December 3, 2014 – Provinces with age-based drug coverage should switch to income-based plans to head off serious financial pressure over the next few decades, according to a new C.D. Howe Institute report. In “Should Public Drug Plans be Based on Age or Income?” authors Colin Busby and Jonathan Pedde find that age-based plans are ill-equipped to handle the coming surge of seniors in the population.
Drugs are becoming an increasingly critical part of healthcare services with nearly $30 billion spent on prescription drugs nationwide in 2013. But the desire to limit public costs for drug plans has resulted in non-universal coverage. To fill the gaps where private insurance does not exist, provincial drug plans offer coverage based on an individual’s age, income, availability of private insurance or some combination of the three.
The authors point out that, under age-based plans, seniors with income and drug needs similar to a working-age family without private drug coverage pay a much smaller share of their drug costs than the family does—an obvious inequity in the system. Busby states, “it makes little sense to determine one’s public drug coverage according to age. These plans may have seemed affordable decades ago when the ratio of seniors to workers was low, but the wave of retiring baby boomers will put serious financial pressure on these plans.”
The authors find that drug costs in Ontario, Nova Scotia, P.E.I. and Alberta, in particular,are closely tied to an aging population.
The authors are careful to acknowledge that income-based plans have challenges too, such as providing negative incentive effects on work. But they do see provincial experiences with income-based plans as encouraging. The B.C. experience shows that moving from an age- to income-based plan can be revenue neutral in the short-term if middle- to high-income seniors pay a sufficiently larger share of their drug costs than before.
The limited availability of public funds may continue to be a major factor in designing public drug plans. Overall, Pedde concludes, “income-based plans are a better alternative for cash-constrained provinces and offer more equitable access to public benefits.”
The C. D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. It is Canada’s trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review. It is considered by many to be Canada’s most influential think tank.
For more information contact: Colin Busby, Senior Policy Analyst, C.D. Howe Institute; Jonathan Pedde, graduate student at Merton College, University of Oxford: 416-865-1904 Ext. 9997; E-Mail: kmurphy@cdhowe.org.