Should employers share potential tax burden for pharmacare?

While a national pharmacare program is likely to come with a tax hike, will that cost be balanced out by savings on prescription drugs and private drug spending?

In a presentation to be delivered Friday to provincial and territorial premiers, former parliamentary budget officer Kevin Page is expected to be straightforward about the costs of a cross-country, publicly funded plan for prescription drugs.

“Keep in mind that Kevin Page . . . also mentions that while we need tax to finance this, at the same time we need to take into account that we’ll create savings at a general level for Canadians,” says Marc-André Gagnon, an associate professor at Carleton University’s school of public policy and administration. “It’s just the savings for private spending and prescription drugs would be more important than the increased taxation that you need to pay to finance a universal pharmacare program.” 

Read: Tax hike inevitable if Canada wants national pharmacare, former PBO warns

One option would be for employers and employees to share some of the tax burden, says Gagnon. “Then the question is, how do you finance this in an equitable way? You could have a tax that is affecting employers; for example, a small increase in the corporate tax that is targeting employers this way. And you could have as well an earmarked payroll tax for employees. Or you could have social insurance premiums. So you could organize the financing at least partly through social insurance in order to get the employees to pay their fair share of this public pharmacare plan.” 

Private health plan strategist Suzanne Lepage says employers should expect to pay for a portion of pharmacare, though it’s worth considering whether it will be less than what they’re currently paying to provide drug benefits.

As well, a truly universal pharmacare program means everyone has the same access and coverage, while an employer-paid drug plan allows the sponsor to choose the plan that meets its employees’ needs. “We’re talking about a model where everyone would get the same drug plan, employers would still fund it and yet they don’t get to choose the coverage that meets their needs. I think there’s a gap or a loss for employers.” 

Read: Assessing pharmacare’s impact on private drug plans

Vince Pellegrino, senior advisor of pensions and benefits at the University of Guelph, believes there will be a shifting of costs with a national pharmacare program, but he also expects it will bring savings for benefits plans and possibly to provincial health plans as well. Everyone will see benefits, even those who have very generous private health plans, he adds.

“It all has to be meted out. And overall, maybe we’re going to see some savings. I hope we’re going to see some savings to the overall cost of drugs, because hopefully we’ll be able to negotiate better pricing when you have the large economies of scale or volume. It gives us a bit of a competitive edge,” he says.

What do you think? Should employers share the potential tax burden of a national pharmacare program? Have your say in Benefits Canada’s online poll.

Last week’s poll question asked if the Bank of Canada should pull the trigger on another rate hike. It was a 50-50 split, with half saying yes, the timing is right as the economy appears to be entering a sluggish period, and half saying no, given uncertainty, rates should stay the same.

Read: What would a rate hike mean for institutional investors?