A public pharmacare monopoly would harm Canadians

Montreal, August 11, 2015 – In the last few months, the issue of drug insurance has returned to the forefront of public debate in Canada. Some of those speaking out on the topic have suggested replacing the current mixed public-private system run by the provinces with a fully public national pharmacare plan to make sure everyone is covered and to reduce costs. But this type of plan risks harming Canadians by limiting their access to drugs, says an Economic Note issued today by the Montreal Economic Institute (MEI).

An argument often raised in favour of adopting a public pharmacare monopoly is that this would give the government greater negotiating power with pharmaceutical companies, helping contain drug costs. What supporters of this type of plan neglect to mention is that savings would come through greater rationing rather than greater efficiency.

Foreign experiences provide evidence of this reality. “Since the 1990s, patients in the United Kingdom have felt the impact of their public drug insurance plan’s cost control policies,” states Yanick Labrie, the author of the Economic Note. “For many years, English patients have had to do without drugs that were nevertheless available across Europe.”

In New Zealand, another country that supporters of a public monopoly often praise as a model worth following, patients’ access to new drugs is just as limited as in the United Kingdom, if not more so. It is hard to keep track of the number of reports noting the adverse effects on health that result from the spending cap policies applied in New Zealand in the last two decades.

Altogether, 98% of Canadians appear to have private or public drug insurance. To help the remaining 2%, the other provinces should follow the example of Quebec’s universal plan, based on a mix of insurers, rather than moving toward a public monopoly.

“In Quebec, where coverage is universal, the costs of the pharmacare plan have risen since it was implemented,” Mr. Labrie says. But this is largely due to Quebec resisting – more than the other provinces – the temptation to ration access to new drugs. Quebec is also where we find the most generous coverage when we compare provincial drug insurance plans, paying for 38% of drugs approved by Health Canada between 2004 and 2012 versus the Canadian average of 23%.

While people in Quebec spend more on drugs than people in the other provinces, this is mostly due to a greater volume of prescriptions rather than to higher drug prices.

“It can also be seen that this higher spending on drugs goes hand in hand with lower overall costs in the public health care system,” says Michel Kelly-Gagnon, MEI President and CEO. “With the rate of hospital stays dropping since the early 2000s, we can deduce that more accessible drug therapies have most likely replaced other, more costly types of medical treatment such as surgeries in a hospital setting.”

Canadians should be wary of the idea of replacing the current mixed system, run by each province, with a countrywide public monopoly. Socializing a greater portion of drug spending would amount to giving civil servants more decision-making power, and policies limiting access to new drugs would similarly penalize all Canadians.

An Abacus Data poll in July found only 31% of respondents to be in favour of replacing our mixed public-private plans with a national drug insurance monopoly.

Note: Research for this publication began in May 2015, and the decision to cover this topic was made long before that. As such, there is no connection with the current election campaign.

The Economic Note titled “Do We Need a Public Drug Monopoly in Canada?” was written by Yanick Labrie, an economist at the MEI. It is available on our website.

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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its studies and its conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms.

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