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Canada's Medicare Bubble: Is Government Health Spending Sustainable without User-based Funding?

Type: Research Studies
Date Published: April 18, 2011
Research Topics:
Canada's Medicare Bubble examines whether the public costs associated with Canada’s health system are economically sustainable. Total provincial health spending has grown at an average annual rate of 7.5% over the last ten years, compared to only 5.7% for total available provincial revenue (including federal transfers), and only 5.2% for GDP. Long-term trends are similar: government spending on health has grown faster on average than GDP since 1975. As of 2011, provincial health spending in Ontario and Quebec currently consumes more than 50% of total revenues. Projections show that in Saskatchewan, Alberta, British Columbia and New Brunswick government health spending is on pace to consume 50% of revenues by 2017. In Manitoba and Prince Edward Island health spending will reach 50% of total available revenues by 2028. When federal transfers are excluded, government health spending currently consumes between 48.0% (Alberta) and 87.7% (Nova Scotia) of total available provincial own-source revenues. Economic reality recommends liberal reforms. Federal funding is not a solution: the federal government has already transferred billions more in health funding to the provinces than the amounts needed to keep up with general price inflation or population growth. Transfers encourage the provinces to avoid making necessary reforms. Paying more is not a solution: taxes cannot rise indefinitely to chase expenditures. High and rising taxes discourage economic growth and reduce the long-term potential revenue base for governments. Getting less is not a solution: provincial governments have used the blunt policy approach of rationing to constrain public expenditures without allowing private funding to fill the insurance gaps. This has reduced the availability of necessary medical goods and services. We conclude that Canada’s health system produces rates of growth in health spending that are not sustainable solely through redistributive public financing. Supplementary user-based, private financing would off-load public cost pressures, encourage economic efficiency, and offer a sustainable source of additional resources.
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