Canadian Health Policy Institute

Canadian Health Policy Institute

September 18, 2013 10:20 ET

CHPI Study Challenges Alarmism About Sustainability of Private Drug Insurance: Insurer Spending on New Drugs Growing Slower Than Dental Services and Vision Care

TORONTO, ONTARIO--(Marketwired - Sept. 18, 2013) - A new study published by the Canadian Health Policy Institute (CHPI) challenges alarmist claims that the cost of new drugs is threatening the sustainability of private drug plans. An executive of one of Canada's largest private health insurance companies recently stated that, "The evidence clearly shows that most drug plans, as they exist, are not sustainable in the long term." This claim has since been cited by several sources to justify the nationalization of private drug insurance in Canada. Subsequently, the Canadian Life and Health Insurance Association (CLHIA) cited the cost of new drugs as the reason for its recent demands for further regulation of patented pharmaceuticals in Canada.

The CHPI study examined the most recent publicly available empirical evidence about the drug costs of private insurers in Canada, in the context of other privately insured health costs, in order to test the validity of assertions that the cost of new drugs cannot be sustainably insured by the private sector without further government regulation.

The study used data on expenditures of private sector insurers on prescription drugs, dental services and vision care from the Canadian Institute for Health Information (CIHI) covering the period 1990-2010. Data on sales of patented drugs in Canada were available from the Patented Medicine Prices Review Board (PMPRB) 2011 Annual Report. Estimates of the share of health expenditures of private sector insurers accounted for by patented prescribed medicines, or "new drugs" was derived by applying PMPRB data to CIHI data.

The study found that in 2010, patented prescribed drugs accounted for a smaller share (32.5%) of combined expenditures by private sector insurers on dental services, vision care and all prescribed drugs (patented and non-patented) than did dental services (39.0%). The share of combined expenditures by private sector insurers on dental, vision and prescribed drugs accounted for by patented prescribed drugs has declined over the last seven years from 38.5% in 2004 to 32.5% in 2010. Over the most recent five year period, from end of 2005 to the end of 2010, private sector insurance spending on patented prescribed drugs grew by only 13.4% compared to 24.4% for dental services and 39.1% for vision care services.

The facts show that private drug plan spending on patented drugs is as sustainable as the cost of dental services and vision care. In fact, private insurance spending on dental services has grown almost twice as fast, and spending on vision care has grown nearly three times faster than spending on patented medicines from 2005 to 2010.

The study concludes that if some private drug plans have trouble insuring new high-cost specialty drugs, this must be a result of insufficient risk pooling, and is not something that can be fixed by further regulation of pharmaceuticals. CLHIA's earlier proposal for industry-wide risk pooling is a solution to making insurance for high-cost drug claims affordable. A barrier to industry-wide pooling is the lack of universal participation by plan sponsors, which can be remedied by a regulatory requirement that all drug insurance plans must participate in fully-insured, industry-wide risk pooling for high-cost claims.

The article, Private insurance spending on drugs, dental and vision care in Canada, 1990 to 2010, is available for free download from Canadian Health Policy, the online journal of the Canadian Health Policy Institute (CHPI) and can be accessed at the following web link:

About CHPI

Canadian Health Policy Institute (CHPI) is a non-profit think-tank funded by independent research grants and unrestricted operating grants from public sector, private sector and non-profit sector sources. CHPI is dedicated to conducting, publishing and communicating evidence-based socio-economic research on health system performance and health policy issues that are important to Canadians.

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