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Prescription drug insurance: Private profits or public health

The usual suspects are lining up against a public system of prescription drug coverage

Canadian PoliticsHuman Rights

Photo by The Javorac/Flickr

When Justice Emmett Hall released his iconic 1964 report that paved the way for medicare, he envisaged that after universal coverage for doctors, the next step would be prescription drugs, but that next step got delayed and we are still waiting. In 2018, things looked promising when the Liberal government appointed former Ontario Health Minister Eric Hoskins to head an advisory council on pharmacare. Hoskins was not mandated to tell the government if we should have pharmacare but to find a way to implement it. In other words, the government confirmed the need for a program that would provide all Canadians with free access to essential medications prescribed by their doctor.

Hoskins recommended the gradual introduction of a publicly funded universal pharmacare plan over a five-year period between 2022 and 2027. Everyone agreed that all people in Canada should have coverage for prescription drugs. But that doesn’t mean that everyone agreed that the coverage should be public.

The usual suspects lined up against a fully public system. Innovative Medicines Canada, the lobby group that represents Big Pharma in Canada, said that “More than 24 million Canadians benefit from private drug plan coverage” and that private plans cover more drugs compared to public plans. The Fraser Institute and its ilk parroted the same line. The Canadian Life and Health Insurance Association was “supportive of the work being done through the federal government’s Advisory Council [the Hoskins Report] on the implementation of Pharmacare” but wanted to make sure that implementation translated into improving the existing system (in other words, to ensure they could keep selling private drug insurance).

There was also a surprising addition to these voices: patient groups. For example, the Canadian Organization for Rare Disorders (CORD), which lists over 30 “corporate leaders” (drug companies) on its website, says that “If new pharmacare looks like old public pharmacare then it could be disastrous for rare disease patients.” John Adams, the chair of the Best Medicines Coalition and the president of the Canadian PKU and Allied Disorders Inc. co-authored an opinion piece, denouncing plans to lower prescription drug prices, something that would make pharmacare more affordable. The Canadian PKU and Allied Disorders Inc. allows pharmaceutical companies (and others) who are gold donors (those who give $10,000 or more) one direct-marketing email per year to its membership.

One of the usual arguments in favour of retaining the current system is that private drug insurance is more efficient than public insurance, but that ignores the reality that the medical loss ratio for private insurers is about 82 percent. What that means is that 18 percent of premiums don’t cover the cost of patients’ prescriptions—they go to administrative costs and to profits for the companies (in contrast, administrative costs in Canada’s public insurance system is about 1.3 percent and nothing goes into profits).

Private insurers do cover more drugs than public plans, but that’s because in order to get public coverage drugs have to show value for money. Expensive drugs that offer minimal value don’t get onto provincial formularies. Most private plans don’t have the same requirement and cover everything that Health Canada approves. According to the Patented Medicine Prices Review Board, the agency that sets the maximum introductory price for new patented drugs, between 2012 and 2021, only 37 new drugs marketed in Canada were either breakthroughs or substantial improvements over older drugs (759 were slight or no improvements). Many from the latter group will be covered by private insurers.

The favourite alternatives pushed by those opposed to a fully public system are to “fill in the gaps.” In Canada, that’s the Québec model that preserves the private insurance market. In that province, since 1997, all employers who offer health benefits must also offer drug coverage through private insurance. For everyone else the government steps in.

Yanick Labrie, a senior fellow at the Fraser Institute authored a report advocating the Québec system as one that the rest of Canada should follow. On some measures such as cost-related nonadherence Québec does better than other provinces, but given the poor coverage in other provinces that is not the right comparison. The right comparison is with countries that provide universal coverage. On that measure Québec lags behind countries such as Australia, Germany, Netherlands and the United Kingdom. Similarly, a greater percentage of people in Québec report spending more than $1,000 out-of-pocket on drugs than in other parts of Canada. Meanwhile, total per capita spending on drugs in Québec ($1,087) is substantially higher than the average in the rest of Canada ($912) and in countries with universal coverage ($826).

The Québec model also amounts to “cream skimming” by the private insurance industry since it covers the working population, people who tend to be healthier than the average Canadian. The public system picks up the poor, the elderly and the unemployed who are “bad” risks, consume more drugs and cost the system more.

Marc-André Gagnon, who teaches political science at Carleton University, enumerates additional reasons to reject the Québec model. He notes that in Québec the prices of drugs vary between the public and private plans. The solution to that problem for the public plans is to shift costs onto the private plans. Since insurance companies are paid as a proportion of spending, they rarely complain. Employers and employees pay for this cost shifting through higher premiums which increase labour costs and decrease the competitiveness of Québec’s businesses.

The confidence and supply agreement between the Liberals and the NDP commits the former to taking significant steps to implementing a pharmacare plan by June 2025. The question is whether that will be a Québec model that preserves the profits of the drug companies and the private insurance industry or a public model that puts the health of Canadians first. The choice should be obvious.

Joel Lexchin worked as an emergency physician in Hamilton and Toronto for 40 years. He sits on the board of Canadian Doctors for Medicare and the Canadian Health Coalition.

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