Before adding new taxes, cut health care spending
Having spent itself into a considerable deficit problem, the Alberta government seems to be considering a sales tax as part of its plan to dig provincial finances out of the red (or at least theyre trying to start a discussion to that end). The alternative, were led to believe, is fewer and lower-quality public services due to obligatory spending cuts. A closer look at the facts suggests thats not the only option available.
Instead, they could choose a win-win scenario that improves health care while reducing waste and inefficiency.
Canadian health expenditures (age-adjusted) are the highest among developed nations that maintain universal approaches to health insurance. In 2009 (the latest year for which comparable data are available), Canadas health expenditures were, on average, 26 per cent higher than other developed nations with universal health insurance. Albertas health expenditures are similarly the highest in the nation, some 35 per cent higher than the national average (2010, age- and sex-adjusted).
Yet the performance of the health care system in no way reflects this highest-in-the-world level of expenditure. Canadians receive relatively poor access to physicians and medical technologies, and endure some of the longest waits for health care in the developed world. Within Canada, Albertans enjoy somewhat better access to health care than residents of other provinces (at least with respect to volumes of procedures and wait times) but still dont enjoy access as good as residents of Quebec or Ontario.
The wasteful and unnecessarily expensive nature of Albertas health care system is due to the provincial governments poor health-policy choices. Other developed nations universal health insurance systems employ multiple strategies that improve cost effectiveness and efficiency. As a result, they can buy better health care with fewer dollars.
The provincial governments plan should not be to raise taxes (or create new ones) to cover current inefficient spending. Instead, the province should implement sound and sensible policies to reduce current expenditures while improving the quality and/or quantity of services. Based on the experience of other developed nations, two sensible policies could do just that: cost sharing/user fees and activity-based funding.
Requiring patients to share in the cost of their care is essential to providing a less expensive and more accessible universal health care system. The reasoning is straightforward: people spend their own money more wisely than they spend someone elses. According to research and international evidence, cost sharing results in patients using fewer resources (making more available for other patients and saving money overall) and ending up no worse off in terms of health outcomes.
Just how much money might cost sharing/user fees save? The Canadian Institute for Health Information estimates Alberta spent $17.7 billion on health care in 2012. Using the findings of a 2004 study on cost sharing in Alberta, the provincial government could have saved an estimated $3.5 billion of those expenditures. Unfortunately, penalties under the Canada Health Act for copayments would reduce these savings by $1.4 billion (the amount charged to patients). For the record, that 2004 study included a 25 per cent coinsurance payment with reasonable annual limits for patients, exemptions for old-age and lower income Albertans, and hospital care exemptions for children and the elderly.
Another way to reduce government spending and improve health care is to move to activity-based funding for hospitals, from the current global budget model, and allow more competition in the delivery of services. Under global budgets, hospitals receive a set amount of money each year and thus perceive every patient to be a drain on the budget. Activity-based funding, where hospitals are paid per patient, turns this system on its head and encourages greater quality and quantity of services as well as greater efficiency in providing them.
The Swedish experience provides some insight into the immense benefits of this funding method. One study of the move to activity-based funding in Swedish county councils in 1993 and 1994 estimated a potential 13 per cent cost savings for regions that reformed. Another study, focused on the capital Stockholm, found an eight per cent increase in inpatient care, a 50 per cent increase in day surgeries, and a 15 per cent increase in outpatient visits (an 11 per cent increase overall) for a one percent decrease (yes, decrease) in costs.
All of this suggests that Albertans could have saved some $1.1 billion on health care in 2012 through sensible reform of hospital funding mechanisms.
In total, a rough calculation shows that Alberta could have saved some $3.2 billion ($4.6 billion before federal penalties) on health care from introducing just two sensible health policies used in other developed nations. That would have put a considerable dent in the sizable deficit problem the province is facing. And it would have done so while improving the allocation of health care resources in the system.
Sound health care reform can both save money and improve the state of Medicare. That makes a lot more sense than increasing taxes to continue paying for inefficiency.
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