Another look at Pharmacare?

Pharmaceutical costs are taking up an increasing proportion of overall health costs. They pose a serious risk for people without insurance, and an increasing cost to those with it. When medicare was introduced in Canada, medicines provided outside of hospitals were excluded and left to the private insurance market. At that time, they represented only a small proportion of health care costs.

But in recent decades, pharmaceuticals have increasingly become the intervention of choice in health care. Exciting new products enter the market constantly, and provide alternatives to other services such as surgical intervention. Big pharma companies have also created many products which maintain and manage diseases and chronic conditions over many years. (The market incentive to focus on products which manage, rather than cure, diseases, is very strong.)

Pharma companies enjoy extensive patent protection and have broad discretion in the pricing of their products. The result is that some products can costs thousands of dollars per month, and terminally ill people and their families can face a disheartening prospect of giving up all of their assets in order to extend life a bit longer. Although several provincial governments extend public coverage to groups like the elderly, or provide “catastrophic” drug cost relief, Canadians are much more exposed to risks of high drug costs than citizens in most other OECD countries.

According to the Canadian Institute for Health Information (CIHI), drug costs in Canada increased on average by 10.5% a year between 1985 and 2008. For most provinces, drugs represented a much higher share of total health expenditure in 2008 than in 1985. On average in Canada, spending on drugs represented 9.5% of total health expenditure in 1985 and 17.4% in 2008.(see reference below)

In 2007, Canadian pharmaceutical costs were $US 578 per capita, compared to $741 in the USA, $321 in Sweden, $295 in the UK, $487 in France and $358 in Australia. Of those costs though, 45% was covered by public insurance in Canada and 35% in the USA, while the other countries paid between 72% and 82% through public systems.

Reference: Gagnon and Hebert, The Economic Case for Universal Pharmacare, Canadian Centre for Policy Alternatives, and Institut de recherche et d’informations socio-economiques.

The authors conclude that public systems gain tremendous leverage in purchasing power and keeping total costs down, and that Canada could save, depending on design options and policies adopted, as much as $10Billion per year through universal public coverage.

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