Skip to main content

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

Labels:

Comments

  1. AnonymousMay 29, 2013 at 1:40 PM

    This comment has been removed by a blog administrator.

    ReplyDelete

Post a Comment

Popular posts from this blog

Huge cuts in public sector wages predicted

The Ontario Financial Accountability Office (FAO)   says  that, with inflation, real wages in the public sector will decline 11.3% over the three year period  2021/2 - 2023/4 .  This would radically deepen the trend towards lower wages during the last ten years.   The FAO reports that since 2011, the average annual salary for the Ontario public sector employees (defined here as employees of schools, colleges, provincial government, provincial agencies, and hospitals) has increased by $10,385   -- or 1.6 per cent on average annually.  This is the lowest increase of all the sectors and lower than inflation, which averaged 1.8 per cent per year. Over the ten years that would be about a 2% pay cut.   The FAO reports that wage settlements were the lowest in the provincial public sector over the last decade:   Hospital Wages Especially Challenged: The FAO predicts hospital wages will increase even less than in the public sector  -- just ...
Post a Comment
Read more

Are health care administrative expenses out of control in Ontario?

The Progressive Conservative government has justified its health restructuring plans with the claim that administrative expenses are much higher in Ontario than in Canada.  When introducing the reforms, health minister Christine Elliott  claimed , “Over the last five years, Ontario has spent 30% more than the Canadian average in administrative expenses on its health care system.”   Elliott did not indicate her source of information. Presumably, however, the Progressive Conservatives are referring to the CIHI simplified and user friendly “ Your Health System ” graphs. Those graphs show “administrative expenses” in Ontario at 5.8% in Ontario while it is 4.5% in Canada.   This CIHI measure is actually fairly narrowly defined. It is the percentage of “the legal entity’s” total expenses associated with the administrative, finance, human resources and communications functional centres. However “the legal entity” used for this estimate is [1] only...
Post a Comment
Read more

Too many public sector workers in Ontario?

Opponents of public services often try to portray the public sector as having grown disproportionately.  In fact, since 1976, the number of public sector employees has not quite kept pace with the population. In 1976, the number of public sector employees in Ontario  as reported by Statistics Canada averaged 830,800.  By 2012, the number had increased to 1,330,700 -- a 60.2% increase.  That sounds like significant growth -- true. But the population has increased  from 8,413,779 in 1976 to 13,505,900 in 2012, a 60.5% increase.   In other words, population growth has run slightly ahead of the growth in public sector employment.     In 1976, close to 10% of the population worked in the public sector.  It stayed pretty much this way until the Mike Harris government came to power when it dipped below 9%.  It returned close to the historical range in the last six years or so, declining in 2012 to below the 1976 averag...
16 comments
Read more