Paying for Prescriptions

As policy-makers grapple with the formidable question of how to finance health care once the baby boom generation begins to retire, economist Mark Stabile, a professor at the Joseph Rotman School of Management, is looking to Canada’s pension system for solutions.

In a new study from Montreal’s Institute for Research on Public Policy, Stabile and Jacqueline Greenblatt, a federal policy analyst, are proposing a “pre-funded” approach to pharmacare, as opposed to the current pay-as-you-go system.

Their idea is to create an independently administered pooled fund, modelled on the Canada Pension Plan Investment Board, which will invest the proceeds from a proposed mandatory contribution from individuals earmarked specifically for pharmacare costs.

The use of prescription drugs is growing rapidly because of advances in medical science and the higher prevalence of chronic conditions in an aging population.

At present, government-purchased prescription drugs (those administered in hospitals or through plans for groups such as the elderly or low-income earners) are paid for through general tax revenues collected by both Ottawa and the provinces.

Stabile, who is also the director of U of T’s School of Public Policy and Governance, is suggesting a system of capped monthly contributions geared to income that are collected through payroll deductions. “As individuals retire,” he says, “their cohort would have this fund available to them.”

He’s not aware of any other government that’s taken this approach, but argues that alternatives must be considered. “Whether we pre-fund drugs or we don’t, we’ll have to have this conversation over the next decade,” says Stabile. “How are we going to pay?”