Myth: Canada's system of healthcare financing is unsustainable

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Myth busted December 2007

Talking about the financial sustainability of medicare - Canada's taxpayer-financed insurance plans for hospital and physician care - has long been considered "the national pastime." i Nonetheless, financial sustainability is usually framed as a recent phenomenon, the result of a comprehensive health system attempting to meet the growing needs of an aging population. ii Those who argue the system is unsustainable point to public funding and administration as part of the problem, rather than the solution. Their proposed remedy is quite simple - Canadians can accept less-comprehensive public health insurance, with more services being paid for out-of-pocket or by private insurance. iii However, as simple as this solution may be, it ignores the facts about which costs are rising and by how much; the ability of medicare to adapt; international evidence; and, most importantly, the wants and needs of Canadians.

Are rising costs unsustainable?

It's important to measure healthcare spending increases in relation to gross domestic product (GDP) because it helps us understand not only how costs are increasing but how they are increasing relative to our ability to pay them. In other words, after healthcare is paid for, how much money is left over for everything else? As the author of a recent column put it:

Imagine a country where spending on health care is $1 per capita and the GDP is $100 per capita. If, over 50 years, health care spending increases by 100 times, to $100, and the GDP increases 10 times, to $1000, the amount of money left for non-health-related spending has still increased from $99 to $900. iv

Still some argue that Canadian medicare is a monopoly v or, a more accurate term for a single purchaser, a monopsony. In these situations, so the argument goes, there is no competition, leading to perpetually high costs. v If that argument were true, healthcare costs in countries with parallel quasi-private systems of financing care (such as Australia), parallel public and private systems (such as in France and Germany), or market-based systems (such as in the United States) would be far lower than the costs of Canada's publicly financed system. In fact, total health spending as a share of GDP in Canada (at 9.8 percent) is comparable to that of Australia (9.5 percent), lower than in France (11.1 percent) and Germany (10.7), and significantly lower than in the U.S. (15.3 percent). vi

When measured against GDP, it appears that increases in the cost of healthcare are not uniquely a Canadian phenomenon, but happening in virtually all healthcare systems. vii Moreover, these increases are more moderate in Canada. vii; viii; ix For example, in the U.S., healthcare spending as a proportion of GDP increased from seven percent in 1975 to 15.3 percent in 2005. viii In Canada, the figures rose from seven percent to 9.8 percent over the same time period, remaining constant at about eight to 10 percent of the nation's GDP for the last 20 years. viii

One problem occurs when critics use snap-shot, unadjusted total provincial or territorial healthcare spending to measure financial sustainability. x An analysis of estimated expenditures over time can be misleading when the figures are not adjusted for population growth, inflation and aging. xi; xii; xiii For example, an analysis of estimated expenditures over a 27-year period in Alberta debunked hype over an unwieldy 900-percent spending increase. After initial adjustment, the increase was about 65 percent. With further correction for increases in average personal wealth, the figures dropped once again to a controllable 17.5 percent. xiii



What is driving increases in health spending?

Certainly spending increases in some areas are an issue. While spending on doctors and hospitals as a percentage of GDP has not changed much in the last 20 years, viii increases in other areas have been dramatic. However, in most cases these cost drivers are areas that fall outside of medicare. vii, xiv, xv For instance, expenditures on prescription drugs - which generally fall outside the scope of public insurance plans and are paid for by a combination of public and private insurance and out-of-pocket payments - have more than tripled their share of the GDP over the last two decades. vii Other cost drivers include community services, which have never been fully publicly covered. xv

Alternately, the major issue facing Canada's healthcare systems may in fact be a declining tax base, which is often a deliberate choice by governments. xv When governments cut taxes, any public program, including health services, can be made "unsustainable." vii Fiscal sustainability, therefore, is a matter of government choice, vii but also more fundamentally the public's choice. In the end, the decision to maintain a comprehensive, taxpayer-funded insurance plan may grow the economy rather than hurt it. As several CEOs of international corporations have argued, Canada's healthcare systems are economic assets, because the companies that set up shop here need not factor in health insurance as part of the cost of doing business. xvii

Conclusion

For the average Canadian, the debate over financial sustainability is not so much a question of whether the system is affordable, as it is "Will medicare be there for me when I need it?" xviii The answer hinges on a simple fact: "medicare is as sustainable as Canadians want it to be." xviii It would appear they want it a lot: most Canadians report they would pay higher taxes for more, high-quality medical care. xix A lingering issue that remains in all of this is how to reform the current public healthcare system to improve performance and ensure value for money within current budgets.

References:

i. Canadian Medical Association Journal. 2000. "Time for a new Canada Health Act?" (editorial). Canadian Medical Association Journal; 163(6): 689.

ii. Canadian Health Services Research Foundation. 2001. Myth: The aging population will overwhelm the healthcare system. www.chsrf.ca/mythbusters/pdf/myth5_e.pdf

iii. Skinner T and Rovere M. 2005. Paying more, getting less 2006. www.fraserinstitute.org/Commerce.Web/product_files/PayingMoreGettingLess2006.pdf

iv. Dhalla I. 2007. "Canada's health care system and the sustainability paradox" (commentary). Canadian Medical Association Journal; 177(1): 51-53.

v. Bhimiji A. 2000. "Having choices in healthcare." Healthcare Papers; 1(3): 74-81.

vi. Organization for Economic Co-operation and Development. 2007. "OECD health data 2007: How does Canada compare." OECD Health Data 2007: Statistics and Indicators for 30 Countries. www.oecd.org/dataoecd/46/33/38979719.pdf

vii. Evans RG. 2007. "Economic myths and political realities: The inequality agenda and the sustainability of Medicare" (Working Paper). Vancouver, B.C.: Centre for Health Services and Policy Research. www.chspr.ubc.ca/files/publications/2007/chspr07-13W.pdf

viii. Canadian Institute for Health Information. 2007. National health expenditure trends, 1975-2006. http://secure.cihi.ca/cihiweb/dispPage.jsp?cw_page=AR_31_E

ix. Deber R and Swan B. 1999. "Canadian health expenditures: Where do we really stand internationally?" Canadian Medical Association Journal; 160: 1730-1734.

x. Béland F. 2007. "Arithmetic failure and the myth of the unsustainability of universal health insurance" (commentary). Canadian Medical Association Journal; 177(1): 54-56.

xi. Guyatt G et al. 2002. "Solving the public health care sustainability puzzle" (commentary). Canadian Medical Association Journal; 167(1): 36-38.

xii. Kalant N. 2005. "More arithmetic of health care" (letter). Canadian Medical Association Journal; 172(6): 729-730.

xiii. Thompson AH. 2004. "Healthcare costs in Alberta in context after corrections for inflation, population growth, and the aging of the population: 1975-2001." Longwoods Review; 2(4): 1-7.

xiv. Lee M. 2007. "How sustainable is Medicare? A closer look at aging, technology and other cost drivers in Canada's health care system." www.policyalternatives.ca/documents/National_Office_Pubs/2007/How_Sustainable_is_Medicare.pdf

xv. Sullivan T. In press. "Between the Dream and Sleepwalking: Pragmatic Possibilities for Canada." In Flood C, Stabile M, Tuohy C, (eds). Exploring Social Insurance: Can a Dose of Europe Cure Canadian Health Care Finance? Forthcoming, McGill-Queen's University Press, 2008.

xvi. Pratt S. 2005. "Canadian corporations need to stick up for our health-care system." Edmonton Journal.

xvii. Baillie C. 1999. "Health care in Canada: Preserving a competitive advantage." Speech to the Vancouver Board of Trade. www.boardoftrade.com/vbot_speech.asp?pageID=174&speechID=44&offset=&speechfind=pinning

xviii. Romanow RJ. 2002. Building on values: The future of health care in Canada. www.hc-sc.gc.ca/english/pdf/romanow/pdfs/HCC_Final_Report.pdf

xix. Maxwell J et al. 2002. "Report on citizens' dialogue on the future of health care in Canada." www.cprn.org/documents/12704_en.PDF.

Disclaimer:

Mythbusters are prepared by staff at the Canadian Health Services Research Foundation and published only after review by experts on the topic. The Foundation is an independent, not-for-profit corporation. Interests and views expressed by those who distribute this document may not reflect those of the Foundation.