Author
Dr. Brett J Skinner, Ph.D.
Introduction
Referring to private sector drug insurance costs (particularly the cost of new drugs), an executive of one of Canada’s largest private health insurance companies recently stated that, “the evidence clearly shows that most drug plans, as they exist, are not sustainable in the long term”. This claim has since been cited by several sources to justify the nationalization of private drug insurance in Canada. Subsequently, the Canadian Life and Health Insurance Association (CLHIA), which represents the private health insurance industry, published a report calling for increased government regulation of patented pharmaceuticals. Recommendations included the entrenchment of a formal institutional role for private insurance companies in government regulatory decisions regarding pharmaceuticals. CLHIA’s call for increased regulation of patented pharmaceuticals was justified with reference to “the ongoing growth in drug costs”.
Objective
To examine publicly available empirical evidence about the drug costs of private insurers in Canada, in the context of other privately insured health costs, in order to test the validity of assertions that the cost of new drugs cannot be sustainably insured by the private sector without further government regulation.
Data and Method
The most current publicly available data on expenditures of private sector insurers on dental services and vision care were obtained by special request from the Canadian Institute for Health Information (CIHI) covering the period 1990-2010. Corresponding data on expenditures of private sector insurers on prescribed drugs was available from CIHI’s annual report, Drug Expenditure in Canada, 1985 to 2012. Data on sales of patented drugs in Canada were available from the Patented Medicine Prices Review Board (PMPRB) 2011 Annual Report. Estimates of the share of health expenditures of private sector insurers accounted for by patented prescribed drugs was derived by applying PMPRB data to CIHI data.
Results
In 2010, patented prescribed drugs accounted for a smaller share (32.5%) of combined expenditures by private sector insurers on dental services, vision care and all prescribed drugs (patented and non-patented) than did dental services (39.0%). The share of combined expenditures by private sector insurers on dental, vision and prescribed drugs accounted for by patented prescribed drugs has declined over the last seven years from 38.5% in 2004 to 32.5% in 2010. Over the most recent five year period, from end of 2005 to the end of 2010, private sector insurance spending on patented prescribed drugs grew by only 13.4% compared to 24.4% for dental services and 39.1% for vision care services.
Conclusions
The facts show that private drug plan spending on patented drugs is as sustainable as the cost of dental services and vision care. In fact, private insurance spending on dental services has grown almost twice as fast, and spending on vision care has grown nearly three times faster than spending on patented medicines from 2005 to 2010. If some private drug plans have trouble insuring new high-cost specialty drugs, this must be a result of insufficient risk pooling, and is not something that can be fixed by further regulation of pharmaceuticals. CLHIA’s earlier proposal for industry-wide risk pooling is a solution to making insurance for high-cost drug claims affordable. A barrier to industry-wide pooling is the lack of universal participation by plan sponsors, which can be remedied by a regulatory requirement that all drug insurance plans must participate in fully-insured, industry-wide risk pooling for high-cost claims.
