November 26, 2002

Pharmacare Chaos

Nothing is said on either the Ministry of Health Services or any other government website about changes to the Pharmacare program, a consultation process for changes or the effective date of changes. Health Minister Colin Hansen abused the legislative question period on Monday, November 25th, to take a question from a backbencher that allowed him to say he wanted to make changes effective January 1st but those changes will be delayed a couple of months. In a subsequent interview it sounded as if changes will take effect with the new fiscal year, April 1, 2003.

Currently, seniors who do not receive premium assistance pay a maximum of $275 per year. Some important information is contained in that simple sentence including the fact that the claim year is the calendar year. It also says that claims are on an individual basis. Hansen has said that the new system will be on a family basis with a deductible based on family income.

There has been some speculation that the deductible will be 4% of family income. So, for example, a retired couple both over age 65 with a combined income of $40,000 would not receive any benefits from Pharmacare until they spent over $1,600 on eligible drugs. Government needs to verify what the family income is and for what year. Since income tax doesn't need to be filed until the end of April, it is likely that government would determine the eligibility of claims in 2003 based on taxable income in 2001. Consider two relatively simple examples of claims based on the 4% rule for a make believe family of two. First imagine that the change in Pharmacare rules had gone ahead on January 1st, then imagine what would happen if the rules don't change until April 1st.

Case 1: In January, Mr. Senior has one prescription that costs $100 and one that costs $30. Under the current rules he would pay $50 ($25 on each prescription) and the plan would pay $80. Under the new rules the plan would pay nothing.

Case 2: In January, Mr. Senior is very ill and has 11 prescriptions that cost a total of $1,000. Mrs. Senior is also ill and has 5 prescriptions costing $100 each for a total of $500. Under the current rules, the plan would pay $725 for Mr. Senior and 100% of all drug costs after that. The plan would pay $375 for Mrs. Senior. She would still have to pay $125 as her share of costs for any future prescriptions in 2003. In this case, under the new rules, the total family costs of $1,500 would still fall $100 short of their deductible. Pharmacare would pay nothing. The Seniors would be $1,100 worse off.

Now consider what happens when the rules change April 1st. In case 1, the couple would have already received a payment of $80 for Mr. Senior's claim. In case 2, the couple would have already received a payment of $1,100 for both claims. On April 1st neither claim would be eligible for anything. Does the couple have to refund the payments? Is the slate wiped clean and started fresh as of a new claim year that runs with the calendar year? If so, is it fair that the folks who got sick in January got their claim paid but people in exactly the same situation who got sick in April get nothing?

By changing the claim year at the same time as changing the eligibility rules, government is certain to create chaos. If you think the 8 month backlog at MSP is bad, just wait until complicated new rules for Pharmacare are introduced part way through the calendar year! If that is not bad enough, think about how the mess works in combination with private insurance plans. Blue Cross extended health benefits work on the basis of a calendar year. Add the complication of claming the portion not paid by government from a private plan, with the government rules depending on changing dates and income levels, and it will take a team of actuaries and accountants to figure out who gets paid how much.

Two things are clear. First, government secrecy and indecision has created a lot of anxiety. Second, the Ministry of Health's "service plan" already indicates that Pharmacare costs must go down by $88 million in fiscal year 2003-04. That means $88 million plus all cost increases due to inflation, population growth and increased utilization have to be shifted on to people who are sick enough to need drugs - a total cost shift of about $200 million. If government doesn't change its "service plan", the delay in the changes only means that the changes will be more confusing. A lot of people will still be hurt by a $200 million cost shift.

Maybe the government plans on "saving" even more money by making such a mess of the claims system that no one is paid anything! That would be consistent with the way they are processing premium subsidy applications for MSP while telling people to stall the collection agency.