Public Health Insurance is Near a Financial Tipping Point

Recent research illustrates the cold, hard economic reality that we cannot rely on public funds alone to pay for the kind of modern health system we all want. We are near the limit of what taxpayers can afford and are facing significant trade-offs including reduced access to medical care and proportionally less spending on other public priorities. Private sources of funding are necessary to keep up with the demand for medical care and make it more efficient.

An annual Fraser Institute study using Statistics Canada data on the most recent five-year trends shows that public health spending in every province continues to grow faster, on average, than total revenues from all sources – including federal transfers. Health care is taking up an increasing share of provincial revenue over time, leaving proportionally less money for every thing else. Public health spending in six of the 10 provinces is on pace to consume more than half of total revenue by the year 2020, two-thirds by the year 2035, and all provincial revenue by 2050.

And this analysis is generous. Projections of future revenue growth are actually overestimated because in many provinces recent growth in revenue is a result of increasing tax burdens. Rising tax burdens are not sustainable unless people want slower economic growth and lower standards of living over time. Additionally, the growth in resource-based revenue from spiking oil prices that some provinces experienced is already fading. Finally, the study’s projections of public health spending do not take into account the added pressures from an ageing population that will further accelerate the growth of provincial health spending.

A cross-country comparison also shows that public health spending in Nova Scotia, New Brunswick, Newfoundland, and Quebec is on pace to reach 50 per cent of total revenue later than the other provinces. But taxpayers beware: this is achieved at the expense of wealthier provinces like Alberta and Ontario because federal transfers take money from these provinces to boost the revenue base of all the others. Even so, Manitoba and Prince Edward Island are among the biggest recipients of federal transfers and still finish as two of the least sustainable cases.

Since 2000, at least five provincial government studies, in addition to a federal Senate report, have concluded that public health spending is unsustainable at current growth rates. The most recent and urgent warning has come from B.C. Finance Minister Carole Taylor whose analysts estimated that public health spending could consume 71 per cent of the provincial budget by 2017. Even Janice MacKinnon, the former finance minister in Roy Romanow’s NDP government in Saskatchewan, warned in a privately published study in 2004 that health spending was growing faster than the ability of governments to pay for it.

Despite many warnings, governments try in vain to contain health costs by restricting access to medical care. This has caused long waits for medical services; comparably fewer health professionals and high tech equipment; deteriorating hospital facilities; the withdrawal of public insurance coverage for previously insured medical goods and services; and the delay, or outright refusal to provide public insurance coverage for new treatments and technologies that are available in other countries.

Governments should instead require patients to make co-payments to encourage more responsible use of tax funded health care services. They should acknowledge patients’ right to pay privately (through private insurance or out of pocket) for all types of medical services including those provided by hospitals and physicians. Providers should also be allowed to charge extra fees directly to patients above the public health insurance reimbursement level and to receive payment for their services from any insurer whether public or private. Both of these policies would take financial pressure off tax-funded health care. In addition, both for-profit and private non-profit health providers should compete for the delivery of publicly insured health services. Competition produces efficiencies that can reduce costs. All of these policies are increasingly being used to great benefit in other countries with universal health insurance systems.

What are the alternatives? Economically harmful tax increases? Further restrictions on access to health care? Spending less on other public priorities? A public health insurance monopoly cannot provide everyone with quick access to modern medical care for free at the point of service and still remain financially sustainable. One thing is certain, we are approaching the tipping point and will soon no longer be able to pay for medically necessary care from public funds alone. Blind faith in the superiority of a public health insurance monopoly is not going to change this fact. Wishful thinking is no match for economic reality.