Pharmacare: Don’t swallow that snake oil!

Article published exclusively on the Montreal Economic Institute’s website.

A new study – published by the Canadian Centre for Policy Alternatives (CCPA) and the Institut de recherche et d’informations socio-économiques (IRIS) – finds private insurance inefficient and proposes the federal imposition of “a national, universal drug plan providing first-dollar coverage.” This kind of monopolistic plan, however, creates negative unintended consequences for patients that should not be underestimated and whose economic costs are largely ignored in the study.

Experience shows that it is not unreasonable to expect a new social program like this one to become more and more of a burden on public finances. And faced with escalating costs, the federal government would do what governments naturally do: transfer an increasing portion of costs onto the insured, with the use and prescription of drugs becoming increasingly bureaucratized.

In addition, governments are generally all too ready to delay and restrict access to new prescription in order to try to control the costs of their public plans. In short, instead of enjoying “first-dollar coverage,” as the study suggests, many Canadians will have to accept coverage that is of lesser quality than that which they currently enjoy.

The provincial public plans offer a useful object lesson in this regard. According to one study, they delay the approval of new treatments for public reimbursement by an average of about one year, and sometimes by much more than that. In the end, they accept to reimburse only a fraction of new drugs. On average, only 23% of drugs approved by Health Canada in 2004 were covered by the provincial plans by the end of 2009. Private insurance, on the other hand, generally covered all new drugs as soon as they were approved by the federal body.

But the country that has pushed the logic of a public universal system the furthest is surely the United Kingdom. A bureaucratic organization, the National Institute for Health and Clinical Excellence (NICE) – held up as an example in the CCPA-IRIS study – can declare that a drug is too expensive, regardless of its real therapeutic value for patients. It is then almost automatically excluded from coverage by the NHS, the UK’s national healthcare system. For years, English patients were refused reimbursement for drugs like Herceptin (to treat breast cancer), Sutent (kidney cancer), and more recently, Avastin (intestinal cancer).

The authors of the CCPA-IRIS study claim that a universal plan would be less “costly,” but their economic reasoning is flawed. They ignore all economic costs for patients under such plans associated with augmented health risks, losses of productivity, revenue and well-being, long-term handicaps, etc.

Even if difficult to quantify, these costs could prove to be substantial.

For example, in the Netherlands such costs, linked to delays in the provision of care, were found to represent over 6% of total healthcare expenditures in 2001. Their 2006 reform gave greater flexibility to private insurers; not only are waiting lists no longer seen as a problem, but insurers subsequently made generic drug manufacturers compete with one another. They thereby obtained price reductions ranging from 40% to 90% in 2008, whereas the government had tried on several occasions to get them lowered, without success.

Similarly, Canadians should place their trust in competition between private insurers and refuse the “snake oil” of the monopolistic national, universal plan that the CCPA-IRIS study is trying to get them to swallow.

Michel Kelly-Gagnon is president and CEO of the Montreal Economic Institute (MEI) and Valentin Petkantchin, economist and associate researcher at the MEI.

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