Free drug plans are good for wealthy – and poor

Ontario has been the site of duelling pharmacare proposals — and Canadians are the victors.

The opposition NDP promised universal drug coverage for a list of essential medicines. Not to be outdone, the ruling Liberal party announced universal coverage for all drugs on the provincial formulary for youth under 25 years of age.

Finally, policymakers are beginning to understand that access to medicines should be universal, and not a private benefit offered as a privilege by employers to employees.

However, some criticized both proposals because they felt “universality” is unfair to those who are economically disadvantaged. “Why spend health care money on free drugs for the sons and daughters of millionaires?” goes the argument.

The answer is simple: universality is more equitable and more efficient.

Universality makes everyone concerned about the efficiency and fairness of the program, while means-testing creates stigmatization and tends to result in poor programs for poor people.

Universality is no free ride for the rich. If everyone has to pay, for example, a one per cent income tax for universal drug coverage, the millionaire will pay significantly more than a daycare worker.

Our current system, driven largely by private drug coverage, already offers significant tax subsidies to top income-earners. Private drug benefits in Canada are not counted as income and, thus, are not taxable. It has been estimated the federal government pays around 13 per cent of the cost of private drug benefits in Canada through tax subsidies, to which provincial governments add around seven per cent.

The tax subsidies are also regressive, based on your marginal income tax rate, which means the richer you are, the more you save. A family of four in Ontario that earns $40,000 per year, with an employee drug plan worth $2,000, would receive $410 in tax subsidies. But the same family earning $400,000 per year would receive $1,070.

While around 20 per cent of these plans get tax subsidies, around 30 per cent of all spending on private drug plans is for the private coverage of public employees. In other words, the way we spend public money on private drug coverage is unfair.

It is also inefficient. Private health coverage does a very poor job of containing costs. Express Script Canada, a health benefits management company, estimates more than $5 billion a year is wasted because private drug plans pay for unnecessarily expensive drugs and dispensing fees. By reimbursing drugs only when they represent value for money, public plans are much better equipped to rein in such costs.

The administration costs of forprofit private plans are also enormous — around 15 per cent — while administration costs for public plans are less than two per cent.

So replacing private plans with a universal public drug plan would save Canadians a whopping $1.3 billion a year in administrative costs.

Drug companies often inflate the price of their drugs and provide confidential rebates based on the bargaining power of each purchaser. The bigger the buyer, the bigger the bargaining power. Public drug plans in Canada, grouped under the PanCanadian Pharmaceutical Alliance, are doing a better job bargaining for lower drug prices than fragmented private plans. Universality increases bargaining power.

So when you add it all up, Ontario’s move to pharmacare for kids is a first step in the right direction. It’s time we gave free medicines to rich kids — and to everyone else, too.