Ontario Spends More than $11 billion a Year on Prescription Drugs

Why an income-based drug plan would not be good for Ontario’s economy or its seniors

Ontario spends $11 billion per year on prescription drugs. Nearly half of this is spent on medicines used by senior citizens, a group that receives public subsidies for nearly all of their prescription drug costs in Ontario.

With the population aging, seniors’ entitlement to public drug coverage creates a big strain on government budgets. This is because people under age 65 receive very little subsidy for prescription drugs. The day someone turns 65-years-old in Ontario, their prescription drug costs suddenly become a public liability.

To avoid this strain on government budgets, several other provinces have discontinued comprehensive drug benefits for seniors and implemented income?based programs that provide all residents public subsidies for prescription drug costs exceeding a given percentage of household income.

Sounds like a good idea for Ontario, right? Except it isn’t.

In a report published this week by the Institute for Research on Public Policy, my colleagues and I assess the performance of Ontario’s age-based drug plan against the best of the income-based drug plans in Canada: that of British Columbia. Three important results indicate that income-based drug benefits programs are not good for seniors anywhere in the country, and certainly not something that should be replicated in Ontario.

First, deductibles under income-based drug plans act as a barrier to seniors’ accessing necessary medicines. Perhaps not surprisingly then, residents of British Columbia are about twice as likely to report such cost barriers to their medications as residents of Ontario—which means many seniors don’t get the drugs they need.

If Ontario had the same rate of access barriers among its elderly population as British Columbia does, a further possible 68,000 elderly Ontarians would forgo their prescriptions because of financial barriers. For many of those seniors, stopping treatment could result in worse health outcomes and higher rates of hospitalization. In the end, this would cost both patients and taxpayers.

Second, deductibles under income?based plans impose considerable direct costs on patients. This is of particular concern for seniors, most of whom have chronic needs for prescription drug treatment. In effect, the deductibles under income-based drug benefit programs are tantamount to imposing a specific income tax on people with high medical needs—including most seniors.

Though it is true many seniors today are wealthier than seniors were a generation ago, it’s not clear they should be penalized by bearing more costs for their health care than younger Ontarians, especially if there are equitable, alternative models.

This raises the third problem with income?based drug benefit programs: they undermine efforts to control drug costs and promote efficiency for society as a whole.

Income-based drug plans do not reduce the total cost of prescriptions filled by seniors. They simply shift those cost onto patients or the sponsors of private insurance—primarily, employers and unions (who may eventually pass these costs on to employees via stagnating salaries and reduced benefits packages).

It is estimated that the change toward an income-based drug benefit program in British Columbia increased costs to the private sector—born by patients, employers and unions—by $134 million per year. A similar shift would not be welcome news for Ontario’s private sector.

Making matters worse, having multiple payers involved in drug coverage for seniors increases administrative costs and reduces the purchasing power of government drug plans. In this regard, existing age-based public drug benefit programs have a similar flaw to income-based drug benefit programs: multiple payers means the system costs everybody more than it needs to.

The result is that Canada spends nearly twice as much per capita on prescription drugs as do countries with single-payer systems for prescription drugs, such as the United Kingdom. Moving toward a single-payer system for Ontario could save the province, patients, employers and unions $4 billion per year.

Ontario should learn from the experience of British Columbia and other provinces, and not move towards an income-based drug benefit program for seniors. Rather than placing a tax on health needs—as income-based drug plans do—Ontario should consider a more positive road to universal pharmacare. Specifically, it should consider tax financing a universal drug benefit program that would give non-seniors the same coverage elderly residents enjoy today. Doing so would ensure better access to medicines at far lower cost to all involved.

By Steve Morgan

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.