Are employer paid drug plans sustainable?

A Great West Life Assurance executive recently claimed that private insurance for drug plans was becoming unsustainable -- unless changes are made.

Almost all private drug insurance plans are paid through employer paid  insured benefit plans (often bargained with trade unions).

In fact, although there were significant increases during the 90s and the first decade of this century, drug costs for insured benefit plans have leveled off.

For 2010, 2011, and 2012 private drug insurance costs have risen just less than 3.1% per year on average, according to the Canadian Institute for Health Information (Table A). This is a small fraction of the increases in the 1990s (where the average annual increase was 10.5%) or the first decade of this century (10.3% average annual increase).

Part of the slowdown in costs is that some high priced blockbuster patented drugs are coming to the end of their patent protection and are now facing competition from lower priced generic versions.

So, why is this the moment for an insurance industry executive to call for changes? Not, I hope, for more costs to be passed on to the public.

Notably, the public has seen much less relief than the insurance industry -- out of pocket costs for prescription drugs have increased at an annual average rate of 9.1% over 2010, 2011, and 2012 (12.6%, 8.5%, and 6.1%).  Given the wage increases employers are handing out these days, that is unsustainable.

Also notable: the public sector has seen the lowest cost increases, with an annual average increase of just 2.2% (2.2% in 2010, 2.6% in 2011, and 1.9% in 2012).  The public sector has been best placed to resist drug cost increases, it seems.

Moving costs to the public sector would be a significant blow to private health care: one-third of private health care spending is accounted for by drugs.  The only other item approaching private spending on drugs is private spending on all "other" health care professionals (dentists, chiropractors, physiotherapists, psychotherapists, etc.), at 32%.  Payments to hospitals account for 9% and payments to other institutions (e.g. LTC facilities) account for 10%.   These four categories account for 86% of private health care spending. (See line 48 on the "private" tab of this CIHI Excel table. Download for ease of viewing)

The increased costs in private sector drug spending have come despite a declining role in overall drug costs.

Since 1975 there has been a significant increase in the public portion of total drug costs.  In 1975, the private sector / public sector split was 85% private and 15% public.  Now the split is 62% -- 38%.  This move is appropriate as drugs have become a much more important part of health care and a much bigger part of the total health care spend.  So sharing the risk across the entire public makes more and more sense.

Photo: psyberartist