The National Pharmaceuticals Strategy(NPS)progress report, released to the public in September, said the price of a national catastrophic drug coverage(CDC)program could cost private payers $3.4 billion to $6.2 billion annually, and governments anywhere between $6.6 billion and $10.3 billion. To combat the soaring costs of prescription drugs, health ministers across Canada. excluding Quebec.established a ministerial task force to develop the NPS in 2004.

“Prescription drugs are the second-largest and fastest-growing category of healthcare expenditure in Canada,” says B.C. Health Minister George Abbott, co-chair of the ministerial task force. “As such, an effective national pharmaceuticals strategy will benefit all Canadians.”

Two CDC options were presented. One based drug costs on a variable percentage of 0%, 3%, 6% or 9% of family income. Families that earn less than $20,000 a year would have complete coverage, while those earning $90,000 or more would receive coverage after drug costs reach 9% of income. Private drug plans would pay for $6.2 billion if they play a larger role or $3.8 billion if they do not. The governments’ costs would vary between $7.8 billion if private payers are involved and as much as $10.3 billion without private payers. The second option presented was to have coverage begin when drug costs reached a fixed percentage of family income, set at 4.3%. Private payers would be responsible for $6.2 billion if they are involved and $3.4 billion if they are not. The estimated costs for governments would be lower: $6.6 billion with the involvement of private drug plans and $9.4 billion without.

Despite the lower expected costs based on the fixed percentage, the first option that maintains a private payer role is preferred by the task force because it could protect families with lower incomes more effectively. And that’s good news for the private sector because it keeps them in business, says Fred Holmes, senior director, Emergis Centre of Excellence. Coordinating the role of private drug coverage with existing public drug plans will be of particular importance.

“It still comes back to political will to push the program through and the private sector creates a very significant awkwardness,” he says. “Because if you are denying the private sector’s involvement in Medicare because of the Canada Health Act and yet you flip right around when we talk about drugs and say ‘yes private sector, you’re a party.’ I think that’s a hard pill, no pun intended, for the politicians to swallow.”


What’s it all about?
The National Pharmaceuticals Strategy(NPS)was created to look at the problems and possibilities of pharmaceuticals management across federal and provincial/territorial governments in Canada. Five areas of concern are:

Catastrophic Drug Coverage
The aim here is access to drugs for all Canadians no matter where they reside or work.and with no financial burden to them. The Ministerial Task Force (MTF)has determined what amount of drug coverage is needed to save Canadians from financial setback.

Drugs for Rare Diseases
How do the governments deal with drugs for rare or life-threatening illnesses within the healthcare system? The task force is looking to other countries for how they price, regulate and fund these expensive drugs.

Common National Formulary
The NPS is looking at the possibility and benefit of expanding the Common Drug Review(a body that reviews and recommends drugs to federal and provincial/ territorial drug plans)to all drugs, including older ones and those used for cancer treatment.

Pricing/Buying Strategies
The NPS hopes to bring non-patented drug prices on par with international rates, create strategies to get the best possible rates for drugs and vaccines in Canada, and speed up access to low-cost drugs.

Safety and Effectiveness
The MTF has established four strategies: create a national overseeing body, develop research centres, create new opportunities through hospital-based teams, and establish clear standards and transparency of evidence.


Take it outside

The defined benefit(DB)funding relief announced in June by the federal government isnft convincing Canadian executives to keep their plans open. According to recent research by SEI Investments, a global asset manager based in Oaks, Pennsylvania, 73% of the Canadian executives said funding relief is having little impact on long-term strategies for their DB plans.

SEI uncovered in the poll of 163 Canadian and 139 U.S. executives that 43% are considering or have already implemented a capital accumulation plan (CAP)or defined contribution(DC)plan to replace their DB plan.

“Sponsors are looking to avoid investment risk and volatility on their balance sheets and in their funding,” says Andrew Kitchen, managing director of solutions in Toronto with SEI investments. “DC overcomes that to some extent.”

Another way sponsors are trying to reduce volatility and cost is by outsourcing DB plan management. The research revealed 81% of executives said they are considering it. “Outsourcing is the recognition that [DB] is a risk that needs to be managed and the resources aren’t in place to do that effectively,” says Jim Morris, senior vice-president, global institutional solutions for SEI.

Executives seem eager to make changes, with 54% indicating their DB plan will be closed, frozen and/or terminated by the end of 2007. Morris believes the future will bring more pressure for providers to ensure the structure of their DC or CAP plans. including adequate investment choices and good educations.are first-rate. “Good employers will encourage their employees to take advantage of that. Otherwise, a generation and a half from now people just won’t have the resources to retire.” —Leigh Doyle


All in the family

How husbands and wives contribute to their retirement savings has changed in the last 20 years, according to a Statistics Canada report on the growing inequality in retirement savings between the richest and poorest Canadians.

The major finding of the report, titled Pension Coverage and Retirement Savings of Canadian Families, 1986 to 2003, revealed that pension savings for an average twoparent family in the top 20% of the earnings scale increased while contributions from families in the bottom one-fifth stayed the same over the 17-year period.

When it comes to how the average married couple aged 35 to 54 save for the future, the report revealed that women are contributing 5% more to Registered Pension Plan(RPPs)while men are contributing 8% less. However, men have upped their RRSP contributions. On average, the overall retirement savings contributions of all two-parent families has grown since 1986.

“There has been a shift between access to pension plans versus RRSPs between husbands and wives,” says Teresa Norris-Lue, client relations manager for Cowan Wright Beauchamp in London, Ontario. She attributes the increased savings for women to changes in law that requires plan coverage for part-time employees. “Typically wives are the ones working part-time. They are getting more access to RPPs now than they did in 1986.” Aging demographics might explain the men’s increased RRSP savings she says. “More of the husbands are self-employed or doing more contract work as they get older. The RRSP is the answer for them since they don’t have access to pensions as much as the wives.”

For Norris-Lue, the report’s major findings were not surprising. “We all know that the gap between rich and poor in this country is growing,” she says because generally lower-income Canadians do not work in jobs where pension and RRSP options are offered. “Unless you can do something about the widening income gap to create more disposable income for the lower end of the spectrum, [saving for retirement] is not something that will be a priority for them.” But, she adds, “Overall, it is encouraging that the need to save for retirement is getting across.”—Leigh Doyle



Re: Editorial, “Reinventing the box,” September 2006
Only the most stoic in the pension industry continue to compartmentalize the DB-DC dichotomy on risk allocation as a “black and white” issue. The conventional assumptions you reiterate that employers “shoulder all the risk” of underfunding in DB plans is outdated and discredited.

Most will now acknowledge that the reality is more a grey shade in which employees and employers both incur significant financial risks in DB plans; just ask the employees and pensioners at Air Canada who bear the brunt of their underfunded plan, as they were forced to agree to pension, wage and other benefit reductions in order to keep their employer solvent. Even Association of Canadian Pension Management president Scott Perkin acknowledges that grisk sharingh between employees and employers is the reality in DB plans.

Ari N. Kaplan, Koskie Minsky LLP

Re: “Strength in numbers,” September 2006
I am appalled that Messrs Davis and Hunter and Ms. Deller continue to perpetuate the myth that multi-employer pension plans(MEPs)are defined benefit(DB)plans. The socalled defining feature they speak of that allows for the reduction of benefits and the curtailment of benefit accruals is precisely why you cannot define the benefit but merely the target. They are improperly, in my view, marketed by many unions as “Defined Benefit Plans.” All defined contribution plans are not evil. Communication and investment innovations are reducing risk or at the very least explaining it. The only real argument for MEPs is the spreading of costs based upon asset volumes. Fine, then set it up on a pure DC basis, avoid paying the expensive administration and actuarial costs, so more money will go to the members account and when you get to retirement don’t buy an annuity or have the MEP notionally, buy one for you but continue to have your money managed at a reduced cost.

Neil Craig, senior pension consultant, Stevenson & Hunt


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