Research

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Provincial Drug Coverage for Vulnerable Canadians

Access to pharmaceuticals is a critical component of a properly functioning health care system. The reality that some Canadians have difficulty paying for their medications, combined with unqualified claims regarding Canada’s approach towards drug coverage compared to its international peers has led to a perception that governments in Canada do not currently help Canadians— particularly vulnerable populations—pay for their prescription medications. Given the increasing importance and prominence of this public policy issue, an accurate understanding of existing provincial programs is critical.

First and perhaps most critically, a review of provincial drug plans finds extensive coverage for lower-income Canadians. Provinces, of course, differ with regards to their approach towards both general coverage and shared costs as well as how to support vulnerable groups like lower-income Canadians.

For example, British Columbia’s Fair PharmaCare plan, the province’s main drug coverage program, covers 70 percent of the cost of eligible prescription drugs for families with a net income less than $15,000. Once a family has spent approximately 2 percent of their net income on drugs or related costs, the province pays for 100 percent of any subsequent costs for the rest of the year. The province offers coverage to families with higher incomes but requires them to first pay out-of-pocket for their drug costs (up to 2–3 percent of their income) before any provincial coverage kicks in.

In Alberta, families (with children) earning less than $39,250 can access the province’s Non-Group coverage plan by paying a monthly premium of $82.60. Prescription drugs covered under the program are subject to a 30 percent co-payment up to a maximum of $25 per prescription. Higher-income families in Alberta can also access this program but with higher pre­miums. Lower-income Alberta families as well as a number of additional covered circumstances such as pregnancy, high ongoing prescription needs, and disability are exempted from premiums and any co-payments for many prescription drugs as well as some over-the-counter products. For example, a single parent with one child in Alberta with income less than approximately $26,000 would be exempt from the premium and co-pays under the Adult Health Benefit.

Quebec broadly has one of the more unique approaches to pharmaceutical coverage in Canada. It requires residents not covered by private group insurance to enroll in the government’s drug insurance plan (RAMQ). Participating individuals are required to pay premiums that range from $0 to $616 per year, depending on family income. Individuals must pay the first $19.90 of their drug costs out of pocket, after which they only pay 34.9 percent of the cost of eligible drugs up to a monthly maximum of $90.58 (after which all costs are covered). However, the premiums along with the deductibles and co-pays are waived for a host of different groups including Quebecers on social assistance, children under 18, full-time students, and persons with a functional impairment.

Ontario has three main programs to support its residents and their access to pharmaceuticals. The Ontario Drug Benefit Plan covers residents over the age of 65 plus those living in long-term care or special care homes, Ontarians on social assistance, and those with disabilities. Depending on income levels and circumstances, this program requires Ontarians to pay very low amounts upfront (ranging from $0–$100) before coverage begins, after which only small copayments (ranging from $2.00–$6.11) are required. This program was recently extended through the introduction of OHIP+ Children and Youth Pharmacare to cover youths under the age of 24—at no charge—who are not currently cov­ered by private plans. Ontario also maintains the Trillium Drug Plan, which covers non-senior adults and those not generally covered by the other two pro­grams. The costs of the program vary by household type and income.

More generally, lower-income Canadians have access to at least some form of provincial insurance that helps limit out-of-pocket costs for prescription drugs to a small percentage of income, if not more extensive coverage, in every Canadian province.

It’s worthwhile also noting that recipients of social assistance have coverage at very low or even zero cost in every province. Provincial governments across Canada also provide drug coverage to select populations who may face considerable hardships as a result of either their medical care costs or other factors including the severely disabled and those diagnosed with conditions like multiple sclerosis and cystic fibrosis.

The review also finds that every province maintains a drug coverage program for seniors. While there are differences in the income thresholds for accessing public coverage, coverage for seniors tends to be relatively more generous than for non-senior adults without children.

The importance of prescription medicines paired with concerns about their affordability for those stricken with illness form the basis of many calls for a national pharmacare plan. Lacking in the debate is a clear understanding of the coverage that is already available to those subsets of the Canadian population who may be at higher risk of foregoing their prescriptions due to cost—i.e., those with lower incomes (including seniors), the disabled, and patients with chronic medical conditions.

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Capital Investment in Canada: An International Comparison

Summary

  • Capital investment contributes to economic growth and higher standards of living through its link to increased labour productivity and technological change.
  • The growth rate of overall capital expenditures in Canada slowed substantially from 2005 to 2017 compared to earlier periods. Furthermore, from 2015 to 2017, the growth rate was lower than in virtually any other period since 1970.
  • As recently as 2000 to 2010, overall capital investment in Canada enjoyed a substantially higher growth rate than in other developed countries, but from 2010 to 2015, Canada’s investment growth rate dropped substantially below that of the United States and several other developed countries.
  • Further, corporate investment in Canada as a share of total investment was the lowest among a set of developed countries from 2005 to 2016. Canada’s relatively weak corporate investment performance was particularly marked from 2010 to 2016.
  • That relatively weak recent performance is mirrored in the lower shares of two key categories of business investment in Canada: machinery and equipment and intellectual property products. From 2010 to 2016, the shares of these assets in total investment in Canada declined relative to the shares of those assets in total investment for the other OECD countries studied.
  • This bulletin’s international comparison supports concerns raised elsewhere about the future competitiveness and productivity performance of Canada’s business sector compared to other developed countries. Against this background, improvements to the environment for business investment in Canada should be a priority for the federal and provincial governments.
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Electricity Reform in Ontario: Getting Power Prices Down

Ontario’s implementation of the Green Energy Act (GEA) has resulted in high electricity costs across the province. The centerpiece of the act includes a schedule of subsidized electricity purchase contracts called Feed-in-Tariffs (FITs), that provide long-term guarantees of above-market rates to generators of renewable sources (wind, solar, bio-energy, and some hydro).

In order to fund FIT contracts and other system costs that are not recovered from wholesale electricity market earnings (including the costs of conservation programs, gas-capacity expansion, and nuclear-power refurbishment programs), Ontario levied a surcharge on electricity prices called the Global Adjustment (GA). Between 2008 and 2017, the GA grew from under one cent per kWh to about 10 cents, causing a drastic increase in electricity prices. Therefore, the key to lowering electricity prices in Ontario is to reduce the GA.

In this study, we break the GA down into its components to better understand the cause of the drastic increase and thereby provide some specific recommendations on how to lower electricity costs.

We looked at the evolution of the GA components over time and found that the share allocated to renewables has risen substantially. The renewable component represented about 20 percent of the GA cost in 2011/2012 but is now nearly 40 percent, making it the largest single component. This growth becomes more problematic when considering the fact that renewables (wind, solar and biomass) accounted for just under 7 percent of Ontario’s electricity output.

Notably, almost all revenue earned by renewable power producers is from the GA subsidy rather than actual power sales. From May 2017 to April 2018, market revenues for renewable generators based on wholesale market sales totaled about $0.5 billion, which was supplemented by $4.2 billion from GA revenues to satisfy FIT contract requirements. In other words, almost 90 percent of the revenue to renewable generators came through the GA subsidy, rather than through sales of actual power.

The Ontario government recently introduced legislation to scrap the Green Energy Act, acknowledging that the act has resulted in skyrocketing electricity prices in the province. This will help prevent further price increases but will not bring the GA down. The logical next step for the government would be to use its legislative powers to cancel funding commitments under the FIT contracts. This would reduce the GA by almost 40 percent, resulting in an approximately 24 percent reduction in residential electricity prices.

In addition to cancelling the existing FIT contracts, the Ontario government could take further action to reform various other components of the GA, including reducing payments to the relatively new small-scale hydroelectric plants of Ontario Power Generation (OPG) and cutting funding for unneeded conservations programs. In order to quantify the potential consumer price reductions from such measures it would be necessary to examine detailed GA allocation accounts, which have not been released publicly.

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In this issue:

1st PLACE ESSAY: HIGH SCHOOL CATEGORY
Increasing the Minimum Wage: A Raise for the Working Poor or a “Reverse Robin Hood”
by William Dunstan

1st PLACE ESSAY: UNDERGATUATE CATEGORY
Uhen all you have is a hammer . . .
by Tyler Lund

1st PLACE ESSAY: GRADUATE CATEGORY
Increasing the Minimum Wage: A Poor Choice for an Anti-Poverty Policy
by Keyli Kosiorek

INFOGRAPHIC
Check out a recent infographic that highlights findings from the Fraser Institute’s new book release, Demographics and Entrepreneurship.

QUOTE WALL
A quote from economist Deidre McCloskey.

BLOG POST
Twitter tiff sparks health care debate free of apt comparisons
by Bacchus Barua
A simple tweet ignited a discussion about the pros and cons of various health care systems, but this article explains that Canada should look more to Switzerland than its southern neighbour.

VIDEO GALLERY
Taxes versus the Necessities of Life: The Canadian Consumer Tax Index, 2018 Edition
Take a look at the Fraser Institute’s newest video that highlights the findings from the recent Canadian Consumer Tax Index study.

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Increasing the Minimum Wage in Alberta: A Flawed Anti-Poverty Policy

Main Conclusions

  • As part of its effort to reduce poverty, Premier Rachel Notley’s government will raise Alberta’s minimum wage from $10.20 per hour, the rate when the Notley government took office three years ago, to $15 in October 2018. But, raising the minimum wage is not an effective way to alleviate poverty primarily because the policy fails to provide help targeted to families living in poverty.
  • In 2015, the latest year of available data, 92.0% of workers earning minimum wage in Alberta did not live in a low-income family. Though counterintuitive, it makes sense once we explore their age and family situation. In fact, most of those earning minimum wage are not the primary or sole in-come-earner in their family.
  • In 2017, 50.1% of all minimum wage earners in Alberta were between the ages of 15 and 24, and the vast majority of them (85.1%) lived with a parent or other relative. Moreover, 23.2% of all minimum wage earners in Alberta had an employed spouse. Of these, 90.1% had spouses that were either self-employed or earning more than the minimum wage. Just 2.1% of workers earning minimum wage in Alberta were single parents with young children.
  • In addition to ineffectively targeting the working poor, raising the minimum wage produces several unintended economic consequences to the detriment of young and inexperienced workers. This includes fewer job opportunities, decreases in hours available for work, reductions in non-wage benefits, a shift towards automation, and higher consumer prices, which disproportionately hurt the working poor.
  • A work-based subsidy is a more effective policy since it better targets the benefits to those in need without these negative economic consequences.
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Impact of Provincial Tax Changes on British Columbian Families

Summary

  • Since assuming power in July 2017, British Columbia’s NDP government has enacted or announced several significant tax increases. These include increases in personal income taxes, carbon taxes, and business taxes. In addition, a new payroll health tax has been created in place of the remaining MSP premiums and a variety of residential property taxes have been instituted or raised.
  • Collectively, these tax increases are expected to add a further $2.45 billion to the tax burden of British Columbians.
  • Once the tax changes are fully implemented, the average family's tax bill will increase by a total of $959, not including tax increases on residential properties.
  • British Columbia families across the income spectrum can expect to pay more in taxes. Specifically, the increase in total taxes ranges from $199 for an average family in the $20,000 to $50,000 income group (after accounting for the enhancement to BC’s climate action tax credit) to $1,754 for an average family in the $150,000 to $250,000 income group. This analysis excludes property tax increases.
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Capital Investment in Canada: Recent Behaviour and Implications

Summary

  • The growth of overall capital investment in Canada slowed substantially from 2005-2017 compared to earlier periods—and was lower than in virtually any period since 1970.
  • Further, the share of business investment in total capital investment declined dramatically from 2014-2016. Conversely, the share of household investment in total investment increased; by 2015-2016, household investment’s share was higher than in any period since 1981.
  • The share of total investment accounted for by dwellings is higher since 2014 than in earlier periods. This phenomenon is related to the increased share of household investment since the main asset category for households is residential dwellings.
  • Conversely, the shares of total investment going to machinery and equipment, and intellectual property, declined in the 2010-2016 period compared to earlier years. These two asset categories are important channels through which new technology is introduced and diffused through the economy.
  • This bulletin’s findings support recently expressed concerns from other researchers that the environment for business investment in Canada is deteriorating. In particular, the environment for business investment in assets that are critical to productivity growth has apparently become less favourable in recent years than the environments for other categories of assets.
  • Against the background of uncertainty surrounding NAFTA and reductions in the corporate tax rate and business regulations in the US, more favourable treatment of business income and capital gains in Canada should be a Canadian government priority.
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The Illusion of Alberta’s Jobs Recovery: Government vs. Private Sector Employment

Summary

  • With a drop in commodity prices in 2014 and the ensuing economic downturn, Alberta’s weakened labour market has attracted considerable attention. Nonetheless, Premier Rachel Notley’s government has touted recent employment figures as a sign that the situation is improving, arguing that total employment has recovered to its pre-recession peak.
  • However, focusing on total employment misses an important recent trend in Alberta’s labour market: the primary driver of total employment growth is an increase in government sector employment.
  • The recent growth in government sector employment began in July 2014 and has continued through the latest month of available data at the time of writing (May 2018). Over the period, government employment increased by 78,733 (21.5 percent) while private sector employment (excluding self-employed) fell by 46,267 (3.0 percent). As a result, the government sector’s share of total employment (excluding self-employed) increased from 19.5 percent to 23.2 percent—a level not observed in Alberta since 1994.
  • In contrast, Saskatchewan—another energy-dependent province affected by the drop in commodity prices—increased its government sector employment by just 2.1 percent from July 2014 to May 2018. That is a tenth of Alberta’s government sector employment growth rate (21.5 percent) over the same period.
  • Research suggests that the increase in government sector employment, and the decline in private sector employment, will translate into less overall prosperity for Albertans.
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Measuring Labour Markets in Canada and the United States: 2018 Edition

Labour markets are critical components of an economy. They are the mechanism through which we allocate one of our most valuable and productive resources: human work, effort, creativity, and ingenuity. Labour markets match human skills, supplied by individuals seeking to earn a living, with the demand for labour by firms, governments, and households.

Because labour markets are important, the public is often inundated with news stories, usually about changes in employment levels or unemployment rates. However, such stories do not generally provide a clear picture of how a jurisdiction’s labour market is performing. There is a need for a comprehensive measure of the performance of labour markets to allow comparisons, which is the first step toward understanding differences in labour market conditions and addressing possible problems.

Measuring Labour Markets in Canada and the United States: 2018 Edition is the latest installment in ongoing research to assess the performance of labour markets. Indicators such as job creation, unemployment, and labour output are used to assess the performance of labour markets in the Canadian provinces and US states over the three-year period from 2015 to 2017. The study calculates an Index of Labour Market Performance, which is a composite measure of labour market performance based on eight equally weighted indicators: [1] average annual total employment growth, [2] average annual private-sector employment growth, [3] average total employment rate, [4] average private-sector employment rate, [5] average unemployment rate, [6] average long-term unemployment, [7] average share of involuntary part-time workers, and [8] average output per worker. The index scores range from zero to 100. A higher score means a jurisdiction has a stronger performing labour market while a lower index score indicates a labour market with weaker performance.

Overall, Canada performed poorly on the Index of Labour Market Performance. All Canadian provinces are ranked in the bottom half of the 60 jurisdictions, including the traditional economic engines of Canada, Alberta (ranked 48th, with an index score of 48.1 out of 100) and Ontario (ranked 52nd, with a score of 44.5 out of 100).

British Columbia (ranked 35th, score of 53.6) and Saskatchewan (41st, 52.3) are the highest performing Canadian provinces, but neither is in the top half of jurisdictions on the overall index. Nine out of 10 Canadian provinces are in the bottom third (lowest 20 out of 60) of the index and four of the five lowest-ranked jurisdictions are Canadian provinces: Prince Edward Island (ranked 56th, score of 36.6), New Brunswick (57th, 35.4), Nova Scotia (59th, 31.3), and Newfoundland & Labrador (60th, 16.6).

The results for Canada’s four most populous provinces (Ontario, Quebec, Alberta, and British Columbia) are not encouraging. Ontario and Quebec both ranked around the middle or in the bottom half of jurisdictions on all indicators with the exception of average long-term unemployment. British Columbia fared better, ranking in the top 10 of jurisdictions for total and private-sector employment growth, but ranking near the bottom on several measures including private-sector employment rate and output per worker. A notable result for Alberta is its low private-sector employment growth: Alberta ranked 58th out of 60 jurisdictions on this measure with average annual private-sector employment growth of negative 1.1%.

North Dakota topped the list of US states and Canadian provinces for overall labour market performance over the three-year period. The state’s strong performance in total employment rate (1st out of 60 jurisdictions), private-sector employment rate (1st), unemployment rate (1st), and share of involuntary part-time workers (2nd) enabled it to achieve the highest overall index score of 80.4 out of 100. The US states in the Midwest dominated the top of the rankings. Six states from the Midwest—North Dakota, Minnesota, South Dakota, Iowa, Nebraska, and Wisconsin—are among the top 10. All of the 10 top performing jurisdictions are US states.

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Regulatory, Reimbursement, and Pricing Barriers to Accessing Drugs for Rare Disorders in Canada

The objective of this study is to provide an understanding of the impact of the drug regulatory review process, the reimbursement recommendation and price negotiation systems, and the procedure for controlling prices on Canadian patients’ ability to obtain insurance-covered access to new drugs for rare disorders. The essay also considers the potential negative impact of changes proposed by the federal government to Canada’s Patent Medicine Prices Review Board (PMPRB), whose primary role is to ensure that the maximum Canadian prices for patented medicines are not excessive.

The study first addresses what a rare disorder is and how rareness is assessed and defined in different jurisdictions. It outlines the time and effort required to bring treatments for rare disorders to the situation where they can be considered for human consumption, and presents some examples of new drugs for these disorders. It then examines the barriers that must be overcome in order to bring new medications for rare disorders to Canadian patients. These include the national regulatory review and approval process, the pricing controls presently in place in Canada, the health technology assessment processes that make recommendations regarding reimbursement to public drug insurance plans, the system established by federal, provincial and territorial drug plans to negotiate prices with pharmaceutical manufacturers, the individual public drug plan negotiations, and the criteria that patients must satisfy before they can obtain insurance coverage. Finally, the study discusses the potential for the proposed revisions to the patented medicines regulations to be a much larger barrier to access to drugs for rare disorders than it is for more common disorders.

The proposed changes to the role of the PMPRB have created much uncertainty among patients and pharmaceutical manufacturers and have the potential to delay the launch of new innovative medications in Canada by decreasing the country’s attractiveness to companies as a market for their products, especially for costly medicines, which includes many drugs designed to treat rare disorders. The changes include altering the number and mix of countries that the PMPRB uses as the basis for setting the maximum allowable prices for patented medications in Canada by excluding two relatively high-priced countries—the United States and Switzerland—in favour of countries with generally lower prices in order to decrease the prices of patented drugs. In addition, the federal government wants the PMPRB to perform assessments of the value of patented drugs based on cost-effectiveness analyses submitted to the Canadian Agency for Drugs and Technologies in Health, and to evaluate the anticipated market size of the drug over the first three to five years of use against Canada’s per-capita gross domestic product as a proxy for an individual’s buying power to assess the impact of the drug’s proposed price on patient and insurer finances. If patented medications fail these tests, the PMPRB may require price reductions.

The complex processes required to bring new drugs for rare disorders to Canadian patients are already causing delays in patient access to these drugs, which extends patient suffering by failing to alleviate their unmet needs in as timely manner as possible. The creation of more barriers that will deter or delay pharmaceutical manufacturers from bringing the many new costly drugs for rare disorders in development to Canada denies both hope and health benefits to Canadian patients. Instead of making access to new costly drugs easier, it seems that federal govern¬ment officials are presently fixated on a mantra of “affordability, accessibility and appropriate use of prescription drugs.” The proposed sweeping changes to the PMPRB are part of this trend. Rather than providing hope to patients needing costly new drugs for previously untreatable conditions, Canadian governments appear to be moving towards a basic “pharmacare” system built on a formulary of inexpensive genericized drugs and a small, restricted-access list of specialty drugs, including drugs for rare disorders, limited to those available from manufacturers willing to negotiate substantial price reductions. Canadian governments and their associated organizations should be developing inventive and coherent nationwide policies to balance timely and fair access to all drugs, but especially those for rare disorders, with appropriately competitive pricing negotiations so that drugs are accessible to Canadians who need them.