With universal drug coverage, everyone wins
Universal drug plan aids all, writes Marc-André Gagnon.
Ontario has been the site of duelling pharmacare proposals — and Canadians are the victors.
At the end of April, 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, policy-makers are beginning to understand that access to medicines should be a universal health benefit enjoyed by all, and not a private benefit offered as a privilege by employers to employees.
However, some pundits criticized both proposals because they felt “universality” — prescription drug coverage provided to everyone, regardless of income — 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. Here’s why.
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. On the contrary, if everyone has to pay, for example, a one-per-cent income tax for universal drug coverage, the millionaire will end up paying significantly more than a daycare worker earning $40,000 per year.
Most people don’t know it, but 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 that 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 an additional 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 for the plan based on their income. But the same family earning $400,000 per year would receive $1,070 in tax subsidies for the same drug plan.
Keep in mind that Canadians spend around $10 billion on prescription drugs through private drug benefits every year — no small potatoes. While around 20 per cent of these plans are paid for by public 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 current 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 that 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 for-profit 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 by a universal public drug plan would not only reduce wasteful spending, it would save Canadians an additional whopping $1.3 billion a year in administrative costs. Then there’s the spending power. 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, regrouped under the Pan-Canadian Pharmaceutical Alliance, are doing a much 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.