For many years, employers have been making a “grand promise” to employees; to keep them and their family members healthy and this promise included covering the cost of drugs. This “grand promise” twenty years ago was not the same commitment that it has become today. Prescription medications in Canada approached $27 billion dollars in 2007 and drugs are now the second most expensive form of healthcare in this country (behind hospitals, but ahead of doctors). Canada only ranks behind the USA in its “per capita” spending on drugs.

Drug inflation in Canada has been stunning to say the least. Since 1996, when Canadians spent $7.6 billion on drugs, the annual drug bill has grown by more than 12% per annum. This run up occurred during an unprecedented period of low overall economic inflation (CPI running below 3%) and a surprising lack of pharmaceutical discoveries.

Many people assume that the government will cover their drug needs. While there are some circumstances that the Canadian government will provide drugs (hospital and prison stays are prime examples), most of the time it is up to the taxpayer to foot the bill. In Canada, over 60% of the national drug burden is paid directly by the individual (or individual’s employer). In contrast, the average is only 35% for other industrialized countries (OECD). As many employers offer drug coverage as part of the employment contract, this burden has been carried as part of our country’s labour cost. Today many employers, when hiring an employee, unknowingly accept a drug liability that can exceed many thousands of dollars. Drugs account for, on average, 80% of the healthcare cost in employer-sponsored programs, which are inflating at 10-15% per annum. Many employer plans are now exceeding 10% of the total payroll expense. Its cost is now significant enough that many are looking to reject the drug benefits; much like defined benefit pension plans were rejected 15 years ago.

Alberta’s New Pharmaceutical Strategy (2009)

In December 2009 the Alberta Government announced the first phase of what it called a new pharmaceutical strategy. This strategy includes a number of key policy changes:

· Reported Improved Drug Coverage for Seniors: Prior to this new strategy, Alberta offered free drug coverage to all Alberta resident seniors in a plan managed by Alberta Blue Cross. With the new initiative, only seniors that earn less than $42,650 (family income) or $21,325 (single income) will qualify for free coverage. The reported improvement appears, for these seniors, to be a waived copayment that was previously capped at $25 per prescription. Other Alberta seniors will pay a deductible based on their income, the amount not yet released. While the Alberta government claims this as “improved drug coverage for seniors”, we question the validity of such a statement. They have actually managed to impose an income test on the plan that previously did not exist.

· A Common Drug List for all Government Sponsored Programs. Albertans on income support, support for being severely handicapped (AISH), special needs children, people in correctional facilities, hospital patients, cancer patients, transplant patients, terminally ill patients, cystic fibrosis and primary pulmonary hypertension patients will all continue to receive free drugs but now under a common formulary.

· Catastrophic drugs for rare genetic disorders. We are unsure what an extremely rare genetic disorder is, but are glad these Albertans will now have drug coverage.

· Adjusting Non-Group Coverage Premiums. The big change, other than implementing an income test for senior drugs, is the drug insurance program offered to all Albertans on a plan also facilitated by Alberta Blue Cross. The initial press release stated the Province was going to increase the rates for this program over a two-year period bringing the program to what they termed “comparable to the cost of employer sponsored programs”.

· What is called Phase II of this strategy will be released in the coming year and will include new roles for Alberta pharmacists and more cost-effective drug purchasing.

Changes to Alberta “Non-Group” Coverage

The Alberta Non-Group Coverage has been a staple for those with moderate to high drug needs. It is offered by Alberta Health via Alberta Blue Cross and covers 70% of necessary prescription drugs, 100% of diabetes supplies, ambulance services, clinical psychological services, home nursing care ($200/yr), prosthetic and orthotic benefits (excluding foot orthotics), mastectomy prosthesis and hospital accommodation in private or semi-private rooms. Although it covers a range of items, the key benefit of this plan is the drug coverage, which was provided through a Blue Cross pay direct card.

Any Albertan under age 65 had been eligible to access this plan and more than 145,000 Albertans have done so. The plan does not limit for pre-existing conditions and there are no medical requirements to join. These features make the program unlike any private insurance plan in the Province as one can wait until they have a medical condition before joining (subject to a three month waiting period) the “Non-Group” coverage.

Employer Impact and Response

For years, many employers would encourage employees with moderate to high drug needs to have the “Non-Group” plan pay first and the employer program pay second. Some employers chose not to offer drugs at all, allowing those with drug needs to access them from this Provincial program. A taxpayer, prior to July 2008, with only $60 in monthly drug needs ($720/yr) could have justified participation in this program as the reimbursements would equal the annual cost (70% times $720 = $504, or the cost for family coverage). Now the family break-even moves to $1,405 in 2009 (or $117/mth in drug bills) and $2,022 after July 2010 (or $169/mth in drug bills). This shifts the fit of the program to those with more severe drug needs.

As a result, many employers after 2009 may want to consider a privately insured health program that includes basic drug coverage for those with low to moderate drug needs. Such a program would limit the drug liability for the employer, encouraging those with high drug needs to shift over to the Provincial “Non-Group” Plan.

Other employers are arranging health spending accounts to cover tax-free reimbursement of limited health needs, which could include reimbursement to employees for the premiums paid to such drug benefit plans as the Blue Cross “Non-Group” coverage.

As each benefit program is engrained in the corporate culture, these transitions need to be planned and implemented with care and consultation. Limiting the corporate liability to drug inflation is a key effort by many in 2009. Paring back the extent of the insured drug benefit, or transitioning to health spending accounts, is unavoidable by those who have insurance based programs. Once the transition to a health spending account has been completed, the liability of future drug inflation is no longer carried by the employer. The employer from that moment forward is only committed to the amount available to the employee in the health spending account. The employee is offered reimbursement of drug costs or of drug related insurance including the Alberta “Non-Group” benefit to the limit placed in the health spending account by the employer. Although the cost will increase over the next few years, we are encouraged that in the new Alberta drug strategy catastrophic drug coverage remains available to all residents in our Province. There is still no medical underwriting for this option which is unique to Alberta and an outlet that employers cannot afford to miss in their benefit planning for 2009.