Universal national pharmacare for Canada may offer a small personal loss for a few but a larger public gain

 By Robert L. Brown

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 $28.5B was spent on prescription drugs in 2015.  Of this, just under half ($13.2B) was paid for by public insurance plans (coverage for the public sector), $10.7B by private insurance plans and $4.7B by individuals (out-of-pocket). 

Of the $28.5B in prescription drug costs, $24.6B would be eligible for a national pharmacare program.  The balance would be drugs that are not listed on the (Quebec) 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 $20.4B — for a savings of roughly $4.2B.  To me, that’s worthy of consideration.

But to save substantially on spending on drugs overall, we’d have to increase federal taxes.  The net cost to the federal government for their share of pharmacare would be $19.3B.  This would grow to $22.6B 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 (though 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 macro-economic level, Canadians could save $4.2B 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 post-retirement, 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 overall 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?

Robert L. Brown is an expert advisor 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.