Actuarial Notes

Pharmacare: Is There a Pill for That?

By Canadian Institute of Actuaries · 2021

Study guide: Exam GH-201C

A public statement of the Canadian Institute of Actuaries, dated February 2021, on prescription drug coverage in Canada. The Institute believes all Canadians should have access to affordable prescription drugs and proposes a Canada-wide framework, with elements managed by the federal, provincial and territorial governments and by private insurance, as an alternative to a single-payer federal Pharmacare program.

On the syllabus

  • Exam GH-201C — Pharmacare: Is There a Pill for That?, CIA, Feb 2021; Outcomes 4b.

Executive summary

  • The Government of Canada is considering options for universal drug coverage, such as a single-payer federal Pharmacare program; the CIA agrees that no Canadian should be left without prescription drug coverage but proposes a Canada-wide framework instead.
  • The framework would pool costs at the highest level where risk can be better absorbed, negotiate prices with the weight of the whole country, and make sure all Canadians can access the same medicines.
  • The framework would not wholly replace the current private and public programs but help them work better together and fill the gaps; the structure would cost taxpayers significantly less than the proposal in the Hoskins Report.
  • Proposed framework
    • Provincial flexibility: provinces and territories design their own public plan and coordinate it with the private drug insurance marketplace.
    • Oversight: an overseeing body of federal, provincial/territorial and private-plan decision-makers and other experts negotiates drug prices for all public and private plans.
    • Coverage: a national formulary defines the core and specialty medicines that public and private plans must cover at a minimum, with patient cost-sharing limited to an affordable amount.
    • Insurance and reinsurance: private plans and provincial/territorial plans cover costs up to limits, and the federal government pays costs beyond the defined limit and reinsures high-cost formulary drugs.
  • A task force of medical professionals, pharmaceutical experts, insurance leaders, private plan sponsors, government representatives and actuaries should identify more accurate, consistent data on costs and potential savings and perform a long-term financial analysis.

Introduction

  • Canada is one of the few OECD countries with universally paid physician and hospital coverage but limited and inconsistent coverage for prescription drugs.
  • The federal Advisory Council on the Implementation of National Pharmacare issued its Final Report (the "Hoskins Report") in June 2019, recommending a universal, single-payer Pharmacare program built on the Canada Health Act's principles, a national formulary, capped out-of-pocket costs and private coverage that supplements the program.
  • The report acknowledges the effects of the COVID-19 pandemic on the health care system and federal and provincial finances.
  • Note on terminology
    • The CIA chooses not to use the word "pharmacare" for its own framework, to avoid the assumption that it means a universal, single-payer program.

Provincial flexibility

  • The framework builds on successes within private insurance and provincial/territorial programs, with a focus on filling the immediate needs of Canadians without coverage.
  • Provinces and territories and private plan sponsors keep enough flexibility to offer programs beyond the core formulary.
  • Existing arrangements include Quebec's universal mandate for employer-provided drug coverage and the BC, Saskatchewan and Manitoba PharmaCare plans.
  • Private plans pay 36% of Canada's total spending on prescription drugs each year.

Oversight

  • An overseeing body with federal, provincial, territorial and insurance-industry representatives and other experts negotiates wholesale drug prices and rebates with manufacturers, building on the pan-Canadian Pharmaceutical Alliance (pCPA).
  • Price negotiation includes high-cost drugs and rare disease treatments.
  • Improved protocols and public health use
    • More research is called for in other areas to reduce overall cost increase; medical care, public health and health promotion need increased investment, and the overseeing body would research improved protocols for more effective use of pharmaceuticals.
  • Dispensing fees
    • Given its role as reinsurer, the federal government's overseeing body could engage with pharmacies on allowable mark-ups and dispensing fees; easy-to-access transparent information about them is advocated, and care is needed because regulated mark-ups and fee limits risk pharmacies closing.
  • Rebates
    • Rebates are offered by manufacturers through negotiation, in a process that is not transparent; the overseeing body should include other interested parties and bargain on behalf of all plans.

Coverage

  • The formulary must be consistent across all provinces and territories, since portability under the Canada Health Act cannot be achieved if formularies differ.
  • Formulary inclusions
    • The framework starts with a core formulary built up over time based on evidence of efficacy; differences between the national formulary and existing public formularies are reviewed for gaps.
    • New, very expensive drugs such as biologics are expected to have a significant impact on annual increases in drug cost per capita.
  • Cost-sharing
    • Premium contributions, deductibles, coinsurance or copayments are used in nearly all OECD countries and remain standard in Canadian plans, but the evidence on their efficiency as cost-control devices is conflicting.
    • The framework initially uses traditional insurance cost-sharing mechanisms, with the effect on medication compliance and health outcomes closely studied and the patient's cost limited to an affordable amount.

Insurance and reinsurance

  • Private plans and provinces/territories act as primary insurers and cover the first tier of costs; the federal government "reinsures" the costs beyond a defined limit, so the annual cost to the patient can be quite low or a function of taxable income.
  • Risk pooling
    • Under the law of large numbers, the infrequent, large specialty drug claims are most appropriately pooled at the largest group level available in Canada, the federal government, while frequent, predictable, lower-cost drugs stay insured at the provincial/territorial or private plan level.
    • Specialty and high-cost drugs, including drugs for orphan diseases, are reinsured individually by the federal government under a formulary-based approach with a dollar threshold.
    • Existing risk-sharing frameworks cited are the Quebec Drug Insurance Pooling Corporation (QDIPC) and the Canadian Mortgage and Housing Corporation's reinsurance of mortgage insurance for private-sector lenders.
    • Provinces/territories and employers would have total costs capped at the basic coverage limit and much lower year-to-year volatility.

Planning for the future

  • A task force initiated by the federal government, with provinces/territories and employers participating, is analogous to the CPP Committee of Officials.
  • The task force looks ahead, for example 20 years, at projected changes in prescription drug needs as the population ages, changes in treatments and their costs, and the different costs and savings cited by varying sources.
  • Funding
    • The Parliamentary Budget Officer calculated that a universal Pharmacare program based on Quebec's public formulary, had it been implemented in 2016, would shift over 19.3 billion annually to the federal budget and impose over 7.3 billion per year in additional costs on taxpayers; the Canadian Health Policy Institute estimated a minimum net additional federal cost of $26.2 billion.
    • The CIA's "reinsurance" model would cost taxpayers a lot less than the Hoskins Report's proposal.
  • Reporting on performance
    • The framework features comprehensive objectives for value for cost and periodic reporting on achievement, benchmarked against the best performers globally, supported by a cost-effective information system.

Conclusion

Resources

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