Our great health-care spendfests
NationalPost.com – Full Comment
August 12, 2016. Kelly McParland
A new report from the C.D. Howe Institute offers an illuminating look at the cost trends in Canada’s health-care system, and should be studied carefully as Ottawa approaches negotiations with the provinces on a new health accord.
Canada, it notes, has undergone two distinct periods of restraint in health-care funding. The first, in the mid-1990s, resulted from a serious fiscal crisis facing federal finances, leading to cuts in health transfers to the provinces and four years of reductions in per-person spending. The second, starting in 2011, has seen a milder decline in per capita spending and results largely from pressure on provincial budgets, rather than federal finances. Having borrowed themselves into a corner, the provinces are struggling to make ends meet, and health care — as everyone’s biggest budget item — is feeling the effect.
Bracketed by periods of rapid growth, the trend depicts a roller-coaster effect: when Canada feels prosperous, health costs shoot up. When the bills arrive, governments struggle to pull in the reins. It’s not an efficient or effective way to run a business, much less the biggest annual cost facing Canada’s provinces. C.D. Howe notes that both periods of restraint coincided with painful national recessions.
Cutting back on health care only makes a recession more painful on people, of course. In the 1990s, the biggest impact was on hospitals, which were forced to delay or reduce maintenance, upgrades or expansion programs.
Today the squeeze is once again impacting hospitals, but is being felt as well in drug costs, capital expenditures and “other institutions” such as long-term care facilities. Governments may portray their efforts as “holding the line,” but they result from years of poor management and inadequate cost controls, and have a very real effect on the level of care Canadians can expect.
Once the 1990s recession ended, spending shot right back up again, at an even faster rate than before. C.D. Howe expects the same will happen again should the provinces return to a period of reasonable growth. That’s because expenses are largely being avoided or delayed, rather than eliminated. Hospital upkeep can only wait so long, demand for long-term care is only likely to increase, in most provinces physician costs continue to rise, and governments operating in a period of record-low interest rates will face a much-tougher squeeze when rates inevitably begin to rise.
The provinces’ strategy has been to demand more money from Ottawa, yet again. Under a 2004 accord, the Canada Health Transfer has increased at a rate of six per cent a year, well above inflation, almost doubling in size over the past decade. The pact expired in 2014, but the Conservative government agreed to maintain the six-per-cent annual increase until this year, after which it is to fall to a minimum guaranteed level of three per cent.
Although the new rate is still well above inflation or anticipated growth, the provinces greeted it with cries of dismay and bitter accusations aimed at Ottawa. At a recent federal-provincial conference meant to address the issue, Quebec Finance Minister Carlos Leitao characterized it as “a sudden and significant deceleration,” even though it represents a real increase and the provinces have known it was coming for five years.
The Howe report warns against yielding to the provinces’ demands. “There is evidence to suggest that provinces find it easier to spend federal money than to spend the revenues they raise on their own,” it notes dryly. Provincial leaders need to answer to their voters when they increase taxes, fees or levies due to their inability to control their spending urges, but face no such pressure if they can wheedle the money out of the federal treasury rather than their own.
The Harper government recognized that danger, and was willing to endure provincial outrage in the interest of forcing the provinces to take real measures towards containing costs. The Liberals, however, have promised negotiations towards a new accord, even as they rack up annual deficits to pay for their many other promises.
It’s fair enough for federal Finance Minister Bill Morneau to meet with his counterparts and discuss a new deal, but the government must make clear that a resumption of sky-high annual increases is not on the table. Never-ending budget hikes are not the answer to the strains on health care. If they were, the strains would have disappeared long ago.
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Tags: budget, economy, Health, jurisdiction, mental Health, tax
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