Governments face a looming cash-crisis on health care spending

Canada’s auditor general told delegates at this week’s general meeting of the Canadian Medical Association that our federal government doesn’t know if Canada’s health care system is sustainable over the long term in its current form.

The Globe and Mail quoted Sheila Fraser as saying: “Will governments have the cash to meet the health needs of our aging population without increasing debt to unsustainable levels? . . . Frankly, I’m not sure the government of Canada has all the information it needs to answer this important question.”

The question posed by the auditor general has been the subject of an ongoing Fraser Institute study, Paying More, Getting Less: Measuring the Sustainability of Government Health Spending in Canada. Since 2004, we have annually compared the growth in government health spending to the growth in provincial revenue across the provinces. Using this method, we can measures our ability to pay for health care through public means alone, and therefore, the sustainability of the current Medicare-monopoly over health insurance.

And the results are clear: Canada’s health care spending is not sustainable.

According to the most recently available Statistics Canada data, government spending on health care grew at an average annual rate of 7.4 per cent across all provinces over the period from 1999-2000 to 2008-2009. Meanwhile, total available provincial revenue (from all sources, including federal transfers) grew at an annual rate of 6.5 per cent and the annual growth in the economy was 6.4 per cent.

This trend is consistent with long-term data stretching back to the beginnings of Medicare in the early 1970s. More importantly, short-term trends suggest that the situation is getting worse.

This means that government health spending has been growing faster than the ability to pay for it through public means alone. The sustainability crisis is real.

Our most recent analysis suggests that six provinces are on pace to spend more than half of all revenue on health care by the year 2034. In certain provinces such as Ontario, the situation is much worse, as government health expenditures are projected to consume half of provincial revenue by the year 2014.

The economic realities of unsustainable growth in public health spending are quite troublesome.  Provincial governments are under pressure to increase revenues, but raising taxes discourages economic growth.

As health spending consumes a greater percentage of public budgets, a smaller share of funds is available for other important public priorities. Governments then restrict spending on medical goods and services in order to maintain the illusion of sustainability, resulting in shortages which create long waits for access to medically necessary health care.

An annual Fraser Institute survey of Canadian physicians shows that in 2009, patients waited approximately 16.1 weeks from the time they obtained a referral from a general practitioner to the time they received treatment from a specialist. Although the provinces spend more on health care each year, total wait times in 2009 have grown to be 73 per cent longer than they were in 1993.

It is a mistake for policy makers to engage in centrally planned cost containment strategies targeting the individual components of health care spending. Unsustainable growth in public health spending is caused by the flawed design of public health and drug insurance programs, not the price of medical treatment or the invention of new medical technologies. As long as governments maintain the status quo, the only policy tools that they have at their disposal are tax increases and/or cuts in medical resources. Neither of these options is ideal for Canadians.

It would be more efficient for government to directly support financially needy people with a means-tested income subsidy dedicated to the purchase of private insurance coverage, rather than maintaining huge government-run health programs through taxation and centrally planned rationing.

In other words, provincial governments should relinquish their monopoly over the market for medical insurance and require patients to take some responsibility for the costs of the publicly-funded medical goods and services that they personally use.

The CMA’s annual report puts forth similar recommendations such as raising funds from the private sector through private insurance, co-payments for publicly insured medical services, and deductibles linked to utilization.

This approach is consistent with the direction of health policy in most other rich countries in the world that have the same social goals as Canada. Yet, Quebec is currently the only province that has suggested implementing such policies.

Quebec recently proposed a health deductible, requiring patients to pay a small user fee when obtaining publicly-funded medical care up to a limited total. This policy change would help to reduce the demand for unnecessary care, encourage cost-efficient treatment substitution choices from consumers, and encourage efficient allocation of medical resources from providers of medical services and suppliers of medical goods.

The health and financial interests of Canadian patients and taxpayers are harmed by the reluctance of governments to implement meaningful reforms.  While the Auditor General suggests that we do not have enough information to undeniably declare that our health care system is in serious financial trouble, the data that is available provides a clear message: our current health care system is financially unsustainable.