Ottawa should pay for pharmacare, experts say

by Leo Almazora28 Nov 2018

The issue of pharmacare has been a contentious one, creating rifts between different industry stakeholders who disagree on drug-price controls, the extent of its beneficial impact, how the program should be implemented, and other matters.

But for health policy experts Michael Wolfson and Steven Morgan, there’s no doubt that the program will benefit Canadians; the more urgent question is how to pay for it all. “The Parliamentary Budget Officer … estimated that the total cost of such a national pharmacare program would be $23.7 billion in 2020,” the two wrote in CMAJ.

Diving into the PBO calculations, they said $500 million of the cost of drugs on the national formulary would likely be paid by private insurers in copayment schemes under the public plan. Of the remaining $23.7 billion needed, they said only $9.7 billion should come from new taxes, as $13.5 billion in taxes that Canadians for prescriptions on the national formulary through existing provincial public drug plans in 2020 will likely be folded into the program.

Rather than leaving the provincial governments to raise the additional revenue, the two said it should be done by the federal government. Aside from facilitating provincial participation, having a substantial budgetary stake should allow the federal government to play a substantial role in negotiating drug costs as well as trade, regulatory, and intellectual property policies that affect availability and costs of pharmaceuticals.

Wolfson and Morgan argued that federal tax subsidies for private expenses, such as medical tax credits for individual medical costs and employer-provided extended health benefits, would offset some of the cost of universal, public pharmacare. For 2019, the federal government projects medical tax credits of $1.76 billion for individual costs and $2.84 billion for employer-provided health benefits. Assuming 41% of that amount subsidizes prescription drug spending, then around $8 billion of federal government revenue would be needed to implement national pharmacare in 2020.

To balance the impact across all stakeholders (e.g., employers, low-income households, high-income households, and older populations), the two proposed that the federal government use a blend of different tax sources to finance the program.

“[N]ational pharmacare could be implemented, using 2020 estimates, if the federal government contributed its expected tax expenditure savings plus the revenue raised by a 0.5 percentage point increase in personal income tax rates, a 1 percentage point increase in corporate income tax rates and a 0.25 percentage point increase in the GST,” they said.

Clarifying that there’s no easily determined optimal mix of revenue sources, the two said that the Advisory Council on the Implementation of National Pharmacare should use capable tax simulation models such as the ones used by the PBO to support more detailed analysis.

 

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