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The Liberals and NDP have reached a deal on pharmacare: a single-payer national plan that for now will cover only two drug categories: diabetes and birth control. Canada is the only developed country with universal insurance for hospital and physician services but not for prescription drugs, so covering this third pillar of the system makes sense. But whether the agreement will do that in a sensible way isn’t yet clear.

According to news reports, the negotiations hinged on two main points: what’s in and who pays. The NDP wanted more drug categories included, while the Liberals were concerned about costs. And while the NDP insisted on a single-payer national program, the Liberals had never committed to that and no information has yet been made available about the plans for financing it.

In the end, it seems neither party got what it wanted: the plan will only cover contraceptives and diabetes medications and reportedly will cost taxpayers an additional $800 million.

Governments need to level with Canadians on how these two treatment categories were selected and how new ones will be chosen in future. Improving access to medication is important. But so are sustainable federal finances. The two have to be balanced. And whether a treatment is covered needs to consider — as transparently as possible — how well it works, how many people it will cover, how their eligibility is determined and last but certainly not least, its cost.

No plan can cover everything. Diabetes management and birth control are obviously both important, but are they more important than heart disease, cancer or mental health, to name just a few? Cover one drug or treatment and another won’t be covered. In public plans in 2021, five of the top prescribed drugs by spending were for diabetes. About $1.37 billion helped 1.52 million beneficiaries. By contrast, the top 10 non-diabetes drugs by number of beneficiaries cost public drug plans $1.54 billion but involved up to 19.02 million beneficiaries. The top 50 drugs prescribed to people in the lowest income quintile, where affordability challenges presumably are greatest, led to $1.02 billion in spending and brought in up to 7.42 million beneficiaries.

This is not to say diabetes drugs and contraceptives are the wrong things to cover, simply to show that the same dollars could provide different populations with different treatments. Canadians need to be told how coverage decisions were arrived at.

As the dollar numbers imply, the provinces already spend a lot of money on drug insurance. In some cases, money already goes to treatments targeted for national coverage. Provincial and territorial government coverage for diabetes treatments ranges from zero to 100 per cent, depending on family income, age, and the type of equipment and medication used. Out-of-pocket costs range from $76 for a type-2 diabetic young person from a low-income household in Alberta to $18,306 for a type-1 diabetic young person from a high-income household (>$150k) in New Brunswick. Differences in existing coverage mean a new federal program will have different impacts on access and household finances across the country. Equalizing and expanding access is a positive thing. However, differing impacts across provincial populations and government finances need to be understood.

That raises the second main sticking-point in the negotiations: whether pharmacare should be a single-payer federal plan. There are three main payers at the moment. Provincial public drug programs covered 14.43 million beneficiaries in 2021 and spent $16.18 billion doing so. Private insurance paid for another $13.56 billion in prescribed drugs, while Canadians paid about $7.4 billion out of pocket. Diabetes drugs represent a large and growing share of public and private insurance spending, $3.3 billion in 2021, with an additional $500 million out of pocket.

It is not clear yet whether the federal government intends to insure Canadians directly, thus effectively creating a new insurance plan and uploading all costs of covered treatments from public and private insurance plans and patients. Many provinces and private insurance companies would love to have billions of dollars in annual spending removed from their budgets and liabilities, but the federal government has very limited room for such generosity.

It’s likely that full-pay will be deemed too expensive, given current spending for (non-universal) coverage of diabetes treatments alone and the estimated federal budget. Ottawa could provide universal insurance but require provinces to cover part of the cost (especially if they already provide insurance coverage for those treatments). Shared spending would save federal money but also reduce the incentive for provinces to participate. Some provinces will resist even if the federal government does offer to shoulder the costs. Alberta has already signalled its intention to opt out. It is also unclear how the existing public and private universal insurance system in Quebec might interact with the federal program. Clarity, both on how the government expects costs to be shared (if at all) and on what might be expected from provinces in return, would reduce uncertainty and lead to more productive discussions focused on where unmet needs are greatest across the country.

Surveys find that about one in five Canadians don’t have enough coverage, while 27 per cent struggle to cover the cost of their medications. Other research provides lower estimates of need (5.5 per cent overall) and more detail about who is affected. Drugs for mental health treatment were the most likely to be skipped because of cost, while women, younger adults, Indigenous people and those with lower incomes were most likely to face affordability challenges. Canadians with diabetes are significantly less likely to apply for individual insurance coverage and are more likely to be denied than those without diabetes. So there are clearly gaps in the current system.

Though the Liberals and NDP have got themselves a deal, the problems of how to decide what’s covered and who pays remain. To ensure that national pharmacare can address the unmet needs of Canadians both now and in future, any new system has to be built on a strong foundation of sustainability in finance and transparency in writing the formulary. Though the cornerstone is about to be laid, we don’t yet have blueprints for what’s to come.

Rosalie Wyonch is a senior policy analyst at the C.D. Howe Institute.

Published in the Financial Post