The Four Ages of Health Spending and Ontario’s Differential and Growing Gap

The last post documented the “Four Ages’ of Ontario provincial government health spending. The first age, in the wake of the creation of the Medicare system stretches from 1975 to 1989 and saw average annual growth of 3 percent.  The second age from 1990 to 1997, encompassing the 1991 recession and the 1995 federal fiscal crisis and transfer cut witnessed a decline in real per capita provincial government health spending with an average growth rate of  -0.7 percent annually.  From 1998 to 2010 – there was a recovery in the average annual growth rate of provincial government health spending to 3 percent, fueled by a recovering economy, the fiscal dividend of low interest rates, and increases in federal transfer funding.  Finally, with the actions taken to meet the expiry of the Health Accord in 2017 and the economic slowdown after the Great Recession in 2008-09, the growth rate plummets again eking out an increase averaging 0.5 percent annually from 2010 to 2019. 

It should be noted that the four ages of health spending marks not only Ontario, but indeed all the provincial health care systems.  However, what is interesting is the differential performance of Ontario with respect to the rest of Canada.  As Figure 1 illustrates, when the average annual growth rates of provincial/territorial government health spending between Ontario and the rest of the country are compared, Ontario has been growing slower – or shrinking faster -than the rest of country since 1990.   

 

For the period 1975 to 1989, Ontario on average grew slightly faster at 3 percent annual average growth compared to 2.9 percent for the rest of Canada.  However, come the cuts of the 1990s, Ontario shrank at -0.7 percent annually while the rest of the country only shrank at -0.2 percent.  Meanwhile, during the recovery period from 1998 to 2010, Ontario grows at 3.1 percent but the rest of Canada at 3.3 percent.  Finally, since 2011, while growth has slowed everywhere, the rest of Canada still manages to edge Ontario out with average annual growth of 0.6 percent compared to 0.5 percent for Ontario.

The long-term effect of this on real per capita provincial government spending have accumulated over the long term to generate a growing gap between Ontario’s and the rest of Canada's provincial/territorial government health spending.  As Figure 2 shows, from 1975 to 1989, per capita provincial government health spending in Ontario was lower than the rest of Canada but rises to close the gap.  It briefly matches the rest of the country and then after 1995 again falls below where it has since remained.  Indeed, since 2010 the gap has widened appreciably.  In 2010, real per capita provincial government health spending in Ontario was $4,213 compared to $4,491 in the rest of Canada - 6 percent lower.  In 2019, it is forecast at $4,386 compared to $4,742 in the rest of Canada – 7.5 percent lower.

Ontario – the largest economy in Canada – on a per person basis basically spends less on its government health system than the rest of the country.  While some of that might be ascribed to a greater population density and economies of scale in providing health services, given that there appear to be constant calls to addresses waiting times and shortages, it is unlikely the difference is due to superior system performance combined with greater efficiencies.  Moreover, that gap has been growing over time.  In other words, the wealthiest economy in the Canadian federation is providing less spending per person when it comes to public sector health care than the rest of the country.  Some of the growing gap is the result of the more brutal impact of the two major recession periods on Ontario compared to the rest of the country but it is also a function of Ontario's poor fiscal management as well as its choices.   More on how that difference pans put across assorted categories of health spending in the next post.