National Pharmacare & Employee Benefits: What Employers Need to Know About Canada's Proposed Universal Drug Coverage

Canada remains the only country in the world with a universal health care system that does not include universal prescription drug coverage. In response, there have been growing calls for the implementation of a national pharmacare program to provide prescription drug coverage to all Canadians.

The federal government has been exploring options for a national pharmacare program, with the goal of ensuring that all Canadians have access to prescription drugs based on medical need rather than ability to pay. In 2019, the Advisory Council on the Implementation of National Pharmacare released a report outlining recommendations for a national pharmacare program.

The proposed program would provide universal coverage for a national list of prescription drugs, while allowing employers and individuals the option to purchase private supplemental coverage. The goal is to expand equitable access to medicines, while also controlling rising drug costs.

Current Status

The federal government has introduced legislation to implement the first phase of a national pharmacare program in Canada. In February 2024, Bill C-64, the Canada Pharmacare Act, was tabled in Parliament by the Minister of Health (Government of Canada Introduces Legislation for First Phase of National Universal Pharmacare, 2024). This legislation aims to establish a universal, single-payer public prescription drug coverage program. However, the implementation of pharmacare is still in the early stages.

The legislation focuses first on creating a national drug formulary and agency to oversee pharmacare. The formulary would include a comprehensive list of prescription medications that would be covered. The legislation does not yet indicate when Canadians would begin receiving drug coverage or specific details about which drugs would be included. The government has said the pharmacare program will be phased in over time. As of early 2024, no timeline has been confirmed for when Canadians could start accessing medication coverage under a national pharmacare plan.

Funding Model

The proposed pharmacare program would be funded through a combination of federal and provincial revenues. The federal government would take on a significant portion of the costs, but the provinces would also be required to contribute funding (Wolfson, 2018). The exact funding split between the federal and provincial governments is still being negotiated.

The Parliamentary Budget Officer has estimated the annual cost of a national pharmacare program at $20 billion. The federal government has indicated its willingness to cover about half those costs, or $10 billion annually. Provinces would be responsible for the remainder, likely through a combination of new revenues and funds previously spent on provincial drug plans (CBC News, 2024).

Overall, the funding model aims to pool public revenue sources in order to achieve the benefits and efficiencies of a national pharmacare program. However, the negotiations over funding contributions will be a key factor in whether provinces agree to participate in a jointly-funded federal-provincial pharmacare plan (Health Canada, 2019).

Cost Shifting

One of the biggest impacts of a national pharmacare program would be shifting prescription drug costs from private insurance plans to the public system. According to a recent Parliamentary Budget Officer report, it's estimated that approximately $14 billion per year in prescription drug costs could shift from private insurance plans to the public system under a universal pharmacare program.

Currently, employer-sponsored benefit plans cover prescription drug costs for many working Canadians. With the introduction of pharmacare, some of these costs would shift to being covered under the public plan instead. The PBO report estimates that private drug plan spending could be reduced by $8.6 billion per year under a universal pharmacare program that covers the same list of drugs already covered by public plans.

While the exact amount of cost shifting is still uncertain and would depend on the final pharmacare model, employers could see significant savings on their drug benefit costs under a national program. However, premiums for other benefits like dental and vision care may need to increase to make up for the reduction in drug premiums collected.

Impact on Employer-Sponsored Benefit Plans

A national pharmacare program is not expected to fully replace private drug coverage right away. The initial phase of the program would likely focus on covering Canadians who currently lack prescription drug coverage. Employer-sponsored benefit plans would continue to exist alongside the public system.

However, the introduction of pharmacare could potentially reduce costs for employers who provide health benefits. According to one estimate, employers could save up to $8 billion per year if their plans no longer had to cover medications covered under the national formulary. This is because some of the prescription drug costs would shift from private plans to the public system.

While promising for employers, the details and extent of the cost savings remain uncertain. The final structure and implementation of pharmacare would impact how significantly it reduces the drug costs currently borne by private plans. Employers will want more clarity on these issues before determining the impact on their budgets and benefits strategies.

Overall, the introduction of pharmacare does not appear poised to eliminate the need for private coverage just yet. But it could allow employers to reduce premiums or enhance other elements of their benefits packages if drug costs are lowered. The changes to employer-sponsored plans will depend on the specifics of the pharmacare model ultimately adopted.

Employer Reactions

Employer groups and industry associations have expressed general support for the concept of universal prescription drug coverage. However, many have concerns about how a national pharmacare program would impact existing private drug plans.

The Canadian Life and Health Insurance Association has stated that "Ensuring all Canadians have access to prescription drugs is a priority, but there is concern about the significant disruption to the current system" (1). They advocate for a "fill in the gaps" approach where the public system covers Canadians who lack adequate workplace or individual coverage.

The Canadian Federation of Independent Business supports the goal of increasing access but argues that "small business owners with employee benefit plans should be allowed to keep their existing plans" (2). They do not want to see employers forced into a new national program.

In general, employer groups want to ensure private workplace drug plans can continue to play a significant role in conjunction with any new national pharmacare program. They have concerns about potential cost increases for employers or reductions in employee coverage. More details on how public and private drug coverage would interact are needed before employer groups will fully endorse a pharmacare system.

Changes to Private Plans

The implementation of a national pharmacare program could require private insurance plans to modify their existing prescription drug coverage. With certain medications being covered through the public system, private plans may need to remove duplicate coverage for those drugs in order to avoid overlapping benefits (Wolfson, 2018).

Private insurers may also be able to reduce premiums for extended health plans if the introduction of pharmacare substantially lowers the drug costs they are required to cover. One analysis estimates premium reductions of approximately 6.4% on average (Yan, 2022). However, the actual impact on premiums will depend largely on the specific details of the national pharmacare program and the extent of services covered.

Overall, supplemental private coverage would likely remain in place, but with modifications to integrate with the new public system. Employers and benefits managers will need to pay close attention to any changes in order to align their health plans accordingly.

Employer Considerations

As the pharmacare proposal continues to take shape, there are several things employers should keep in mind:

Monitor developments closely. Employers should follow the latest news and announcements to understand how the pharmacare plan may impact their benefits programs. Resources like the HealthcareCAN issue brief provide ongoing analysis of the implications for employers.

Model potential costs. Once more details emerge, employers should analyze the potential financial impact on their benefits spending. This modeling can help determine where cost reductions may occur.

Prepare to modify plans. Employers should be prepared to adjust their health plans based on what's covered under the national pharmacare program. This could include changes to cost-sharing arrangements, premiums, and formulary design.

Communicate changes. As pharmacare plans solidify, employers will need to clearly communicate impacts and changes to plan members. This helps ensure a smooth transition and maintains employee satisfaction.

While the pharmacare proposal creates uncertainty, taking proactive steps will allow employers to adapt their benefits strategies accordingly. Monitoring developments and preparing benefit plan modifications can help minimize disruption.

Conclusion

The proposed national pharmacare program in Canada has the potential to provide significant benefits in terms of increasing access to prescription drugs and reducing costs for employers and employees. However, many details remain unknown as the proposal is still in the early stages. Employers will need to closely monitor developments and model the potential impact on their benefits costs and plans. While a national pharmacare program could reduce overall employer spending on prescription drug benefits, it is unlikely to completely replace the need for private coverage initially. As specifics emerge, employers should be prepared to adapt their benefits plans accordingly and communicate changes to employees. With many uncertainties ahead, staying informed and being ready to make plan adjustments will be key.

The pharmacare debate highlights the complexity involved in reforming health systems. While increasing access is a widely shared goal, the details around funding, costs, and integration with private insurance involve difficult trade-offs. Employers and benefits managers will need to track the discussions and provide input on how any national program can work effectively alongside private workplace health plans. With collaboration and compromise, it may be possible to extend drug coverage in a way that provides fairness and sustainability. But the road to an agreement still looks long, and employers will need patience and prudence as proposals evolve.

Current Status of Pharmacare Proposal

The federal government has introduced preliminary legislation to create a national pharmacare program, but the initiative remains in the early stages. The Liberal government under Prime Minister Justin Trudeau campaigned on a promise to implement universal prescription drug coverage for all Canadians. In 2019, they established an Advisory Council on the Implementation of National Pharmacare, which conducted studies and issued a report recommending a universal single-payer public pharmacare system. Based on the Council's recommendations, the government tabled Bill C-213 in late 2020, which would establish the legal framework for a Canada Pharmacare Act. However, many details around funding and administration still need to be worked out. The government has not provided specifics on which drugs would be covered or how supplemental private coverage would be impacted. The legislation has yet to be debated or pass through the full legislative process. Further negotiation with the provinces and stakeholders would be required before a national pharmacare program could become a reality.