Over the past several years, the Ontario government has attempted to rein-in the costs of the province’s publicly funded drug insurance program by capping prices paid for generic drugs and refusing to cover many newly-available patented medicines. Yet, in its quest to control spending on drugs, the province has ignored one of the most significant cost-saving measures available – changing the age-based eligibility criterion for recipients of its public drug insurance program to one based on need.
The Ontario Drug Benefit Program (ODB), which currently costs taxpayers more than $4 billion a year, provides publicly subsidized drug coverage for more than 1.6 million seniors in the province. Seniors account for 69 per cent of the ODB recipients and they receive benefits regardless of whether or not they are able to pay for their own prescription drugs.
On average, seniors spend more on medication than younger people (in 2008 the average annual drug cost for Canadians aged 65 and older was $1,817; that was about 3.6 times the average cost of those aged 20 to 64). However, many seniors don’t need the taxpayer-financed subsidy because their incomes are high enough to cover their personal drug costs. In 2008, more than 300,000 seniors in Ontario earned more than $50,000 annually.
ODB recipients with catastrophic drug expenditures are few in number but account for a large share of the ODB’s total costs. According to the Ontario government, seven per cent of the ODBs beneficiaries account for 32 per cent of the program’s total costs. Due to their high drug expenditures, many of these people could need public assistance if they also lack sufficient income to pay for their medicines. This is the point of welfare programs like ODB.
But there is absolutely no reason why taxpayers should subsidize the drug expenditures of people who can afford to pay for their own medicine.
Only a small share of the general population (including seniors) spends a significant amount of their income of prescription drugs. Between 1997 and 2002, only three per cent of Canadian households spent more than five per cent of their annual income on prescription drugs. That means most people do not need to be subsidized and scarce tax dollars should instead be targeted to those in need.
The fact that seniors sometimes lose employment-based drug insurance coverage when they retire is one of the main pillars of the argument in favour of age-based subsidies. Yet this argument ignores the point that drug subsidies for seniors are paid for by taxes assessed on younger people who might also lack employment-based insurance coverage. The higher taxes paid by the young to pay for seniors’ drug consumption also reduces the income available for younger people to afford the purchase of private individual insurance coverage.
Age-based subsidies are also unnecessarily costly. Other provinces have realized this and successfully repealed age-based eligibility for public drug coverage. For example, in 2003, the British Columbia replaced its aged-based public drug program with Fair PharmaCare, a need-based plan that provides financial assistance to any BC resident that has catastrophic prescription drug costs relative to income. Research shows that moving to need-based eligibility in BC likely resulted in a nearly 17 per cent decrease in public spending without reducing access to prescription drugs for seniors or residents with low income levels. More recently, in 2008, Saskatchewan also reformed its age-based public drug program with a need-based criterion. Only those seniors that qualify for the federal age credit (based on their annual net income) are eligible for public drug coverage.
Taxpayers should not be responsible for providing comprehensive drug coverage for everyone over the age of 65. It’s time to focus public subsidies on those who genuinely lack the income to pay for their medication. Doing so will save money and improve coverage for those who need it most.