April 14, 2011 – The cost of provincial pharmacare is set to rise precipitously, with spending on Ontario’s drug benefit plan for seniors projected to increase from about 1 percent of provincial income to a full 5 percent by 2061, according to a new C.D. Howe Institute report.
To prepare for this rising spending on drugs as babyboomers age and workforce growth slows, authors Colin Busby and William Robson recommend partial prefunding of the Ontario Drug Benefit program as the best way to put the program on a stronger and more sustainable footing.
In A Social Insurance Model for Pharmacare: Ontario’s Options for a More Sustainable, Cost-Effective Drug Program, Busby and Robson note that the ODB is Canada’s largest drug plan, with annual spending of about $4.5 billion in 2010. With demographic pressure boosting these costs in the decades ahead, a business-as-usual approach to funding the plan, say the authors, presents a bleak prospect and amounts to willfully passing on an exorbitant bill to future generations. A nearly increase in contributions to partially prefund future spending could contain the program’s impact on taxes later.
The authors say the reforms to the Canada Pension Plan (CPP) in the late 1990s may offers ome lessons. The authors describe how a social-insurance inspired pharmacare program, loosely modeled on the example of the CPP, could spread the costs of drugs for aging baby boomers more evenly over time. They discuss the mechanics of such a program: how contributions might be collected, how the funds might be managed, and how the payouts from the fund would support drug treatments by participants.They canvass various options for a prefunding levy, arguing that a charge on payrolls up to a limit is the best option. Those higher near-term contributions would go into an ODB fund,with its investment returns helping to support drug spending in the decades to come.
A complementary reform, also applicable in other provinces, would restructure the ODB’s expenditures to provide part of its payments to individuals, rather than as direct reimbursements to suppliers. These payments, which could be used largely or entirely to purchase drug-related insurance from competing providers, would inject more individual autonomy, choice, and sensitivity to the costs and benefits of alternative treatments, into drug purchases in Ontario.
Click here for the full report.
For more information contact:
William B.P. Robson, President and CEO;
or Colin Busby, Senior Policy Analyst,
C.D. Howe Institute, 416-865-1904, email: cdhowe@cdhowe.org