In Canada, about half of prescription drug costs are privately funded. As drug costs rise between eight and 10 per cent each year, governments are feeling the pressure to provide some relief to private payers.
Ontario is responding with the introduction of a new program that will provide prescription drug coverage for all Ontarians under age 25. The program, which takes effect Jan. 1, 2018, will offer coverage without any copayment, deductible or annual cap.
While Ontario’s youth pharmacare program won’t provide coverage for all medications, it will cover the approximately 4,400 drugs included in the Ontario drug benefit formulary. They include commonly used drugs such as antibiotics, asthma inhalers, allergy medications, EpiPens, birth control, medications treating attention deficit and hyperactivity disorder and other long-term chronic conditions. They also include drugs used in the treatment of pediatric cancers.
How will the new program affect plan sponsors?
According to Statistics Canada, 12 per cent of those aged six to 14 years old and 26 per cent of those aged 15 to 24 years old report taking at least one prescription medication. Industry data suggests that claimants under the age of 25 make up approximately 10 per cent of annual drug costs in private plans.
Once the Ontario program is in place, employers with administrative services-only plans should see immediate savings. But for fully insured plans, savings might take more time to materialize.
Since rates charged by insurance carriers are mostly based on prior claim experience, logic would dictate that a 10 per cent decrease in a plan’s drug claims would eventually lead to a commensurate premium decrease for the plan sponsors. In reality, insurers will almost certainly study the emerging claim experience for a year, or two, after the introduction of the youth pharmacare program before adapting their pricing. So it appears unlikely that plan sponsors will see meaningful premium reductions in the short term.
In the case where an employer provides its employees with health coverage through a health-care spending account, it won’t see any savings from the new program. Their employees, however, will be clear winners: they can use their freed-up dollars in their spending accounts for other medical expenses.
How will the new program affect people with private coverage?
Coverage under private plans can vary greatly, although most of them don’t cover all prescription medications. They often involve formularies or provisions for managed care that require drug approval prior to payment. Private plans also commonly resort to cost-sharing mechanisms such as copayments (typically, 10 to 20 per cent of the expense), deductibles or caps. In the end, these cost-control measures and funding gaps all conspire to create a fair amount of out-of-pocket costs.
So for private plan members with dependants, the most meaningful consequence of the new program will be the elimination of copayments, deductibles or caps for their children’s drugs claims. They’ll see those savings as soon as the new program is in place.
That being said, youth claims paid by private payers won’t disappear completely. Due to the formulary restrictions under Ontario’s plan, private payers will likely still bear a share of the drug costs should employees choose to buy a brand-name medication instead of its generic equivalent. That’s only the case, of course, if the plan sponsor doesn’t require generic substitution.
How will the program affect people without private coverage?
Ontario’s program is also good news for uninsured, underinsured and low-income Ontarians. For that segment of the population, public plans already provide some protection, although those programs require their users to have some understanding of the system. Youth pharmacare will provide much-needed simplicity and immediate relief for low-income families paying for their children’s medications.
We’re hopefully on a path towards more efficiently delivering prescription drug coverage to Ontarians. The Ontario government will soon cover all of those under age 25 and the Ontario drug benefit continues to provide coverage to seniors.
Now, let’s hope the coming years will deliver similar positive news for the large segment of the population in the middle.
Fabricio Naranjo is a vice-president in the actuarial services practice at Collins Barrow Toronto Actuarial Services Inc.