Creating a better Ontario drug plan

Posted on December 9, 2014 in Health Debates – Opinion/Commentary – Other provinces are turning to income-based plans that target public benefits according to one’s income and the availability of private insurance.
Dec 09 2014.   By: Colin Busby

Our society has placed a massive, and perhaps misguided, premium upon turning 65. While a positive from this policy emphasis includes the record-low number of the elderly in poverty, it could also be said that this focus has taken attention away from programs and transfers to working-age families in need.

Take drugs, for example, where Ontario administers a drug plan for seniors, covering their prescription drug costs but setting small annual deductibles (roughly $100) and copayments (about $6 per prescription). Yet it makes little sense to base drug benefits on age and exclude other factors.

Ontario’s drug plan design leads to complications. First, seniors with income and drug needs similar to a working-age family without private drug coverage pay a much smaller share of their drug costs than the family does — an obvious inequity.

Second, because the province offers a second component of drug coverage for those on social assistance (as well as those on the Ontario Disability Support Program), all drug benefits would be lost once an individual obtains full-time employment. Therefore, there is an incentive for those with high drug needs to remain on social assistance.

Third, this plan design will come under financial pressure as the population ages: once people turn 65 they switch from private to public drug coverage.

Other provinces are considering alternative models for drug coverage to avoid Ontario’s awkward model. British Columbia switched from an Ontario-like plan to an income-based plan in 2003 and New Brunswick has announced plans in 2015 to move to an income-based plan similar to that in Quebec.

Income-based plans target public benefits according to one’s income and the availability of private insurance. They extend public benefits according to need and ability to pay, regardless of age.

These schemes can reduce government financing pressures associated with aging and have the potential economic benefits from creating a single, comprehensive plan, reducing the massive loss in benefits when transitioning from social assistance.

Still, income-based plans, like all non-universal plans, have drawbacks to manage. Mandatory participation in income-based plans can improve drug access for those without private insurance, but such schemes must design the scale of income-based drug benefits carefully to avoid imposing punishingly high effective tax rates, which can substantially reduce one’s take-home pay, and to keep public costs manageable. In contrast, voluntary plans that charge deductibles may have an easier time controlling public costs but high deductibles may cause some individuals to avoid filling prescriptions.

Ontario has tried piecemeal ways to remedy the problems of its current model. It created a temporary continuation of drug benefits up to 12 months for those transitioning off social assistance. This is commendable, but the inevitable loss of drug benefits remains for many.

Ontario also recently introduced higher co-payments for seniors with an annual income above $100,000. But the concern here is that if Ontario continues down this road, it could end up with the downsides inherent in both age- and income-based drug plans.

On balance, the benefits of income-based plans are more attractive than Ontario’s current plan. Both the Drummond Commission and the Commission on the Review of Social Assistance in Ontario mentioned the advantages from a single income-based plan. Further, such a plan may be revenue neutral as middle- to high-income seniors pay a larger share of their drug costs than currently.

Should Ontario attach its hope exclusively to a universal federal pharmacare plan, the danger is that we may miss out on immediate changes that would rearrange existing provincial programs for the better. The more change is delayed, the harder it is to bring about: between 2014 and 2020, the number of individuals aged 65 and up in Ontario — those entitled under Ontario’s current plan — will grow by around 480,000.

By offering drug coverage exclusively to those aged 65 and up and to those on social assistance, working-age families with earnings above social assistance cut-offs but without private insurance do not have access to public drug benefits.

The desire to limit public funds devoted to drugs — and avoid reductions to other spending or tax increases — is largely why a universal program has not come about and may not in the future. Policy-makers must often choose among options that are constrained by political realities. Some provinces have already acted. Ontario can follow suit and learn from other provinces, leaving open the option of joining federal pharmacare should it arise.

Colin Busby is a Senior Policy Analyst and co-author, with Jonathan Pedde, of a C.D. Howe Institute Report, “Should Public Drug Coverage Be Based on Age or Income?”

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