Is the health care crisis imaginary or due to a lack of imagination?

November 26, 2010 – We all know Canada’s population is aging. We also know that many experts have issued dire warnings about the effect this demographic shift will have on the healthcare system in Canada, in terms of quality, access, and affordability. However, the pessimism directed at the sustainability of the system and fears of an aging population are a function of a misunderstanding of the numbers. Dr. Michael Rachlis, a health policy analyst, contends that fears of run-away health spending are exaggerated, and that certain changes can be made to the system to accommodate the challenges associated with an aging population.

During the depths of Canada’s last serious recession in 1992, Canada spent 10 per cent of its economy on health care. Canadians were concerned and governments froze budgets. Saskatchewan was supposedly on a credit watch. Then the economy turned around. By 1997, we spent less than 9 per cent of our economy or Gross Domestic Product GDP on health. In a few years, we became concerned about underfunding. Governments had lots of money and we deliberately ramped up spending.

Health care slowly increased its share of GDP to 10.7% of GDP by 2008. The recession struck in 2009 and even though spending increased only slightly, that year it consumed 11.9% of our GDP. Governments got concerned. They began to apply stringent cost controls and in 2010 the economy started to grow. The latest information indicates that health will take 11.7% of GDP this year. Health’s share of the economy is likely to decrease for the next few years just as it did in the mid-1990s.

There’s even less sign of cost pressures if we look at public spending, about 70% of all spending. These costs have only increased from 7.4% to 8.2% of GDP since 1992. Furthermore, the Canada Health Act covers only hospitals and doctors. The costs of those programs have actually decreased from 5.3 per cent to 5 per cent of GDP.

Moreover, health care has only slightly increased its share of provincial budgets. Even these apparent increases are primarily due to the distorting effect of cuts in other program areas rather than absolute increases in health spending.

The following graph shows that health was stable at 33% of provincial program spending (total provincial budgets minus debt payments) from the late 1980s until the late ‘90s. Then it jumped up to 39% in 2003 where it has been flat for six years. However, during this time total provincial program spending was cut from 14.3% of GDP to 10.8% — a one-quarter cut.

In effect, this means that healthcare spending has grown relatively rather than in absolute terms. If the GDP shrinks and health spending remains roughly stable, then its share of the GDP will increase. Likewise, if spending on other social programs is cut, health spending will seem disproportionally large. Dr. Rachlis notes that Canadian governments have cut taxes since 2000 by 5.3% of GDP, equivalent to roughly $87 billion.