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How Mean is A Pharmacare Means Test?

Release Date: October 7, 2002
The BC government risks spending a lot of political capital by implementing a "means test" for Pharmacare. Pharmacare costs over $700 million annually and it’s growing fast. Dealing with such growth is unpleasant for any provincial government. Even minor changes to the amount of their own money they have to pay can swing the votes of seniors, who are more politically engaged than other citizens are.

Nevertheless, Health Minister Hansen can learn about the positive consequences of a means test from Manitoba, which implemented one in April 1996. For Manitobans whose total income was over $15,000, the annual deductible (the amount patients or their private insurers have to pay directly) became 3 percent of their income. For those with total incomes less than $15,000 but not receiving income assistance, the rate was 2 percent. Those who received income assistance were exempted.

The policy appears to have been a success. In the ten years before the introduction of the means test, Manitoba’s per capita prescription drug costs paid by both Pharmacare and privately increased by 136 percent, with both private and Pharmacare spending increasing at the same rate. For BC, per capita costs increased by 115 percent, with private costs increasing faster than Pharmacare’s costs.

From 1996 through 2001, the province’s estimated total spending on prescription drugs grew 47 percent, of which Pharmacare grew 68 percent and private spending 36 percent. For BC, total spending growth is estimated to have been 74 percent, of which Pharmacare expenditure grew 87 percent and private spending 63 percent. It appears that the means test allowed Manitoba to break the previous trend whereby its spending was increasing faster than BC’s, and resulted in both public and private spending growing less than BC’s.

Nor does it look like Manitoba’s reform caused people to cut back on their use of necessary drugs, thereby causing them to see their doctors more or visit emergency rooms. Total, per capita, health care costs in Manitoba grew by 27 percent during the six years, whereas BC’s grew by 32 percent. These results are encouraging for the implementation of a means test for BC Pharmacare.

Of course, the means test necessitates an invasion of patients’ privacy. BC Pharmacare will require information from people’s tax returns to calculate the cut-off. This is not a trivial concern, but it pales bbeside the invasion of privacy that already occurs through PharmaNet, the government-owned, networked computer system installed in BC’s pharmacies that records all patients’ prescriptions.

PharmaNet’s detailed records allowed Pharmacare to launch its previous effort at containing costs, the Reference Drug Program. Under this program, a government appointed committee micromanaged patients’ access to specific drugs for illnesses like angina, hypertension, heartburn, and arthritis. The government thought that a committee could make better judgments about what medicines are right for patients than the patients themselves or their doctors could. The failure of the Reference Drug Program to contain costs is one reason why the Minister has to take relatively drastic action today.

If the use of a means test will cause the government to abandon its previous, failed approach to containing costs, the government will no longer need this patient specific prescription information and PharmaNet can be removed from the state’s control. The forthcoming loss of income privacy can be a tradeoff for the restoration of medical privacy.

A means test also solves the problem of the fairness of drug prices. If prescription drugs were sold in a free market, few people would complain of being unable to afford them. Manufacturers are able to charge higher than normal prices for new medicines because patents prevent competitors from making copies for a few years after the drug is invented. However, it doesn’t serve their interests to price anybody out of the market. A functioning market for patented drugs permits drug makers to maximize profits by charging different prices to patients according to their different abilities to pay.

Unfortunately, governments forbid this by demanding "best prices" for their public programs. Even if BC allowed patients to decide drug prices, and simply gave them a tax credit to buy medicines, the drug companies would not cut prices to poorer British Columbians, because unreformed Pharmacare programs in Quebec and Ontario would demand to be supplied at those low prices. Therefore, a means test approximates the result we’d expect in a free market: the rich pay more.

A means test is not perfect, but it’s a good first step to reforming Pharmacare.