Medical Cannabis Benefits Savings: A Note on the Government's Estimate

Budget 2025 Savings

Prior to Budget 2025, the Cannabis for Medical Purposes (CMP) program compensated eligible Veterans Affairs Canada (VAC) clients for an amount up to $8.50 per gram of medical cannabis.[^1] Budget 2025 lowered the maximum reimbursement rate to $6 per gram effective April 1, 2026, reducing Government expenditures by an estimated $4.4B over the 4-year period spanning 2026-27 to 2029-30. Savings are presented in Table 1, with $4.2 billion attributable to Canadian Armed Forces (CAF) veterans (the “VAC component”) and $0.2 billion to RCMP members.

The remainder of this note focuses on the VAC component, as the underlying explanation of the accounting calculation is identical for the RCMP portion.

Cannabis for Medical Purposes Background

Starting with one veteran in 2007, VAC has reimbursed eligible CAF veterans and RCMP members for the use of medical cannabis as treatment for pain and compensation due to their service or employment.[^2] A formal policy was introduced in 2016 and revised in 2019 following the 2018 Cannabis Act and Regulations. The policy compensates eligible veterans for a maximum of 3 grams of medical cannabis as dried cannabis or its equivalents per day.[^3] Clients requiring more could request to raise their daily limit with supporting medical documentation.

Table 2 presents CMP usage and reimbursement amounts published by VAC, accompanied by calculations of usage and reimbursement ratios by PBO. The data shows rapid growth in both clients served and usage per client served, which has led to total program expenditures expected to more than double between 2021-22 and 2025-26. Modeling done by VAC and the Office of the Chief Actuary (OCA) forecasts more clients to be served in the future as medical cannabis usage rates increase, which would further increase total program expenditures.

Note that while the daily maximum amount and reimbursement rate of 3 grams per day at $8.50 per gram implies an annual maximum of $9,307.50, actuarial data showed that around two-thirds of all clients were approved for the maximum 3 grams per day, and an additional quarter were approved for more than 3 grams per day, which is permissible with supporting medical rationale. This could reasonably drive the average per client annual reimbursement to exceed the calculated maximum, and further supports the assumption that usage is increasing.

Actuarial Valuation

To understand the Government’s expected savings from the reduction in the reimbursement rate, it is necessary to consider the actuarial valuation prepared by OCA. OCA produces actuarial valuations of the Government’s benefit plans, such as CMP, for inclusion in the Public Accounts and to support decision making.

Triggering event: An event that will ultimately lead to a valid claim being reported. Each triggering event incurs a cost to the Government for the future benefits that will be paid to the client for their benefits.

Actuarial Present Value: A present value calculation accounting for actuarial factors such as interest, mortality, and ultimate loss development.

Accrued Benefit Obligation (ABO): Actuarial present value of expected benefits to be paid for all claims incurred from triggering events that have taken place from plan inception up to the date of valuation. It is a liability for the Government and is valued by the OCA routinely.

Service Cost: Actuarial present value for all claims incurred from triggering events that are expected to occur in the fiscal year of study.

Expected Interest Cost: Accumulation of a year of interest. The ABO was summed for all years of expected payments using a discount factor to account for the time-value-of-money, so carrying the amount forward requires an interest cost.

Expected Benefits: Cash payments for actual benefit claims per fiscal year. Expected benefits pay down the ABO.

Event-based accounting: The estimated number of claim-triggering events is the base unit that determines the estimated liability incurred from each period of program coverage.

At a high-level, the Government’s expected savings were calculated in 5 steps:

1. Estimating the Accrued Benefit Obligation (ABO) as of 31 March 2026,
2. Reducing the ABO by the savings from the reimbursement rate reduction,
3. Recognizing the savings from the reduced ABO over a future period of time,
4. Estimating the additional costs not in the ABO from each year of additional service (that is, events expected in FY 2026/27, 27/28, and so on), and finally,
5. Reducing each year’s costs by the total savings calculated above.

The ABO represents claims from events that have already occurred, while Service Costs represent claims that are expected to occur in future years. The savings from reducing the reimbursement rate come from reducing the pool of funds (ABO) set aside in the Government’s fiscal framework for claim-triggering events that have already taken place, from the amount based on the previous $8.50/rate to the lower $6/gram rate.[^4] Both the ABO and the reduction of the ABO from the plan amendment is shown in Table 3.

The ABO is the actuarial present value as of the 31 March 2026 date of valuation of all reimbursements that clients will be ultimately paid from events (i.e. injuries during service or employment) that have already taken place. The ABO being slightly above $14 billion may seem large, but it must account for a lifetime of reimbursements for both claimants that have already claimed and claimants that have been injured but have not yet claimed.[^5] The latter group forms the Incurred But Not Reported (IBNR) provision which is money set aside for claims that have yet to emerge but will ultimately claim. Injury Benefit programs such as CMP can have long delays between reporting, assessments, and settlement and therefore large IBNR provisions, which require an actuarial evaluation to estimate their emergence and claimed amounts over time.

This one-time reduction of the ABO will be recognized as per the Public Sector Accounting Standards through an accelerated amortization treatment. Each year the valuation of benefit plans such as CMP generates an actuarial gain or loss (G&L) primarily due to interest rate changes. If each year’s G&L were recognized immediately, there could be large swings in the Government’s financial position that would make interpretation and management difficult. Therefore, the G&L is spread-out (i.e. amortized) as an annual amount on an accrual basis and is managed by the Treasury Board Secretariat on behalf of the Office of the Comptroller General of Canada. When a plan amendment produces a one-time savings as it has for CMP, it is recognized in such a way to cancel out the oldest actuarial G&Ls from each year until the savings is cancelled out.[^6]

Table 4 presents the PBO’s estimate of the amortization of the reduction in the ABO, with the total aligning with the amount of $3.65 billion shown in Table 3. In the context of Budget 2025, the amounts in the 4-year period from 2026-27 to 2029-30 that sum to $2.8 billion is the portion recognized.

Each new year of plan coverage adds a Service Cost and Expected Interest Cost which increases the ABO as at the end of the new fiscal year and is decreased by cash payments made that year represented as Expected Benefits. The Service Cost represents claims that are expected to occur in future years, for which the Government must set aside additional money to eventually pay for, which will add to the ABO. The Expected Interest Cost is the accumulation of interest on the ABO. This is because the ABO is valued on a present value basis using a discount rate to reflect the time value of money. The annual additions to the ABO, along with their reductions from the plan amendment are shown in Table 5.

Table 6 shows the annual cash expenditures that represent actual reimbursements paid, with and without the reduction in the reimbursement rate. These cash expenditures are the key wedge between understanding the relatively small annual CMP expenditures leading to the large $4.4B savings from the amendment. The Government’s fiscal framework is managed on an accrual basis, which must account for the lifetime expected stream of payments for each eligible client, claimed or not yet claimed. This results in a much larger ABO and annual service cost/expected interest cost accumulation amount, which in turn leads to billions of dollars of savings even when annual cash expenditures only decrease by a magnitude of the hundreds of millions.

Finally, Table 7 shows total savings shown earlier in Table 1 with a breakdown by each component discussed in this section.