April 6 – The amount Canadians spend on healthcare is set to rise rapidly over the next two decades and Canadians need to face up to tough choices to deal with this “spending disease,” according to a new C.D. Howe Institute study by David A. Dodge, former Governor of the Bank of Canada and Deputy Minister of Health, and co-author Richard Dion, a former economist at the Bank of Canada. The study, Chronic Healthcare Spending Disease: A Macro Diagnosis and Prognosis, examines the trajectory of total healthcare spending – public and private – in Canada and the policy choices Canadians must make in response.
The authors estimate the extent to which healthcare spending is going to absorb a greater fraction of income than Canadians have experienced to date under two scenarios: a baseline scenario drawn from historical experience, and an optimistic scenario, which assumes an unprecedented improvement in the efficiency and effectiveness of the healthcare system and large improvement in potential economic growth. In their study, growth in real per capita healthcare spending is driven by four factors: growth in real personal income per capita, changes in the relative price of healthcare services, changes in the age-gender structure of population, and technology-related expansion in the scope and quality of medical services. Among their findings:
- In the base case, healthcare spending rises from 12 percent of GDP in 2009 to 19 percent in 2031.
- In the optimistic case, with new policies and cost-reducing technologies bringing down the cost of healthcare, the rise in spending is more limited than the baseline, but significant nonetheless, because it would bring the spending ratio to over 15 percent of GDP by 2031.
- In the base case, the annual increase in nominal healthcare spending per capita is set to rise from about $250 in the last decade to $675 in the 2020s.
- This would raise total annual spending per capita after inflation in the base case from $4,900 per head in 2009 to $10,700 in 2031.
Should policy reforms be incredibly successful in improving the efficiency and effectiveness of the healthcare system, say the authors, Canadians would still face difficult choices as to how to finance the rising costs of healthcare.
In addition to increased spending by individuals and employers for health services currently uninsured by provinces, Canadians must choose some combination of: 1) a sharp reduction in public services, other than health care; 2) increased taxes to finance the public share of healthcare spending; 3) increased individual spending on healthcare services currently insured by provinces, through some form of co-payment or through delisting of services that are currently publicly financed; 4) or a degradation of publicly insured healthcare standards - longer queues, and services of poorer quality. None of these options is appealing, they say; but Canadians have no easy way to manage the chronic healthcare spending rise.
For more information contact: David A. Dodge, Senior Advisor, Bennett Jones LLP; Richard Dion, Senior Business Advisor, Bennett Jones LLP; Colin Busby, Senior Policy Analyst, C.D. Howe Institute; 416-865-1904; email: cdhowe@cdhowe.org