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

Popular posts from this blog

Deficit? Public spending ain't the cause. Revenue, however...

With the election over, pressure to cut public programs has become quite intense. In almost all of the corporate owned media someone is barking on about it.

Another option -- increasing revenue from corporations and the wealthy is not mentioned.  However, data clearly indicates that Ontario does not have an overspending problem compared to the other provinces.

Instead, it indicates Ontario has very low revenue. 
Ontario has the lowest public spending of all the provinces on a per capita basis (see the chart from the 2014 Ontario Budget below).  So there is little reason to suspect that we have an over-spending problem.  If anything, this suggests we have an under-spending problem.







The Ontario government has also now reported in the 2014 Budget that Ontario has the lowest revenue per capita of any province.  This is particularly notable as other provinces are quite a bit poorer than Ontario and therefore have a much more limited ability to pay for public spending.  (Also notable in this…

Budget underwhelms on health care. Bait and Switch is such a nasty term

Last year the government promised a 4.64% health care funding increase in 2018/19. Then, earlier this month, they announced they would deficit spend to improve hospitals, mental health, home care, and child care.   Three of the four items cited by the government for improvement were part of health care. 

As it turned out the government did in fact promise in today's Budget to deficit spend $6.7 billion. (Due to a $1 billion fall in expected revenue, the extra spend amounts only to an extra $5.7 billion for 2018/19 programs – but that is still a significant chunk of new found cash for program spending.)  
If health care had gotten even a proportionate share of this new $5.7 billion in program spending, it would have added an additional $2.4 billion to health care  --  in other words about another 4% increase.  

But all health care got -- despite the government’s health care rhetoric -- was an extra $284 million. That may sound like a lot but with a total health care spend of $61 bill…

Ford government promise falls far short of solving hospital hallway medicine problem

Tens of thousands of new Long-Term Care (LTC) beds needed just to offset aging
The new Progressive Conservative government in Ontario has promised 30,000 new long-term care beds over the next ten years, often connecting this to their promise to end hospital hallway medicine.  But how does this promise stack up with growing demand for these facilities?
Most people 85 and older live in collective dwellings (LTC facilities, seniors residences, multiple level of care facilities).  The setting with the largest number of elders 85 and older is LTC facilities, with about 35% of the population 85 to 89  years old and almost 40% of the population 90 to 94 years. Older people are even more likely to be in a LTC facility.
The population 85 and older is the main driver of the need for long-term care beds.
An additional thirty thousand LTC beds by 2028 will only partially offset the rapid growth in the 85+ population.  The ministry of finance projects 42.5% growth in the most relevant population (85 a…