponsors could afford these extra costs without seriously jeopardizing the financial viability of their programs.

Accordingly, plan sponsors should review their contract wording to make sure it aligns with their objectives and, if desired, that it specifically excludes all services provided by the public plan. In Quebec, the precedent has been set to some extent, since in the past insurers refused claims relating to such services on the basis of section 15 of the HEIAand/or section 11 of the HOIA, even though some contracts were not clear. As plans could now be responsible for such claims following Chaoulli, contract wording should be reviewed to avoid any potential surprises. Further, plan sponsors should also review their booklet wording, and any applicable collective agreements, to ensure that the insured elements as originally intended are protected while ensuring that the plan remains affordable.

Another potential issue relates to the favourable tax status afforded to private group insurance programs, which are a form of Private Health Services Plans (PHSP). This status, which allows a plan sponsor to recognize contributions to the PHSP as an eligible business expense, is retained only as long as there is no reimbursement of premiums or services that are otherwise provided under a provincial medicare system. Until the Income Tax Act (ITA) is reviewed, it is likely that a plan sponsor could refuse reimbursement of any privately-provided service that is otherwise available through the public system.

In the longer term, it is possible that a parallel market will develop for private health insurance for services provided in the public sector. Although employers will not view this outcome favourably if it increases costs, they might consider allowing employees to use their flex credits or HSAto purchase such insurance if deemed eligible under the ITA. Some employers may view the availability of private health insurance in a positive light, as they could be assured of prompt and accurate medical attention for key employees, ensuring a quick and successful return to work with minimal impact on productivity.

What The Future Holds
These are interesting times in the Canadian healthcare environment. It will be important to see how Chaoulli impacts the current landscape. While no crystal ball exists to accurately predict the future, we believe the demise of public healthcare in Canada is at worst far down the road, and is probably unlikely. The only thing certain is that change will occur, so it is best to be prepared, even if there is no clear direction of how it will evolve. As the boy scouts say, ‘Semper Paratus’ or ‘Be Prepared.’

Joseph Riccuiti and Greg Durant are with the group benefits and healthcare practice at Watson Wyatt Worldwide.

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