Health Care Has Become a Signal Issue of Our Time

Published in the Telegraph-Journal 19th October 2012

Canada’s publicly-funded health care system is poised to undergo its greatest reform since the signing of the Canada Health Act in 1984. The reasons for this pending transformation have much to do with health care’s financial unsustainability. A number of factors will drive changes in the total health care spending-to-GDP ratio over time. In New Brunswick, these factors include changes in the age demographics of the population because per capita health care spending increases rapidly beyond a mid-40s age threshold.

An additional challenge involves GDP growth that has effectively stalled while health care costs continue to rise by significantly greater than inflation. While New Brunswick’s fiscal deficit has been brought largely under control, government’s debt remains high. Historically low interest rates have helped to keep the government’s debt service costs low as well, but this is a temporary phenomenon. To compound the problem, global population aging is set to place upward pressure on long-term interest rates and therefore intensify debt service costs over the next fifty years.

Health care technology is one of the cornerstones of the cost challenge. Technology has increased efficiencies and dramatically improved the quality of medical services. Changes in medical technology and practices have had a material impact on health care spending. The introduction of more sophisticated tools has been shown to increase demand for health care services and raise costs. Pharmaceutical technologies have increased costs even more dramatically. In Canada, technology changes accounted for as much as 25 per cent of the growth in real per capita health care spending from 1996 to 2009.

Even with substantial health care reforms, a combination of initiatives will be necessary to cover rising health care costs. Individuals and employers may be faced with increased spending for government services in the form of fees or surcharges. However, the public may still see a reduction in government services. Increased taxes to finance the public share of health care spending may become necessary. Budgetary restrictions may lead to some form of co-payment spending by individuals on health care services that currently are provincially insured.

This could lead to the development of a privately funded health care system to provide better-quality care for those willing and able to pay for it. The UK and many European countries have this “two-tier” system, and New Brunswick already has elements of this system in place in the form of private clinics. The partial privatization of health care would have little impact on the rate of growth of total spending although it does alter the public-private split and has distributional implications. There is a greater risk that a weakening of the health care system will lead to a major degradation of publicly-insured health care standards such as longer queues, lower quality service provision and delisted products and services.

At the same time, technology will be one of the cornerstones of the transformation needed to realign health care with our fiscal reality. Over the course of more than 15 years, numerous attempts have been made to wield technology to introduce greater productivity into the health care system, but so far there has been little progress. Significant potential clinical and financial benefits would be achieved with the implementation and networking of health information technology (HIT), primarily through the widespread adoption of electronic medical records (EMR). By improving health care efficiency and safety, HIT-enabled prevention and management of chronic disease could significantly increase benefits.

However, in New Brunswick, these benefits are unlikely to be realized without related changes to the health care system. These changes amount to a full-scale transformation of health care, our fundamental assumptions about how it is provided and how we plan to pay for it.

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Filed under Economics, Finance, Fiscal Policy, Government transformation, Health Care, Innovation, New Brunswick

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