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Government & policy

Spending 50% of revenue on healthcare within a generation?

TORONTO – Provincial spending on healthcare is growing faster than revenues, with six of 10 provinces projected to be spending more than 50 percent of all available revenue on healthcare by 2036, says a new report released by independent research organization the Fraser Institute.

New Brunswick and Manitoba face the greatest crunch, with New Brunswick projected to be spending 50 percent of its total revenues on healthcare within 11 years while Manitoba could hit the 50 percent mark within 12 years.

Newfoundland & Labrador will likely reach the 50 percent point within 17 years, followed by Nova Scotia in 19 years. Saskatchewan will likely take 25 years to reach the 50 percent point; Ontario 28 years and British Columbia 31 years.

The report, Paying More, Getting Less: 2008 Report, shows that Prince Edward Island will likely take 61 years to reach the 50 percent point with Quebec taking 86 years before it is required to spend 50 percent of its revenues on healthcare. Alberta is the only province where total revenues have grown at a rate comparable to healthcare spending during the past 10 years.

“Over the past ten years, healthcare spending in nine out of 10 provinces has grown at an unsustainable rate. Unless governments find a better way to finance healthcare, then provincial governments will likely be looking at tax hikes, further rationing of medical goods and services, or ugly trade-offs with other important spending areas,” said Brett Skinner, the Institute’s Director of Bio-Pharma, Health and Insurance Policy and lead author of the study.

Paying More, Getting Less: 2008 Report is the Fraser Institute’s fifth annual report on the financial sustainability of provincial public health insurance.

The peer-reviewed study uses Statistics Canada data from the past 10 years to project growth trends in government spending on healthcare versus total revenue. The report uses a moving 10-year trend analysis to measure sustainability. The trend is derived from the average annual growth rates for total provincial government health expenditures and total available provincial government revenue from all sources over the most recent 10-year period.

The complete report is available at www.fraserinstitute.org.

Skinner notes that while some provinces have experienced revenue growth linked to escalating energy prices, most notably Alberta, BC, Saskatchewan, Newfoundland & Labrador, and Nova Scotia, this trend may not continue and can not be relied upon to cover increasing health expenditures. Additionally, some provinces are heavily reliant on federal transfers for a large part of their revenue. The growth rates for government health spending in Manitoba, New Brunswick, Newfoundland & Labrador, Nova Scotia, and Prince Edward Island are subsidized by federal transfers to a much higher degree than rates in other provinces.

“Alberta is the only province where energy-driven revenue increases have managed to keep pace with healthcare expenditures. All other provinces have seen healthcare expenditures climb at a faster rate than revenue,” Skinner said. In provinces without large energy resources, revenue has been increased through increased taxes. Skinner pointed to Ontario’s “health premium” income surtax, introduced in 2004, as an example of a provincial government trying to find new taxes to cover healthcare costs.

“The tax burden cannot continue to rise over the long-term unless people are willing to accept declining rates of economic growth and lower standards of living. Trying to drive long-term revenue growth through tax increases is futile,” Skinner said. The report concludes that Canada’s current public health insurance system is simply not financially sustainable through public means alone and recommends several changes:

• encourage the efficient use of healthcare by requiring patients to make co-payments for any publicly funded medical goods and services they use;

• relieve cost pressures facing the public health insurance system by legalizing the right of patients to pay privately (private insurance or out of pocket) for all types of medical goods and services, including hospitals and physician services, as is currently allowed for access to prescription drugs;

• allow health providers to receive reimbursement for their services from any insurer, whether government or private;

• shift the burden of medical price inflation onto the private sector by allowing providers to charge patients fees in addition to the government health insurance reimbursement level; and

• create incentives for cost and quality improvements by permitting both for-profit and non-profit health providers to compete for the delivery of publicly insured health services.

Skinner suggests that Canada look to the examples set by Switzerland or the Netherlands, where the government is not in the business of providing health or drug insurance at all. Instead, individuals in those European nations are required by law to purchase comprehensive health insurance in a regulated pluralistic private-sector market, and the government provides low-income subsidies so that everyone can afford coverage.

“Canadians need to consider alternatives to the status quo if we want a sustainable, high-quality healthcare system. Doing nothing means that Canadians will continue to pay more and get less when it comes to healthcare,” he said.

The Fraser Institute is an independent research and educational organization with locations across North America and partnerships in more than 70 countries. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect the Institute’s independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.

 

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