Why We’re Paying More For Health Care and Getting Less

 The Canadian Medical Association (CMA) recently published a paper about the worrisome condition of Canada’s health-care system. Its report concluded that the growth in government spending on health care is unsustainable, and that medicare is failing to provide adequate access to high-quality medical goods and services. The CMA’s conclusions are supported by the facts. Yet a glaring omission in the CMA report was the lack of discussion about the root causes. We suspect that everyone knows what the real problem is, though few seem to have the courage to say it out loud. So let’s cut the nonsense and just say it: Canada’s health system failures are caused by the government’s monopoly over medical insurance, the centrally planned allocation of medical goods and services, and the lack of consumer exposure to the cost of using health care.

The core issue driving the medicare crisis is that the growth in government health spending is unsustainable. According to the most recently available Statistics Canada data, government spending on health care grew at an average annual rate of 7.4% 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% and the annual growth in the economy was 6.4%.

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.

For example, at the end of the fiscal year 2008-2009, government spending on health care in Ontario accounted for more than 46% of total available provincial revenue. Projecting the most recent 10-year trends, Ontario’s provincial health care expenditures are on pace to consume 50% of provincial revenue by 2014 and 75% by 2038.

But over the most recent year in the trend period, Ontario’s health care spending grew by 4.5% while the total available revenues decreased by 5%. The worsening recent scenario suggests that Ontario will likely be spending 50% of its total available revenues on health care by the end of this year.

The economic realities of unsustainable growth in public health spending are not pretty. Policy-makers 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, encouraging political battles between interest groups over shrinking resources. 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% longer than they were in 1993.

Clearly, the current approach to health policy in Canada isn’t working.  The CMA report alludes to alternative funding options including private insurance, deductibles for publicly insured medical services and consumer co-payments linked to personal use of health care. 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.

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 even meekly attempted to implement 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. By exposing consumers to the cost of their health care consumption, 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.

Ultimately Canada should look to the Netherlands and Switzerland, two countries that have taken market-oriented health reforms even further. The Dutch and Swiss have universal coverage without government delivery of health insurance. Both countries combine a universal mandate to purchase private health insurance with public subsidies for low-income people so that all can afford to obtain coverage.

Economic reality favours market-oriented reforms. The interests of Canadian patients and taxpayers are harmed by the stubborn maintenance of the status quo. We have other options and the consequences of doing nothing are increasingly serious.