Health Spending Tsunami Awaits Ontario's Next Provincial Government

If history is any guide, Ontario voters should not expect meaningful discussion of health policy during the upcoming provincial election campaign. Indeed, none of the party leaders have so far offered any feasible solutions to one of the province’s most pressing challenges - the unsustainable growth of government health care spending.

Ontario’s provincial government cannot continue to ignore the simple fact that health care spending in the province is reaching a tipping point. According to provincial data, from 2001 to 2010, total provincial revenue from all sources (including federal transfers) grew at an average annual rate of only 5.1 per cent. Over the same period, government health expenditures grew at an annual average rate of 7.0 per cent; while the economy grew by 3.5 per cent. Projecting those numbers into the future, half of the province’s total available revenue will be consumed by health by the end of 2011. Clearly, Ontario cannot continue paying for health care they way it currently does.

Under a single-payer public health insurance monopoly, governments only have two blunt policy instruments at their disposal to deal with this problem; they can either raise taxes or cut medical services – both of which are not feasible in the long-run. Raising taxes is detrimental for economic growth, especially in times of economic uncertainty, and rationing necessary services is harmful for patients.

Recent history shows us that increasing taxes does nothing to reduce the growth in unsustainable health care spending. In 2004, Dalton McGuinty’s government introduced the Ontario Health Premium with the objective of boosting health care funds in the province. Although the province dubbed it a premium, in reality it’s a redistributive tax because the assessment is scaled to income, not linked to usage. While the health tax added approximately $2.5 billion to Ontario’s revenue base and temporarily increased the growth rate of provincial revenues from 6.8 per cent in 2004 to 13.6 per cent in 2005; the annual growth rate in total available revenue returned to normal levels of 4.7 per cent by 2006.

The empirical fact is that Ontario’s health tax has done nothing to control the ongoing growth of government health expenditures. This should not come as a surprise. Ontario’s health tax does not lead to a more efficient way of allocating medical resources because it is not tied to the demand for, or use of, health care services.

Some argue that increasing federal transfers to the provinces is a solution, yet recent increases in federal health transfers through the 10-year plan have not slowed the growth in health spending. Over the past five years, from 2005/2006 to 2009/2010, Ontario has received more than $42 billion in federal health transfers - yet it is still on pace to consume half of its total provincial revenues on health by end of this year.

Notably, this crisis is happening despite significant government efforts to restrict spending on health, which has resulted in long waits for necessary medical goods and services. The Fraser Institute’s annual survey of Canadian physicians shows that in 2010, the average wait between referral from a general practitioner to treatment in Ontario was 14 weeks. Although Ontario has the shortest average wait times compared to other provinces, patients in Ontario are still waiting more than three months on average before they receive treatment.

There’s no mystery why funding increases through federal transfers and Ontario’s health tax have not slowed the growth of government health spending. As long as the province publicly subsidizes 100 per cent of the cost of health care, demands for health spending will outpace the ability to fund it through the public system. Under provincial medicare, people are not directly responsible for any part of the health care that they consume and thus are not faced with the appropriate incentives to use the system more efficiently.

This phenomenon is unique to Canada, as almost every country in the developed world has some form of patient cost-sharing for medical services. Requiring people to take some responsibility for their health care costs through a small percentage-based co-payment or allowing people the option to purchase private health insurance for medically necessary services does not mean that Canada has to give up its principle of universality.

Low expectations of meaningful policy reforms have become the norm in provincial elections, but the consequences of doing nothing are now too serious to ignore. There is a tsunami of health spending swallowing the provincial budget. Government rationing is jeopardizing the health of patients. It’s time to experiment with user fees and private insurance options.