Insatiable health sector always wants more money

Posted on April 15, 2009 in Governance Debates, Health Debates

Insatiable health sector always wants more money – Opinion – Insatiable health sector always wants more money: Tough decisions about sustainability need to be made before it’s too late
April 14, 2009.   Livio Di Matteo, Professor of Economics at Lakehead University

Given the slowing Ontario economy and faltering government revenues, 2009 promises to be a tumultuous year in the province’s health sector.

However, we should not let the recession divert us from the reality that the roots of the health funding issue are long-term. Despite the Romanow report and the health accord that brought billions of dollars in new health funding to buy change, it would appear that all that has been purchased is quiet time rather than a permanent solution to health-care sustainability.

The inexorable forces of health expenditure in Ontario, as in other provinces, have eaten up the increases and begun to move on.

Fiscal sustainability means having the money to pay for what you want to do both now and in the future. A working definition of fiscally sustainable public health spending is one in which the health needs of all members of the population can be met with current revenue and expenditure mechanisms such that increases in spending match increases in the resource base.

Yet an examination of Ontario’s long-term health-care spending suggests that we have been outstripping the ability to pay for decades.

In 1965, Ontario’s provincial government was spending approximately $430 in real per-capita dollars (1997 dollars) on health care. By 2008, real per-capita provincial government health spending in Ontario hit $2,551. This represents a sixfold increase since 1965 and real per-capita government spending on health has grown almost 50 per cent since 1995 alone.

Moreover, as a share of the province’s GDP, provincial government health spending now accounts for 7.2 per cent of the economy, up from 2.3 per cent in 1965. Key drivers of this increase have been technological change and the demand for new procedures, including drugs and improved diagnostics, rising costs for services, and an aging population.

The picture for health spending is even more startling if one looks at health expenditure categories. Real per-capita provincial government health spending on drugs, public health, capital spending and home care have all grown much faster than the average. This suggests the main drivers of the provincial health expenditure increase in Ontario are these other categories rather than categories such as hospitals or physicians.

How does the increased spending on health compare with Ontario’s resource base? Since 1965, the annual growth rate for real per-capita provincial government health spending averaged 6 per cent – well above the growth rate for real per-capita total provincial government spending of 3.6 per cent.

Despite periodic booms, the annual growth rate of real per-capita GDP only averaged 1.5 per cent. Meanwhile, the average annual growth rate of real per-capita provincial government revenues since 1965 is 3.2 per cent.

More interesting, Ontario’s real per-capita federal transfer revenue (which until this year was mainly for health and social assistance) quadrupled since 1965 – an average annual growth rate of 3.8 per cent. In each case, provincial government health spending per person outstripped growth in these standard measures of the resource base per person. The gap is even larger when some of the separate health expenditure categories are considered.

How does Ontario do it? More spending on health ultimately means less spending on other government areas. The share of total provincial government spending on health was 31 per cent in 1965 and is now 42 per cent. As well, Ontario also managed to balance competing demands in the past by running deficits and therefore growing its net debt from about $40 billion in 1989 to about $147 billion in 2008. In fact, three-quarters of Ontario’s provincial debt was acquired in the last 20 years.

On the one hand, spending on health is a public policy choice and if Ontarians are happy spending 42 per cent of their provincial budget on health, then in some sense there is no policy issue. Indeed, the pre-budget lamentations of various provincial health interest groups become a ritual designed to generate public support for increases in the health-care budget, which ultimately must come at the expense of growth in other areas. Health care makes the best claim for an increased share of resources given our visceral collective terror when it comes to illness and death.

On the other hand, health cannot grow faster than other government expenditure categories and the revenue base forever. At some future point, tougher decisions about sustainability will need to be made.

The options are fairly simple. Reduce expenditure growth through outright cuts or delivery reforms and/or boost provincial government revenues via tax increases, obtaining more federal transfers or boosting the economy’s overall growth rate to broaden the tax base.

While the options are simple, implementing them never is and we can look forward to more years of reports of underfunding and deficits in the province’s heath-care system.

This entry was posted on Wednesday, April 15th, 2009 at 1:00 am and is filed under Governance Debates, Health Debates. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

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