How to create an affordable prescription drug plan

By Steve Morgan

New Brunswick has opportunity to reduce pharmaceutical drug prices dramatically with a single payer system

A version of this commentary appeared in the Huffington Post, the New Brunswick Telegraph-Journal and the Moncton Times and Transcript

How to create an affordable prescription drug planThe Liberal government of New Brunswick appears to be stepping back from the brink of mandatory prescription drug insurance. And so they should.

The Conservatives had pitched the drug plan as a better model than “catastrophic” drug coverage under which people would only receive public subsidies for prescription drug costs exceeding a given percentage of their household income. In a report published this month by the Institute for Research on Public Policy, my colleagues and I explain why such income-based drug benefits programs are not good for seniors or for the economy. That part the Conservatives got right.

But the drug plan chosen by the Conservatives was designed on a false premise: that the private sector can better manage things than government can. In many sectors, that might be true. But not in health care. And certainly not with respect to purchasing prescription drugs on the world market.

The Conservatives designed their drug plan to maximize the number of New Brunswickers covered by private insurers. To do this, they required employers offer such coverage to employees or face penalties if they didn’t. Perhaps to remove the temptation of using a more efficient government program, they also and made the premiums for the public drug plan staggeringly expensive.

To participate in this program, most New Brunswick households would have faced monthly premiums representing about 3% or more of household incomes. And that is on top of taxes they would still have to pay to subsidize the cost of medicines for lower-income families — not to mention taxes paid for private drug coverage for public sector employees.

Couples with a gross income of $50,000, for example, would pay $2,800 per year in premiums under the compulsory program. That’s more than 5% of household income! And they would still have to pay up to $30 per prescription under the program — which for many would still represent a barrier to filling prescriptions.

The problem with this is not that people shouldn’t contribute in proportion to their incomes toward prescription drug needs in the province. The problem is that a well-run, single-payer government program could cover all New Brunswickers at much lower cost.

In our IRPP report, we make the case that any system having multiple payers involved in drug coverage will unnecessarily increase administrative costs and reduce the purchasing power of government drug plans. This costs everybody more than the system ought to cost.

New Brunswick is home to some of the longest serving, hardest working public drug plan managers in Canada. These people are competent and accountable managers of this important sector of the health care system. But they’ve never really been given an honest opportunity to do so on behalf of the population as a whole.

Currently, the government of New Brunswick pays for $208-million of the $746-million in prescription drugs that New Brunswickers use outside of hospitals every year. The government’s 28% share of the market gives them very little power to influences prices, prescribing patterns, and the use of cost-saving generic drugs.

But if the government of New Brunswick became a single-payer for pharmaceuticals by financing all medically necessary prescription drugs through a universal drug plan, it could use its bulk purchasing power to lower costs quite dramatically. Experience in other comparable countries suggests it could lower drug costs by 25% to 40%.

This means that a well-run government program could cover the entire province at costs to taxpayers that are far lower than the premiums under the Conservative’s drug plan. Moreover, employers would no longer be on the hook for the cost of coverage to their employees.

There are always opponents to policy reforms that save money — after all, someone is currently making the money that would be saved in a better run, single-payer system. But to argue that New Brunswick needs a multi-payer system for prescription drugs is simply to argue that taxpayers should foot the bill of an unnecessarily costly system because somebody is making a profit from that system.

The private sector can do many things exceptionally well. Managing prescription drug benefits in the context of Canada’s otherwise public health care system is not one of them.

New Brunswickers deserve better. With government acting as the single payer and system manager, taxpayers and companies would save hundreds of millions of dollars every year while New Brunswick patients would be assured access to the medicines they need.

Steve Morgan is an expert advisor with EvidenceNetwork.ca and professor and Director of the Centre for Health Services and Policy Research at the University of British Columbia.

December 2014

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