Health care costs our single most pressing budget item

Posted on March 1, 2011 in Health Debates

Source: — Authors: – RoB/commentary
Published Sunday, Feb. 27, 2011. Last updated Tuesday, Mar. 01, 2011.   Barrie Mckenna

Amid all the pre-election noise in Ottawa there’s one topic that isn’t getting the attention it deserves: health care.

Some might argue that’s because delivering health care is a provincial responsibility. And that’s true.

But health care costs could eventually swallow all levels of government if left unchecked.

A 10-year deal that transfers $41-billion from Ottawa to the provinces to cover health care costs is set to expire at the end of 2013. That deal was struck in the middle of an economic boom. Tax revenues were soaring and the federal government had a budget surplus.

That clearly is not the case now. Ottawa and the provinces will ring up combined deficits of roughly $100-billion this year. The provincial share of that is slightly less than $50-billion.

Under the old deal, the provinces enjoy a generous annual boost in cash from Ottawa. The federal government can’t afford to be so magnanimous now.

Health care accounts for 42 cents of every dollar the provinces spend (even more in Ontario). And those costs are rising at a rate of 6.7 per cent a year, which roughly matches the current escalation in federal transfers.

So imagine the pain a freeze in health care transfers might cause. Indeed, anything less than the current escalator clause will force provinces to make some painful choices: deep cuts in health care spending or massive reductions in everything else.

In a report last week, the Conference Board of Canada estimated that even if the provinces lowered the rate of health care inflation to 4.6 per cent a year, they would make only a small dent in their combined deficits.

Most provinces are exploring ways to rein in health care costs. But not fast enough.

Nothing will come easily. Left unchecked, any number of factors could bankrupt the medicare system: aging, population growth, inflation, chronic disease, and the increasing use of costly new drugs, procedures and equipment.

The impact of aging, which adds roughly 1 per cent a year to health care costs, could prove to be the most troublesome because there’s no way to avoid it.

Today, 14 per cent of the population is 65 or older. By 2025, that will jump to nearly a quarter.

And older patients suck up more health care dollars than anyone else. Seniors over age 65 currently suck up 44 per cent of health care dollars – a share that has been steadily rising.

Per capita use of the latest drugs, surgeries and diagnostic tools is increasing more for seniors than for younger people, according to the Ottawa-based Canadian Health Services Research Foundation. An 80-year-old is twice as likely to have cataract surgery, a knee replacement or a coronary bypass as was the case 20 years ago.

And that’s just the cost side. Aging also has a profound effect on the ability of governments to raise money via the income tax system. Ottawa gets more than 60 per cent of its revenue from incomes taxes; the provinces, 27 per cent.

The leading edge of the Baby Boom is turning 65 this year, setting off a wave of retirements that will extend for the next 18 years. If Canada’s seniors aren’t working, they’re typically not paying taxes at current rates.

This is the year that the health care debate should begin – in Ottawa and the provinces. It is the single most pressing budget item and left unchecked it will overwhelm all other efforts to rein in government deficits.

If Ottawa wants to keep shouldering a larger share of the country’s health care costs, it will have to find the money somewhere.

The provinces, meanwhile, must recognize that a leaner system is the only way to make it sustainable over the long haul.

And yet what do we hear from the major political parties? A lot of talk about Bev Oda, the Minister of International Co-operation, and a disquieting absence of vision.

The Conservatives want to focus on crime and their stale economic record – a record that owes much to dumb luck and policies it inherited from previous governments.

The Liberals are also looking in the rear-view mirror, replaying old budget battles over promised corporate tax cuts.

The NDP wants to spend nearly $2-billion on tax breaks and new programs, without a clear plan on where it would get the money.

The Bloc Québécois just wants a big cheque from Ottawa.

It’s no wonder Canadians aren’t particularly inspired by the choices before them.

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