Rising health costs are a big problem
David Dodge is again urging an “adult conversation” about how to confront rising health-care costs, warning that even in an optimistic scenario the quality of care will suffer without some combination of deep cuts to other programs, higher taxes or patients footing more of the bill.
In a new report for the C.D. Howe Institute, the former Bank of Canada governor says historical trends suggest health-care spending could rise to almost 19 per cent of gross domestic product by 2031 from 12 per cent of GDP in 2009. That would push the country’s total annual health-care spending to $10,700 per person, after inflation, from $4,900 a head two years ago.
More troubling, even after using a model that assumes Canada makes extraordinary strides at developing policies and technologies that make the healthcare system more efficient and effective – as well as increasing labour productivity to avoid a sharp slowing of economic growth as the population ages, shrinking the workforce and tax revenues – spending would still rise to more than 15 per cent of GDP over the next two decades.
“The prognosis is not good, even if we are incredibly successful in improving the efficiency and effectiveness of healthcare delivery,” Mr. Dodge, now a senior advisor at Bennett Jones LLP in Ottawa, co-wrote with colleague Richard Dion, a former Bank of Canada economist. “But the spending disease must be managed. It is now up to Canadians to have an adult discussion about how to manage it.”
That “adult discussion,” which Mr. Dodge first called for at a Liberal Party conference in Montreal about a year ago, seems unlikely to take place anytime soon even though the report comes in the middle of an election campaign in which voters have once again identified health care as a top concern.
The new study was scheduled to be unveiled at a Toronto luncheon Wednesday long before the election was called, but it’s questionable whether its timing will nudge Conservative Leader Stephen Harper or Liberal rival Michael Ignatieff to spell out how they would handle talks with cash-strapped provinces looking for new deals on transfers for health care and social programs.
The current national accord on health funding, which sucks up more than 40 per cent of provincial budgets, is set to expire in 2014. Despite the Harper government’s recent assurances that Ottawa’s contribution won’t shrink, it’s unclear if a new Conservative administration could maintain, let alone increase, the 6-per-cent annual federal health transfer and still eliminate its own deficit by 2015-16 or earlier, as it has projected.
The Liberal platform, meanwhile, is a two-year plan and does not address how the party might approach the coming negotiations with the provinces should it win power.
Mr. Dodge, who was deputy minister at the Finance Department during the deficit-slashing mid-1990s, recently warned in an interview with The Globe and Mail that all provinces face a health spending problem because expenditures are “likely to be growing faster – potentially, significantly faster – than revenues will grow from current revenue sources.”
As the population ages and the labour force shrinks in some provinces, so too will their tax base unless governments find potentially unpopular ways to boost productivity.
“Even though rising healthcare costs will not eat up the preponderance of national income increases over the next two decades, there will nonetheless be very difficult choices ahead,” the authors wrote, “especially for Canadian governments who will be held responsible for providing most of these services, and for any offloading of costs onto individuals or employers.’’
Indeed, not only does Canada face higher spending by patients and employers for health services that aren’t insured by the provinces, the authors argue that the country will need to decide on some combination of unpalatable options. Namely, finding other services that can absorb deep cuts to maintain current healthcare standards, raising taxes to finance rising healthcare costs, tolerating poorer-quality care and longer wait times, or Canadians contributing more out of their own pockets, through co-payments or by governments covering fewer services.
“Even under an optimistic scenario,’’ the report says, “private citizens will have to devote an increasing share of additional income to private health insurance, direct out-of-pocket expenses on healthcare services, and long-term care, assuming no change in the private-sector share of total healthcare financing.”