Health-care Reform Faces Significant Challenges

Published in the Telegraph-Journal 16th October 2012

Health care is a sleeping dragon slowly wakening to a public that is wholly unprepared to battle it. Canadians have a short time frame in which to recognize the magnitude of the challenges that health care presents, in which financing is the most prominent.

In April 2011, the C.D. Howe Institute published “Chronic Healthcare Spending Disease: A Macro Diagnosis and Prognosis”, co-authored by David Dodge, a former Governor of the Bank of Canada and Richard Dion, formerly an economist with the Bank. Both are now senior advisors at Bennett Jones LLP, a Canadian business law firm.

They argue that even if policy reforms are “incredibly successful” in improving the efficiency and effectiveness of the health care system, Canadians will still face rising health care costs and necessary difficult choices about how governments and citizens will finance these costs.

In their analysis, the annual increase in nominal health care spending per capita is set to rise from about $250 in the last decade to $675 in the 2020s, bringing total annual spending per capita after inflation to approximately $7,400 in 2021 and $10,700 in 2031, up from nearly $4,900 in 2009. The implication of their analysis is that in the 2020s, “Canadians will be spending 31 cents of every dollar of increase in their nominal incomes on health care, thus bringing the average share of health care spending in GDP up to nearly 17 per cent”.

Their analysis points to the need for governments to make very difficult decisions. Governments will not only be held responsible for providing most of these services, but will inevitably turn their attention to how they can offload some of these costs onto individuals or employers.

Dodge and Dion reach conclusions that underscore the scope and scale of the health care system challenge in Canada and state grimly that the numbers don’t add up. “In addition to increased spending by individuals and employers for health services currently uninsured by provinces, some combination of increased taxes, reduced public services other than healthcare, increased individual spending on current publicly insured services, or a degradation of publicly insured health care standards – longer queues, services of poorer quality – is necessary to manage the growth in health care spending. None of these options is appealing; Canadians have no easy way to manage the chronic healthcare spending rise.”

Journalist and author Jeffrey Simpson characterizes health care as “the third rail of Canadian politics.” “Touch it and you die,” says Simpson in his recently published book “Chronic Condition: Why Canada’s Health Care System Needs to be Dragged Into the 21st Century”. He claims that Canadians urgently need a debate on how to ensure the future of the health care system. Simpson claims that people are unaware or unwilling to review the trade-offs, alternatives and sacrifices that may be necessary to keep the Canadian health care system from collapsing under its own weight. His argument is that politicians and bureaucrats fear honesty, having “hoodwinked people into believing future costs can somehow be paid for without affecting other government services or tax increases.”

Because there is no easy way to manage the chronic health care spending rise, none of the alternatives are politically attractive, as Dodge and Dion elaborate in their C.D. Howe study. In itself, the prospect that there are so many pitfalls with no identifiable winning political proposition places pressure on politicians and bureaucrats to delay the forces of reform, transformation and innovation that will be needed to address the challenge. But even if the prognosis is not good, health care’s financial challenges must be managed. Dodge, Dion and Simpson are in full agreement that it is now up to Canadians to have an “adult discussion” about how to manage it.

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Filed under Finance, Fiscal Policy, Health Care, New Brunswick

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