Public Health Care on Path to Bankruptcy

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posted November 8, 2005

For each of the past five years, public spending on health care in every province has grown faster on average than total revenues from all sources – including federal transfers. Nationally, public health spending grew 8 percent annually, compared to 3.9 percent for provincial revenue, 2.4 percent for inflation and 4.6 percent for economic growth. This has resulted in health care taking up an increasing share of provincial revenue over time. Whether one looks at the most recent 5, 8 or 30 years of data, the trends are all the same. If provincial governments continue to maintain the medicare status quo, public health care expenditures will eventually exceed provincial capacity to pay.

The most recent five-year trends indicate that in 7 out of 10 provinces public health spending is on pace to consume more than half of total revenue from all sources by the year 2022, two-thirds by the year 2032 and all of provincial revenue by 2050. These projections do not even take into account the added pressures from an aging population that will further accelerate the growth of provincial health spending as a percentage of total revenue, and cause these dates to occur much earlier. This should be alarming because even a generous analysis of public health care financing shows the system is unsustainable.

Ontario is the worst-case province with public health spending set to exceed 50 per cent of revenue only six years from now in 2011, reaching two-thirds of revenue by 2017 and 100 per cent of revenue by the end of 2026. Prince Edward Island, New Brunswick, British Columbia, Manitoba, Saskatchewan and Newfoundland and Labrador are all in the middle of the pack ranging between 12 to 17 years before public health spending consumes 50 per cent of revenue. Meanwhile, Nova Scotia, Alberta and Quebec appear to be in better sustainability positions compared to the other provinces, reaching the 50 per cent warning mark later.

However, it is an illusion to think that any of the provinces are doing well. Regardless of the rankings, public health spending is growing faster than revenue in every province, which means that no provincial health care system is ultimately on a sustainable path. For Ontarians, this is occurring even after the province introduced a new income surtax, which the government deceivingly called a ‘health premium’. In fact, tax increases were introduced in every province over the last five years (except Alberta where rising oil prices have fattened the treasury), and revenues are still growing slower than public health spending.

This situation cannot be maintained forever. If public health spending continues to account for increasing shares of revenue, there will be fewer resources available for other areas of public spending and the trend will eventually bankrupt provincial governments altogether.

So what options do governments have?

Paying more for health care through existing public financing arrangements is not politically or economically sustainable. If governments decide to annually increase general tax rates to keep revenue growing as fast as public health spending, they will cause a slow down in economic growth with accompanying social costs like unemployment. Constantly rising tax rates are not sustainable over the long-term unless people are willing to accept declining standards of living over time.

Getting less from health care is also not a sustainable policy option for controlling the annual growth in public health spending. Governments currently try to constrain the growth in health spending by limiting the supply of physicians or the availability of high tech equipment and new drugs, all of which have caused unacceptable waits for necessary medical goods and services. Furthermore, the Supreme Court’s recent decision to strike down Quebec’s public monopoly on health insurance, while applying only within Quebec at the moment, makes it doubtful that it will even remain legal for other provincial governments to maintain a public health insurance monopoly while rationing access to medical services.

Thankfully, the evidence suggests that we can fix medicare if we introduce the kinds of policies increasingly being used to deal with similar access and cost-control problems in public health care programs around the world. These policies include requiring patients to pay for part of the publicly insured health care they receive through user fees, allowing the private sector to competitively deliver publicly-insured health services, and letting people use private insurance to pay for any health service they choose, including those delivered by physicians and hospitals.

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