Robert Brown is an expert adviser with EvidenceNetwork.ca and a Fellow with the Canadian Institute of Actuaries. He was Professor of Actuarial Science at the University of Waterloo for 39 years and a past president of the Canadian Institute of Actuaries.
The Parliamentary Budget Officer (PBO) recently published a report outlining the expected costs and benefits of a possible National Pharmacare Program – and it's pretty good news for most Canadians.
The pharmacare program that was assessed was one proposed by the House of Commons standing committee on health in 2016. This committee provided the program's framework, the list of drugs to be covered (basically the Quebec formulary), eligibility requirements, co-payment levels and eligibility requirements for co-payment exemptions.
The cost of the pharmacare program is based on assumptions of potential savings resulting from a stronger position for drug-price negotiations, consumption or behavioural responses to having this coverage and potential changes in the drug-market composition (such as more generics). It also provides five-year projections of costs. Cost savings associated with a single administrator of claims versus multiple administrators – which could be significant – were not considered.
So, first, where are we today?
Spending on drugs has grown rapidly – 5.1 per cent per annum from 2004 to 2014 – and many Canadians are unable to obtain necessary drugs because of their cost.
The PBO estimates that roughly $28.5-billion was spent on prescription drugs in 2015. Of this, just less than half ($13.2-billion) was paid for by public insurance plans (coverage for the public sector), $10.7-billion by private insurance plans and $4.7-billion by individuals (out of pocket).
Of the $28.5-billion in prescription-drug costs, $24.6-billion would be eligible for a national pharmacare program. The balance would be drugs that are not listed on the formulary being proposed.
So what's the price tag?
After accounting for pricing and consumption changes, the PBO estimates that total drug spending under a national pharmacare program would be $20.4-billion – for a savings of roughly $4.2-billion, a figure that's worthy of consideration.
But to save substantially on spending on drugs over all, we'd have to increase both provincial and federal taxes. Provincially, taxpayers would have to pay increased taxes of $7.3-billion to cover the additional gross cost of pharmacare. This cost would be over and above what taxpayers already pay to cover the drug plan for the public service as employees.
The net cost to the federal government for its share of pharmacare to be paid by taxpayers would be an additional $19.3-billion. This would grow to $22.6-billion by 2020-21, mostly because of the growth and aging of the population.
Increased taxes are not good news and would be especially difficult to contemplate for any government currently grappling with very large deficits.
But there would be big savings, too.
Under a national pharmacare program, individual out-of-pocket expenditures for drugs would be expected to decrease on average about 90 per cent. These savings are even greater if one considers that patients would no longer pay premiums to their drug-insurance provider.
The source of the savings would come from a stronger negotiation position with a single buyer in establishing drug prices as well as universal application of generic-drug substitution levels versus what is now covered.
Of course, the coverage of drugs would include those listed now in the Quebec formulary only, and not all drugs. And this calculation of savings includes a small revenue offset from applying a $5 co-payment for each brand-name prescription (although even this small payment may prevent some Canadians from getting the drugs they need).
The study notes two factors that could raise costs. Lower drug costs for patients will likely increase overall consumption. And, because everyone will now be covered, total consumption will rise further. But this increased use might also improve population health and prevent the need for more expensive procedures later.
So, on a macroeconomic level, Canadians could save $4.2-billion per annum in total and have far better drug coverage. What does that mean for individual Canadians?
If you have an excellent drug plan through your employer today that extends postretirement, you would see increased taxes, but no increased benefits. So that would be a net loss for you.
However, given that employers save their proportion of these costs by not having to provide drug coverage, one would expect that progressive employers would expand health coverage in other ways. This might mean expanded coverage for eye care, dental or hearing.
If you have no employer coverage, then you would either get almost-free drug coverage or you will get better coverage and stop paying premiums for your private individual or family coverage – a significant gain.
The bottom line is that Canadians would get better drug coverage over all at a reduced total cost. But some individuals will gain little for these increased taxes while others gain a lot.
Will we be able to see beyond what may be some small personal losses for the larger public gain?