Introduction

… governments or compulsory schemes finance nearly 55% of retail pharmaceutical spending in OECD countries, albeit with wide variations. 2

The New Zealand Initiative’s mission is to help create a competitive, open and dynamic economy and a free, prosperous, fair and cohesive society. Governments can do much to help or hinder the achievement of these goals. Good governance, well-designed state institutions, modest tax and regulatory burdens on citizens, good oversight of the adequate provision of public goods and excellence in public administration – all matter a great deal.

This report examines the strengths and weaknesses of New Zealand’s arrangements for accessing prescription medicines. The quality of these arrangements matters for community wellbeing.

Government subsidies for prescription medicines dominate New Zealand’s arrangements. While they benefit those in financial need, subsidies also invite waste and create many problems for government administrators, suppliers, prescribers and consumers. The amount of subsidy and its allocation are inherently contentious.

Effective public administration can minimise waste in the application of these subsidies. Central to their administration are the Community Pharmaceutical Budget (CPB) and the Pharmaceutical Management Agency (Pharmac), a Crown entity. The CPB dictates the fiscal cost of the subsidies. Pharmac determines which medicines are to be subsidised and to what degree. 3

This report also highlights the tension between the open-ended demands for a greater subsidy and the reality of a finite budget. Other factors exerting pressures on current arrangements include an ageing population and the development of new, high cost, innovative and effective medicines. The fiscal pressures arising from the response to Covid-19 also presage a reassessment of spending priorities.

Governments’ responses to the pressures on current arrangements will be some combination of tighter restrictions on access to subsidies, a bigger subsidy budget and/or greater recourse to private funding. The best combination for Kiwi wellbeing is a matter for analysis and debate. This report contributes to that debate.

New Zealand’s current arrangements are an evolving policy choice. Health policy is political football – a contest between ideology, interest group pressures, and fiscal cost. It can change with a change in government or even a Minister. 4

From an international perspective, there is nothing sacrosanct about New Zealand’s current funding mix. Funding options for prescription medicines include government subsidies, compulsory insurance, voluntary private insurance, and recourse to personal, family and charitable resources. The prevailing combinations vary greatly across countries and can change through time.

A 2018 report by the Organisation for Economic Co-operation and Development (OECD) assessed the funding combinations for prescription medicines across 24 member countries in 2016. Each country had its own mix of voluntary and compulsory means. The proportion of funding from voluntary sources was lowest for Germany (6%) and highest for Mexico (100%), followed by Canada (57%). 5

The median proportion paid from voluntary sources was 32%. For Australia, it was 24%. 6

Major changes in funding mixes can occur over time. New Zealand’s most radical change occurred in 1941 when universal prescription medicine subsidies first took effect. Obamacare (the Affordable Care Act) recently saw the United States adopt mandatory insurance.

The following chapters assess New Zealand’s arrangements and consider how they might usefully evolve.