Medicare, minus the soaring cost
Health- care spending is creating a fiscal emergency for provincial governments. Yet, the federal government has refused to exercise user fees, the one policy response that could help without adding pressure on the federal budget.
In all provinces, healthcare accounts for a large share of the fiscal burden borne by taxpayers, as seen in a new analysis of healthcare spending over the last quarter century. In 2015, provincial government health spending averaged 43 per cent of total available revenue ( including federal transfers and net of debt interest expenses), ranging from 33 per cent in Quebec to 57 per cent in Newfoundland and Labrador.
Without federal transfers, the fiscal strain from health spending would reach crisis levels in most provinces. The fiscal burden of provincial government health spending averaged 59 per cent of total available provincial- source revenue ( excluding federal transfers and net of debt interest expenses), ranging from 41 per cent in Quebec to 75 per cent in Newfoundland and Labrador.
Recent trends show that health care’s share of available revenue has been eased by a combination of spending restraint and increased tax revenue. In seven of 10 provinces, the fiscal burden of provincial government health spending decreased over the five years from 2011 to 2015. Over the same period, in eight of 10 provinces, government health spending grew at the same pace or slower than GDP. At the same time, in nine of 10 provinces, tax revenue i ncreased nine per cent faster on average than GDP, ranging from four per cent faster in British Columbia and Manitoba to 21 per cent faster in Newfoundland and Labrador.
It is possible to improve the fiscal sustainability of our health system with less resort to rationing, tax hikes and federal transfers by introducing moderate economic incentives to discourage unnecessary demand for medical care, to encourage efficient supply of medical goods and services, and to moderate medical price inflation. Though prohibited under the Canada Health Act ( CHA), extra- billing, copayments and user fees are practical options that should be reconsidered by federal and provincial policy-makers.
As a pilot policy, t he federal government could waive transfer penalties under the CHA for a period of five years, to allow provinces time to experiment with various types of user fees and test the impact on health-care utilization, health outcomes and the fiscal burden of health spending in Canada.
The most recent federal budget forecasts a deficit of nearly $ 29 billion for 20172018. A simple and reversible policy announcement, stating that the government will suspend the enforcement of financial penalties against provinces that apply user fees, would relieve pressure to increase federal health transfers. It would be similar in principle to the transfer of tax points.
This proposal might seem controversial, but it shouldn’t be. According to data from the Organisation for Economic Co- operation and Development, various types of patient cost- sharing for physician services are commonly used in the health- care systems of most advanced countries with similar social goals as Canada.
The revenue potential from even small user fees is substantial. Recent research has calculated that, if in the fiscal year 2004-2005 provincial/territorial governments had pegged all future increases in physician fee- forservice payments to changes in the CPI and allowed extra billings to cover fee inflation, by 2014- 2015 governments could collectively be saving up to $4 billion a year versus actual costs. Alternatively, a user fee of $ 20 per service could have offset up to $ 5.3 billion in government health spending in 2014-15, and a 25 per cent copayment per service could have offset $ 4.1 billion. Further savings would likely result from the new economic incentives affecting consumer and provider behaviours.
Provincial governments would need to put limits on the total costs that any individual patient ( or family, household) could be exposed to when designing user charges, including for example capping total out- of- pocket costs on an annual basis or as a percentage of income.
Nevertheless, modest user charges for publicly funded medical goods and services are a fiscally attractive and socially manageable supplementary funding option for Canada’s health-care system.