Free medicines for rich kids is actually a fair and efficient policy

By Marc-André Gagnon

A version of this commentary appeared in the Ottawa Citizen, Windsor Star and the Huffington Post

Free medicines for rich kids is actually a fair and efficient policyOntario has been the site of dueling 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.

Most health policy experts praised both proposals, myself included.

Finally, policymakers 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.

The main advantage of a universal drug program is that everyone becomes concerned about the efficiency and fairness of the program.  Means-testing creates stigmatization and tends to result in poor programs for poor people.

And while it might seem counterintuitive, 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 day-care worker earning $40,000/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, 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/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/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 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.

But wait — does money spent by private drug plans at least mean savings for the public budget? Unfortunately, no.

I like to remind my students that in the U. S., where health care coverage depends mostly on private health plans, the public health care spending per capita is actually higher than in Canada — and yet many Americans still do not have access to the essential health care services they need.

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

 

Marc-André Gagnon is an expert advisor with EvidenceNetwork.ca and a Visiting Professor at the Ottawa Centre for Health Law, Policy and Ethics at University of Ottawa.

May 2017

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