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Opinion

Prescription for savings: how the feds can make pharmacare work for households and employers

By David Macdonald and Toby Sanger      

We have a historic opportunity to significantly improve our health-care system with the introduction of a national public pharmacare program, and also save billions a year by doing so. But it is important that it be designed properly, and progressively. This would not only be politically appealing, but will also result in a healthier population.

Canada's federal Health Minister Ginette Petitpas-Taylor. The best option for households is if a corporate income tax pays for pharmacare. Then middle-class households save over $600 a year on average, although employers likely wouldn’t be so happy seeing their net costs go up far more than their savings from lower drug insurance premiums. The Hill Times photograph by Andrew Meade
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Recent polling has revealed a growing proportion of Canadians are $200 or less away from financial insolvency at month-end, inching up six percentage points to 46 per cent in the last quarter of 2018. An additional 45 per cent of those surveyed by Ipsos on behalf of insolvency firm MNP Ltd. indicated that, to pay their living and family expenses, they will need to incur more debt.

Addressing these pocketbook concerns of families across the country, from rates of financial insolvency to people struggling on a daily basis to make ends meet, is sure to feature prominently in the lead up to federal election this fall. Implementing a national pharmacare program will help make that happen.

In 2017, nearly one million Canadians sacrificed food and heating to pay for prescription drugs, according to research from a number of Canadian universities. This untenable choice disproportionately affects young people, low-income residents and those without insurance. It poses significant challenges for Indigenous people and reinforces gender inequality, as women have more difficulty paying for medications than men.

Both the federal Liberals and NDP have committed to a national pharmacare program, with the federal advisory council led by former Ontario health minister Dr. Eric Hoskins due to report back on the issue soon. Amid ongoing discussions around buy-in during an election year, it’s important know there are ways forward that can provide a win-win-win solution for households, businesses and health system outcomes.

Research shows that a federal, universal single-payer pharmacare program would save households $10-billion annually and reduce costs for employers by $6.5-billion, but would increase costs for the federal government by $10.4-billion.

Overall, Canada would see a net savings of $6.1-billion a year by reducing the cost of drugs and administration, while providing all Canadians with access to the prescription drugs they need. But a public program would also involve a large shift in costs from households and employers to governments.

So what is the best solution? In our recent report A Prescription for Savings, published in December, we considered seven ways the federal government could pay for its part, including increases in the GST, personal income taxes, corporate income taxes, payroll taxes, closing tax loopholes, and combinations of these (we didn’t consider user fees or co-payments because even modest ones create barriers to access).

The potential savings are so significant that under most revenue scenarios lower- and middle-income Canadian households would be better off in net terms by an average of $300 to $500 per year, even after including any additional taxes paid. On top of that, employers save $1-billion to $3-billion annually.

The worst option for households is a GST increase. In this case, employers capture $5.6-billion in savings a year from pharmacare and households end up worse off. The top half of Canadian households end up paying more. The bottom half of households don’t see much savings but at least aren’t worse off on average.

The best option for households is if a corporate income tax pays for pharmacare. Then middle-class households save over $600 a year on average, although employers likely wouldn’t be so happy seeing their net costs go up far more than their savings from lower drug insurance premiums.

Other options, using payroll taxes or a combination of corporate income taxes, personal income taxes, and closing loopholes would save lower- and middle-income households $300 to $500 more a year in lower drug costs than they’d pay in higher taxes. Employers would also share $1-billion to $2.5-billion in savings a year, even after accounting for new taxes.

These savings will only be achievable with a single-payer, universal and public pharmacare program. A diluted or fill in the gaps approach won’t achieve the same beneficial outcomes or degree of savings.

We have a historic opportunity to significantly improve our health-care system with the introduction of a national public pharmacare program, and also save billions a year by doing so. But it is important that it be designed properly, and progressively. This would not only be politically appealing, but will also result in a healthier population.

David Macdonald is senior economist with the Canadian Centre for Policy Alternatives and Toby Sanger is executive director of Canadians for Tax Fairness. They published A Prescription for Savings: Federal Revenue Options for Pharmacare and Their Distributional Impacts on Households, Businesses and governments in December.

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