Distributional consequences of the transition from age-based to income-based prescription drug coverage in British Columbia, Canada

Abstract

In May, 2003, British Columbia transitioned from an age-based public drug program, with public subsidy primarily based on age, to an age-irrelevant income-based drug program, in which public subsidy is based primarily on household income. As one of the specific aims of the policy change was to improve fairness by increasing the extent to which payment for drugs is based on ability to pay, we measure the progressivity of pharmaceutical financing before and after the policy change in BC using Kakwani indices. Our results suggest that pharmaceutical financing became less regressive after the policy change. However, this decrease in regressivity arose primarily because high-income seniors were making greater direct contributions to pharmaceutical financing and not because low-income households were making smaller direct contributions. Our results also suggest that if the public financing of pharmaceuticals were maintained or increased, a change from age-based to income-based eligibility can unambiguously improve equity in finance. As populations in developed countries age, governments will increasingly consider reforms to publicly financed health-care programs with age-based eligibility. In assessing policy options, financial equity is likely to be a key consideration. These results suggest that income-based pharmacare can improve financial equity especially when implemented with a commitment to maintain or increase public funding for prescription drugs.