'My sense is employers may benefit and insurance companies may not,' says expert
Ottawa has introduced legislation for the first phase of its national universal pharmacare plan.
Bill C-64, An Act respecting pharmacare (Pharmacare Act), provides a framework for the initial phase of a national pharmacare plan, which will provide universal, single-payer coverage for a number of contraception and diabetes medications.
And while the move is making headlines, a big question for HR is: How will this impact benefit plans?
Employer benefit plans
The national pharmacare plan could cause issues for both employers and insurance companies providing coverage, in part because of the need to integrate these plans, said John Calvert, former adjunct professor of health sciences at Simon Fraser University.
With diabetes and contraceptives to be covered publicly, private insurance plans will cover fewer drugs, which could lead employers to want to pay less for their current plans.
“The framework involves public administration, first dollar payment, which means that there's no co pays, no full charge to a patient who needs a prescription, and therefore there's no cost barrier to accessing the pharmaceuticals within these two categories. There's real unmet need for a program like this, especially among on low-income people,” he said.
As the government covers more drug costs, this may reduce payroll costs for employers, who may also negotiate with insurance companies to change their plans to cover more drugs or reduce costs altogether, said Calvert.
However, it could take a while to get to this point, he said.
“Long-term, more and more drugs will be covered publicly, which incrementally will reduce the amount that the insurance companies are paying for, and for private employers, there may be some savings, but presumably the government will try and claw back some of that money in other ways, maybe raising taxes in some way.”.
Decrease in employer costs?
Employers may see a small decrease in costs with new drugs covered, according to Carolyne Eagan, principal spokesperson for the Smart Health Benefits Coalition and president of Benefits Alliance.
It’s estimated that the list of cost-effective birth control and diabetes medications that would likely be included on the formulary would cost roughly three to five per cent of the drug spend on employer plans, which would ultimately contribute to one or two percent of bottom-line costs. While this would reduce costs, the reduction would likely be minimal, she said.
In addition, unions may see this legislation impact their agreements, as many union benefit plans contain a specific list of medications as part of their drug formularies, which are long-standing negotiated agreements, said Eagan.
As a result, there will likely be a strong reaction to having those agreements disturbed.
And small business plans see spikes in the volatility for higher-cost drugs so, over time, these areas will need to be considered rather than spending money on things that are already paid for, Eagan said.
“Over time, if that list of drugs was to expand, we would have a great concern that employers might start opting out and downloading the cost of those additional drugs and higher cost drugs to the government; however, while an employer would have the ability to build a plan reduced they feel they can afford, there is value for employers in having that comprehensive drug plan,” she said.
What would the pharmacare plan cover?
Coverage for contraceptives will mean that nine million Canadians of reproductive age will have better access to contraception, while improved access to diabetes medications will help 3.7 million Canadians living with diabetes, according to a press release.
Bill C-64 will also require the new Canadian Drug Agency to develop of a national formulary, develop a national bulk purchasing strategy and support the publication of a pan-Canadian strategy regarding use of prescription medications.
The framework the Canadian government has outlined amounts of about $1.5 billion to implement the diabetes and birth control components of the plan, Calvert said. Meanwhile, the estimated total drug expenditures under pharmacare will be $33.2 billion in 2024-25 (the assumed first full fiscal year of implementation), increasing to $38.9 billion in 2027-28, according to the Parliamentary Budget Office.
“The estimated $1.5 billion… is a small part of the total that we're spending on pharmaceuticals; it's very modest, but the framework has the right principles, and I think it’s the framework for moving towards a more comprehensive system,” said Calvert.
While the bill confirms the coverage of select diabetes medications and contraceptives, it doesn’t outline the amount of coverage that will be provided if a province or territory opts out.
In this case, it is unclear whether there will be an out-of-pocket maximum, coverage based on income or if 100% of costs for these medications will be covered, said Eagan.
Benefits of a national pharmacare program
A national pharmacare plan can fill the gap for Canadians who don’t have any type of coverage from public or employer programs. Charging people at the front end when they get their prescriptions is a huge barrier for low-income individuals who cannot afford some of the more expensive ones, so the plan creates greater access to certain medications, Calvert said.
It could also help solve other problems within the healthcare system. If people are unable to get prescribed medications, this could cause them to get sicker and become more of a burden on other parts of the healthcare system, he said.
“Our system is completely fragmented; you've got different insurance companies with different formularies, so, it's not like there's any standardization there. Then you have different employers who are paying for different mixes of drugs, different formularies, and then you have the whole business of co pays and caps and drugs that are not covered. It's just a complete mishmash, and so what we're seeing now is the first step towards something that would rationalize much of this.”
For provincial governments, having a single purchaser of drugs that can have a strong role in negotiations with private insurance companies and the private pharmaceutical industry could help control and limit drug costs or at least stop their incremental rise, Calvert said.
Drawbacks of a national pharmacare program
If provinces choose to negotiate and implement a pharmacare plan for diabetes and birth control, that could mean significant spending to give coverage to most Canadians who already have coverage paid for by their workplace benefit plans, Eagan said.
With almost four out of five Canadians having access to a fuller, more comprehensive list of drug coverage through their workplaces, the plan benefits those without coverage but is “a lost opportunity” for those who are already covered, she said.
“If we estimate that the cost is $1.5 billion, I’d say approximately $1 billion of that money is going to people who already have coverage for those medications. Why not repurpose that? We should have a smarter and a more targeted approach and cover innovative medicines, ones that are coming at a higher price tag,” Eagan said.
Calvert also highlights potential complications in terms of how the national plan will be able to integrate with other types of plans currently in existence. While this is manageable, it will require careful negotiation to ensure a smooth transition, he said.
“I think the number is around 46% of pharmaceutical costs are covered publicly, 40% is private insurance, and then about 14% is paid out of pocket by individuals,” Calvert said. “So there has to be some careful integration and working through how a national plan will interact with the provincial plans that are currently in place and also the private drug plans that employers are paying, or employers are paying jointly with their employees.”
