It’s time for BC to reconsider private drug plans for public employees

Why is BC wasting money on a private insurance middleman for public employee drug coverage?

July 14, 2013

Law-MichaelLOGOVANCOUVER, B.C., Jul 14, 2013/ Troy Media/ – The B.C. government pays for a lot of prescription drugs.

Most people are probably aware of Fair PharmaCare, its universal public plan that covers everyone for catastrophic drug costs. This program pays for nearly a billion dollars of prescription drugs every year.

The provincial government also directly and indirectly pays for a lot of drugs through the benefit plans provided to nearly 300,000 public sector employees. In contrast to Fair PharmaCare, private companies such as Pacific Blue Cross and Sun Life administer these coverage plans.

Like Fair PharmaCare, these plans represent a large chunk of public funds: the available data suggest these plans cost just over $1,400 per employee in B.C., for a total of around $417 million dollars every year.

These costs have not gone unnoticed. If you worked in the B.C. public sector, you would have already seen a big change in your drug coverage. As part of continued moves to reduce expenditures, several major public sector unions have signed collective agreements that restrict their coverage to drugs that are covered by the provincial drug plan – a so-called “PharmaCare tie-in.”

Over the next several years, it’s likely that all public employees will be forced to move in this direction. This is smart public policy. It will save public funds that can be used to improve healthcare, education and other provincially run public services.

In general, the public plan chooses the most cost-effective drugs for particular treatments. So if two drugs have the same clinical effect but one is lower cost, the latter will be covered. In the past, most private drug plans for public employees paid for everything, even when cheaper and equally effective alternatives were available. The PharmaCare tie-in will reduce this wasteful spending.

It’s worth pointing out that the government does all the heavy lifting for these savings: they determine the list of covered drugs, they determine the clinical criteria for their use, and they process the special requests required for some drugs. The province also maintains the infrastructure to process every claim, as they already administer the Fair PharmaCare program.

All of which brings me to my key question: why is B.C. wasting money on a private insurance middleman for public employee drug coverage?

Right now, the B.C. government is paying private insurers for what amounts to duplicative claims administration structures and processes. Why not just cover these public employees with a public plan? Such a change would be easy: public employees could simply be enrolled in a Fair PharmaCare plan that matches their existing drug plan, including the “tie-in.”

This would result in major savings for two reasons. First, it would eliminate entirely wasteful duplicative administrative costs. Remember, the province is already paying for just about everything needed to administer these benefits publicly. So the current administrative cost of these private plans is almost entirely pure waste. The administrative charges for large employers in Canada are typically 5 per cent. Once all public employees were moved over and this duplicate administration was eliminated, this would save nearly $21 million every year.

Second, private plans pay higher prices for many drugs than public plans. In recent years, the B.C. government – like other governments around the world – has negotiated discounts with drug manufacturers in return for being on the list of covered drugs. As they are confidential, we don’t know how much these discounts are worth. In other countries, however, they lower overall drug costs by 20 per cent or more. Private insurers in Canada have not engaged in such negotiations, so this is another area of pure savings. Even using a very conservative estimate of 5 per cent savings, this would cut our public employee drug bill by another $21 million.

The choice essentially boils down to this: B.C. can continue to pad the books of private insurers, or it can free up these funds for more productive uses. For example, $42 million in savings could pay for things that would benefit everyone, such as 400 additional nurses for its healthcare system, or nearly 500 new teachers in its schools.

So here’s my prescription for B.C.’s new Minister of Health, Terry Lake: it’s time to seriously reconsider private drug plans for public employees.

Michael Law is an expert adviser with EvidenceNetwork.ca and an assistant professor at the Centre for Health Services and Policy Research (CHSPR), School of Population and Public Health at the University of British Columbia.

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