June 1, 2010
Medicare as sustainable as we want it to be
By Robert G. Evans
“There are stark and unpalatable choices that we face with respect to health care, but there is no magic solution. We absolutely must have an adult debate about how we deal with this.” That’s what David Dodge, former governor of the Bank of Canada and former deputy finance minister, told the Liberal policy conference last March.
Dodge joined a list of economists and other pundits who predict that public health care will be financially unsustainable in coming years as Canada faces an aging population and escalating costs for scientific advances in care and treatment. But an “adult debate” on the sustainability of public health care must start from who and what drives health care spending.
It’s true that total health care spending in Canada has risen in recent years, taking larger shares of both government revenues and budget allocations. This has led to accusations of “crowding out” other public programs by those favouring further privatization of health care.
The data tell a much more nuanced story. The central fact is that, recession years apart, Medicare spending - hospitals and physicians’ services - has fluctuated between 4% and 5% of Gross Domestic Product since 1975. After the introduction of Medicare in the late 1960s these costs stabilized because universal, comprehensive coverage consolidated expenditures in the hands of a single payer. The cost of health services not covered by Medicare has risen from 3% of GDP in 1975 to 7% in 2009.
Today, Canada’s expenditures on health care match those by other OECD countries. The public share of overall health costs in Canada is relatively low for high-income OECD countries, around 70%. Private insurance, primarily for prescription drugs and dentistry, now accounts for 12.7% of Canadian health spending, 14th highest in the world. The OECD outlier is the United States where extensive private finance supports uncontrollable cost escalation (now over 16% of GDP. Getting these costs under control will be the major task facing Obama’s health care reform.
Provincial governments’ spending on health care over the past 15 years has taken increasingly larger bites out of their expenditure budgets. But this is a simple consequence of large cuts in non-health programs, not of out- of-control Medicare spending. These cuts in non-health spending are traceable to substantial cuts in personal and corporate income taxes by the federal and most provincial governments, particularly since 1997. Between 1997 and 2004, these tax cuts removed an estimated $170.8 billion from public sector revenues . Total provincial revenues are by now roughly $35 billion per year less, or about half provincial spending on Medicare. Cumulative federal cuts are at least as large.
The provinces’ revenue shortfalls were not all self-inflicted. The federal government’s large cuts in financial transfers since the mid-1990s also left big holes in provincial budgets. Subsequent increases have not fully made up the loss.
What are the real motives behind the claims of financial unsustainability? Two, I think. First, under Canada’s universal tax-financed Medicare, higher-income people contribute proportionately more to supporting the health care system, without receiving preferred access or a higher standard of care. Any shift to more private financing would reduce the relative burden on those with higher incomes and offer (real or perceived) better or more timely care for those willing and able to pay.
Second, every dollar of health care expenditures is also a dollar of someone’s income. The Ontario government’s recent change in reimbursement for generic drugs made this clear, the shares of Shoppers’ Drug Mart fell 10% overnight. Privatization is a way to avoid cost containment, re-opening greater income opportunities for providers of care (and private insurers) outside public control. Expenditures would accordingly rise, as in the United States, but public budgets might (in the short term) be contained. “Unsustainable” public spending magically becomes sustainable when shifted from taxpayers to patients.
It is time, long past time, for an “adult conversation” about these motivations, and for a clear identification of the winners and losers from eroding or dismantling Medicare.
But it is also time for an adult conversation about the real drivers of cost escalation. Researchers have known for decades that population aging is a real but a minor factor. Its impact will certainly increase, but it will remain secondary to increases in intensity and costliness of care. This is the real issue. Where is the money going, both public and private, and are we getting value? Again the Ontario generic drug initiative makes the point. Rising expenditures are not a Law of Nature; several hundred millions will be cut at a stroke. The real issue is political; those millions are also cut from pharmacy’ incomes.
Are there other opportunities? Yes. Medical imaging and laboratory testing are currently the major sources of cost escalation. What are the benefits? No one knows. Ultrasound for low-risk pregnancies is up 50% in ten years. Why? Patterns of medical practice and hospital use vary widely across the country, for no apparent reason. Toronto’s Institute for Clinical evaluative Science, among others, has tracked some of these large unexplained variations, but they are largely ignored. These are what we need to discuss, not “stark choices” about relieving the burdens on and improving the benefits for high-income taxpayers -- and, incidentally, opening new markets for private insurers. Panic-mongering about a “grey tsunami” is simply a distraction.
Canadians consistently show that they support public health care. In May, a national poll by Nanos Research confirmed that 90% of Canadians feel that health care is the most important national issue, and almost 90% support public solutions to problems in the health care system. They are right. Canada’s health care system is as sustainable as we want it to be.
Robert G. Evans is a University Killam Professor in the Department of Economics at the University of British Columbia and a member of that university’s Centre for Health Services and Policy Research. He is an officer of the Order of Canada, and a fellow of the Royal Society of Canada and the Canadian Academy of Health Sciences.
Do you like this post?