Health Committee on Oct. 19th, 2017

[Dr. Marc-André Gagnon]

On the macroeconomic impact of introducing universal pharmacare, in terms of additional public spending, you can do that with an increase in corporate tax because of the savings on labour costs. You could do it with a payroll tax, earmarked tax revenues, whatever the solution, but the macroeconomic effect is an increase in the disposable income of Canadian households, and it means reducing labour costs for employers.

I was in discussion with an actuary yesterday, and in Quebec drug benefits represent between 2% and 5% of total payroll for an employer who provides group insurance to employees. In any economic textbook, reducing labour costs for employers is how you create employment, so the macroeconomic impact would be very positive. It would have the same effect as a very significant tax cut.

[The Chair, Liberal, Bill Casey]

Time's up.

We go now to Mr. Oliver.

[John Oliver, Liberal, Oakville, ON]

Thank you.

Thank you very much. I get to go around again.

I want to come back to this point we've been discussing, the burden on the federal government, because it's not $20.4 billion or $19.3 billion. The public plans will kick in, and $13.1 billion of that is already covered. I disagree that a major conversion is required. These are patients who are in the system, already seeing their doctors, already getting their prescriptions at pharmacies, being reimbursed by the provinces and territories. The challenge, I think, is with the 15.6 million people employed right now in 2017—that's up considerably since October 2015, I might add—and most of them will have some degree of drug coverage through their employers. Those public and private employers spent $9 billion to insure those people.

What would you recommend? The PBO said that after the public plans there's a $7.3 billion shortfall, but the employers spent $9 billion. I'm old enough to remember when we moved from Green Shield and Blue Cross for all care, and in Ontario OHIP and the health plan kicked in, and contributions were made by employers in return for ensuring their employees made contributions.

Do you have any advice or comment on that? Should this $9 billion that the employers are spending today just be there as a windfall, or do we try to capture some portion of it, giving them a windfall but also using it to cover that part of the population?

[Prof. Steven Morgan]

I'll wade into this one. I think this is the territory in which you need to sit down with representatives of employers and unions and talk about what would be a fair bargain.

Eric Hoskins and Kathleen Wynne suggested that they will be doing this in Ontario with OHIP+. That's a massive windfall for the private sector because of children and youth being covered who are otherwise covered through family health plans or extended health benefits.

Based on what I've heard from employers and unions in talking about pharmacare for the last several years—decades, really—both groups seem to be willing to come to the table to talk about some kind of combined contribution that would move a portion—not all, but a portion—of that money into the system, because they're going to see more money in return.

[John Oliver, Liberal, Oakville, ON]

I might also add that I've heard from a number of people in the employee insurance field who say this is a rapidly evolving, changing coverage. Because of the high cost of some drugs, many employers are down to 50 % or 60% coverage, and some of the really expensive drugs, some of the biogenetic drugs, are blowing some of these smaller plans out of the water, so there is a need. Any Canadian who thinks they're secure because they're employed and they have their own plan already.... I think a change is happening in the sector.

The worst-case scenario is $20.4 billion. It looks as if we can cover all the employees and their families with some kind of payroll support and still give back a windfall to the private companies. What do you think is the real cost to the federal government?

[Prof. Steven Morgan]

If I fell back on the medicare formula at a 25% contribution, the federal government would put $5 billion into a $20-billion plan and the provinces would come up with the balance necessary to get themselves to $15 billion and you'd be there.

In reality, I think the PBO report underestimates the copayment revenue that would be possible. An extraordinary share of the prescription volume in the PBO report was exempt from copayments because people were over 65. Not all, but many people over 65 could afford that $5 prescription, which might have been a source of revenue, particularly for discretionary treatments that aren't about prevention and keeping people out of hospitals.

The maximum would be somewhere in the neighbourhood of $5 billion to run a fairly comprehensive program. Evidence from other countries, from the USVA and the New Zealand PHARMAC system, shows that they do go ahead and budget based on a conservative estimate like the PBO's, because they know they're going to live within the budget initially. What that will do is actually embed the ability for that system to sustain cost pressures, at least for the first several years, because they'll be able to garner savings from older medicines over time, which will allow them to bring newer medicines into the program at pretty close to a constant budget.

[John Oliver, Liberal, Oakville, ON]

Dr. Gagnon, what's your estimate of what the cost is to the federal government?

[Dr. Marc-André Gagnon]

As I mentioned, we need to consider tax subsidies as well. It depends on how you want to do the financing of the disparity in the numbers. As I said, you can go with a payroll tax. We have one of the lowest corporate tax rates, but at the same time implementing universal pharmacare would massively reduce labour costs for Canadian companies. If you increase the corporate tax by 1%, which will still remain one of the lowest corporate tax rates, you would offer much lower labour costs to employers in Canada and at the same time be able to fill the gap for the active population that had private plans before.

[John Oliver, Liberal, Oakville, ON]

It does seem that if the burden of paying $9 billion to insure their employees and their families is taken off their books, anything under $9 billion distributed out is going to be a savings for them and a windfall back, not to mention the 4% to 5% admin fees that are charged by the private insurance companies to oversee those accounts. They would get a windfall in many different ways here. This is not increasing the burden. It's decreasing the burden on employers.

[Dr. Marc-André Gagnon]

Absolutely.

[Prof. Steven Morgan]

Best estimates are that the private sector would get $2 back for every dollar it puts into a more efficient publicly run system. The thing about this is if we do it right and if we budget appropriately—not being cheap and making sure the system can be reasonably comprehensive—then in the future the private sector will be an ally and will realize the value you're providing for them as the pressures are taken off them.

[John Oliver, Liberal, Oakville, ON]

Yes, and I think any progressive employer costs out pharmacare benefit costs separately from extended health benefits. I just disagree with your answer there, Mr. Frank.

[The Chair, Liberal, Bill Casey]

Time's up.

You did ask for a quick answer, so, Mr. Frank, could you just give us a quick answer?

[Stephen Frank]

I think people are sort of dancing around using the term that you're going to have to raise taxes to pay for the $9 billion. There's a transition that's important to consider, and this is one of the reasons I would say the PBO is very, very optimistic. They do reference that in the paper. They assume that between December 31 at midnight and January 1 at midnight and one second, you'd magically cut the cost of all prescription drugs in Canada by 25%. That will not happen. There will be a transition there. You will have to raise taxes and you'll have to find a way to defend it.

[The Chair, Liberal, Bill Casey]

Thank you.

[Stephen Frank]

Look, we can get those savings without having to reorganize the whole system, without having to incur those costs, and we have outlined what we think makes a lot of sense today.

[The Chair, Liberal, Bill Casey]

Thanks very much.

[Prof. Steven Morgan]

Your member companies haven't obtained those savings for the last number of decades, so how can you tell us you can get the savings now? What are you waiting for?

[Stephen Frank]

We're waiting for an invitation—

[The Chair, Liberal, Bill Casey]

Time's up. Sorry. We have to go to Mr. Davies now for three minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you. I have three minutes, and I simply want to clarify.

Done properly, there's no cost to the federal government because this is a cost shift. As a country, we're spending $24 billion now. We would spend $20 billion. All the money that's being spent now would be redirected into a streamlined, centralized system. The provinces are paying $13 billion now. The private sector is paying $9 billion now. Instead of that $9 billion being paid out, if it were redirected to the federal government, it shouldn't cost the federal government anything, if done properly, except for the initial start-up costs.

Do I have that correct, Dr. Morgan?

[Prof. Steven Morgan]

Yes. Just to be clear and to correct Stephen Frank, if you were to raise $9 billion in new taxes to pay for this system, the federal government would be a net winner by $5 billion a year on that system. You'd be bringing in money that would be paying for other federal programs.

[Don Davies, NDP, Vancouver Kingsway, BC]

Right. It could either be a money-maker, or better, they could take that surplus and redistribute it amongst all taxpayers so that the real savings of a universal pharmacare system would be to the people who pay it now, Canadian taxpayers.

[Prof. Steven Morgan]

Yes. At the end of the day, every reasonable analysis shows that you'll save billions of dollars. There's no question. Most importantly, getting back to the original purpose, you will provide access to medicines that Canadians need. That is a fundamental human right, and Canada is the only wealthy country with a universal health system that doesn't provide it.

[Don Davies, NDP, Vancouver Kingsway, BC]

That's where I want to go next. Dr. Raza, we're talking numbers here; let's talk people.

There are between three and seven million Canadians walking around who can't get the medicine they need that keeps them healthy, or in some cases, keeps them alive. That's what this is about.

What are the costs, health-wise, to not bringing in universal pharmacare?