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The failure to transform public health care spending is a missed opportunity

Expenditures on public health care in Canada appear to be slowing raising the possibility that the health care cost curve is finally being bent and the system transformed. Numbers from the Canadian Institute for Health Information show that real per capita public sector health spending peaked in 2010 at $2,687 (1997 constant dollars) and is forecast to reach $2,638 by the time the final numbers are tallied for 2013.


June 24, 2014
By Livio Di Matteo EvidenceNetwork.ca

Topics

Since 2010, real per capita public health spending in Canada has been
dropping at about one percent annually. This is remarkable given that
the average annual growth rate in real per capita public health spending
from 1997 to 2010 was nearly three percent. What can explain this?

Story
Number One: The prescription of the Romanow Commission on health care
that we should provide new money to the system to buy transformative
change has worked. We have invested in new technology and transformed
health care delivery and expenditure growth has finally been tamed.

This
story is too good to be true. As the review of the 2004 Health Accord
by the Standing Senate Committee on Social Affairs, Science and
Technology concluded in 2012, the achievements of the accord were mixed.
The increased funding “had increased the provision of services, but had
not resulted in reform of health-care systems, including the
much-needed integration of different health-care sectors and the
breaking down of silos.” In other words, it has been pretty much
business as usual.

Story Number Two: The moderation in health
expenditures currently underway is tied to the economic slowdown of the
2009 recession and its effect on provincial budgets.

Indeed, the
last time real per capita health spending underwent such a decline was
in the 1990s in the wake of the 1991 recession and the federal fiscal
crisis, which also resulted in transfer cuts to the provinces. That
provincial economic health is a factor is reinforced by the fact that
real per capita health expenditures for 2013 are still forecast to grow
in more robust Alberta and Saskatchewan. Moreover, real per capita
private sector health expenditure growth has also slowed down though it
remains positive.

If the health of the economy is the key factor,
then this moderation in public health expenditure growth is transitory
and health spending will resume its climb when the economy picks up
steam.

Story Number Three: Another possible explanation for this
decline may be provincial adjustment to the end of the 2004 Health
Accord and the imposition of a new Canada Health Transfer formula
beginning in 2017.

Starting in 2017, the growth of federal health
transfers will be linked to the national rate of economic growth and
inflation with a floor of three percent. It could be that provinces are
being forward-looking and implementing cost-control measures in advance
of the day when federal transfer growth slows from the annual six
percent increases of the Health Accord.

In fact, some combination
of stories two and three makes the most sense — which means the cost
curve in health care spending has not been bent yet.

What does
this mean? The economy will eventually recover and relax provincial
health expenditure constraints, but federal health transfer growth will
be reduced starting in 2017. This means that the new transfer formula
may yet be a factor in forcing provinces to deal with costs in their
respective health care systems.

Given population growth and
inflation, federal transfers are effectively going to be frozen in real
per capita terms after a decade of steady increase. The federal
government is again providing an incentive for the provinces to bend the
health care cost curve. However, this time the provinces will face the
challenge of implementing solutions without new money to “buy change” —
the mantra of the post-Romanow Report era that saw the 2004 Health
Accord enacted.

For a long time now, public health care reform in Canada has been a story of missed opportunity.

The
current federal role in health care is disappointing yet
understandable. A decade of annual six percent health transfer increases
has not bought the transformative change that was promised. A more
active federal role in trying to foster change by tying new funding with
the application of national health standards would inevitably be
greeted by provincial cries of domineering federalism and unwarranted
federal intrusion. As a result, all that is left is the blunt instrument
of reducing the growth in federal cash transfers to provide an
incentive to economize.

When it comes to health care, Canada’s
federal government enters the future with a role whereby the federal
government will observe but not directly involve itself in provincial
affairs.


Livio Di Matteo is an expert advisor with EvidenceNetwork.ca and a Professor of Economics at Lakehead University.

 


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