How to Prepare for Soaring Drug Costs as Babyboomers Become Seniors – C.D. Howe Institute
With annual spending of about $4.5 billion dollars in 2010, Canada’s largest drug plan – the
Ontario Drug Program (ODB) – will become harder to afford as the babyboomers age and
workforce growth slows. A business-as-usual approach to funding the plan, which provides
publicly funded drug benefits to every Ontario resident aged 65 an older, presents a bleak
prospect and amounts to wilfully passing on an exorbitant bill to future generations.
Looking at a past sustainability challenge to a key Canadian social-insurance program, the
reforms to the Canada Pension Plan (CPP) in the late 1990s may offer some lessons for ODB
reform. In particular, an early increase in contributions to partially prefund future liabilities
would limit growth in contribution rates later on.
A plan to partially prefund the ODB would be the equivalent of asking citizens to sacrifice
consumption on other goods and services today to help cover the cost of drugs they will
need later, without imposing problematically higher taxes on tomorrow’s workers. Higher
contributions in the near term could go into an ODB fund, with its investment returns helping
to support drug spending in the decades to come.
A complementary reform would restructure the ODB’s expenditures to provide part of its
payments to individuals, rather than as direct reimbursements to suppliers. These payments,
which could be used largely or entirely to purchase drug-related insurance from competing
providers, would inject more individual autonomy, choice, and sensitivity to the costs and
benefits of alternative treatments, into drug purchases in Ontario.
Ontario, like all jurisdictions, faces tough challenges at the intersection of fiscal and health policy.
Partial prefunding and benefit-payment reform of the ODB would put a key health program on
a stronger and more sustainable footing. READ MORE
COLIN BUSBY, Senior Policy Analyst at the C.D. Howe Institute.
WILLIAM B.P. ROBSON President and Chief Executive Officer of the C.D. Howe Institute.