Private health insurance costs in Canada

Private health insurance costs in Canada: Testing the insurance industry’s claims about the sustainability of drug plans

Author

Brett J Skinner, Ph.D.

Introduction

The Canadian Life and Health Insurance Association (CLHIA), which represents the private health insurance industry, is calling for increased government intervention in the market for patented pharmaceuticals (i.e. innovative or new medicines) because according to CLHIA, the cost of new medicines is threatening the sustainability of private drug plans in Canada.

Objective

To examine the drug costs of private insurers in Canada, in the context of other types of privately insured healthcare costs, in order to test the validity of CLHIA’s assertion that the cost of new medicines cannot be sustainably insured by the private sector without government intervention.

Data

The most current data (2006 to 2011) on the expenditures of private sector insurers on prescribed drugs, dental services, vision care, physicians, other professionals, hospitals, administration and other healthcare goods and services were obtained from the Canadian Institute for Health Information (CIHI). Data on sales of new medicines in Canada were obtained from the Patented Medicine Prices Review Board (PMPRB).

Results

In 2011, new medicines accounted for a smaller share (23.5%) of the total healthcare expenditures of private sector insurers than did dental services (28.0%). Over the most recent five year period, from end of 2006 to the end of 2011, private sector insurance spending on new medicines grew by only 11.7% compared to 22.7% for dental services and 32.2% for vision care services, 53.0% for other professionals, 30.8% for hospitals, and 35.0% for administration.

Conclusions

CLHIA is attempting to co-opt government into managing the insurance industry’s private costs. Contrary to CLHIA’s assertions, there is no justification for government intervention targeting the cost of new medicines in Canada’s privately insured pharmaceutical market. Private insurance spending on dental services, vision care, other professionals, hospitals and administration is growing from 2 to 5 times faster than spending on new medicines. CLHIA argues that some private drug plans have trouble insuring high-cost claims for specialty drugs, but the data show that at the national market level these costs are sustainable. These findings imply that affordability challenges within some individual drug plans must be a result of inadequate insurance designs and insufficient risk pooling. Industry-wide risk pooling is a solution to making insurance for high-cost drug claims affordable and sustainable.

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