Sunday, 17 November 2019

The Four Ages of Ontario Government Health Spending


Understanding the pressures and challenges facing Ontario’s health care system and in particular - provincial government health spending – requires an overview of the numbers.  The Canadian Institute for Health Information (CIHI) via its National Health Expenditure Database provides a wealth of information on health spending in Canada.  The 2019 edition of the National Health Expenditure release allows us to piece together a broad picture of where health spending in Ontario has been over the last few decades. 

Figure 1 on total health spending in Ontario provides a view of total and provincial government health spending over the period 1975 to 2019 (with 2018 and 2019 being estimates).  They show steadily rising spending.  Total health spending on health in Ontario was $4.4 billion in 1975 and has grown to an estimated $100.5 billion.  Meanwhile, over the same period provincial government health spending has grown from $3.1 billion to $63.4 billion.  The massive growth in health spending over time is part of the conventional wisdom that health spending is unsustainable.




However, these numbers are nominal totals and do not take into consideration population, inflation or economic growth which are all necessary to provide context for these numbers.  Between 1975 and 2019, provincial government health spending in Ontario grew 20-fold while GDP grew 13-fold, population grew 1.7-fold and prices 5-fold.  


 Thus, provincial government health spending over time has grown much faster than population, the economy or inflation.  Total health spending in Ontario (both public and private sector spending) over this same period grew by 23-fold which means that as a share of total health spending in the province, the provincial government share has declined over time.




Figure 2 plots the provincial government share of total health spending from 1975 to 2019 and illustrates the decline over time.  From a high of 71 percent in the mid-1970s, the provincial government share of health spending fell dramatically reaching a low of 60 percent in 2002 before recovering to 64.7 percent in 2014 and then declining again to 63.1 percent in 2019.  Figure 3 plots provincial government health spending as a share of the provinces GDP.  It grew steadily until the federal fiscal crisis of the mid 1990s when the cuts in federal transfer payments spilled over into provincial program spending – including health. 




The recovery in the provincial government share after 2002 as well as provincial government health spending as a share of GDP after 2000 coincides with the federal 2004 Health Accord funding formula which saw federal transfers for health to the provinces grow at 6 percent annually until 2017.  This escalator ended in 2017 after which they were to grow at the rate of growth of GDP with a 3 percent floor.  The recent decline in both of these aforementioned expenditure indicators partly reflects the slowdown in federal health transfer funding growth brought in by the Harper Conservatives but accepted by the Trudeau Liberals.



Health spending in the end is a very personal thing and another indicator is how much is being spent per person after adjusting for inflation (which here is done using the CIHI Government Expenditure Implicit Price Index).  Figure 4 plots real per capita health spending in Ontario in 2019 dollars for both total health spending as well as provincial government health spending.  Between 1975 and 2019, real spending per capita grew from $2831 in 1975 to $6,955 in 2019 for total health spending.  Meanwhile, over the same period, real per capita provincial government health spending grew from $2,012 to $4,386.  Spending per person after inflation has gone up over time but in what appears to be four distinct growth phases which I will term the “Ages” of Ontario health spending. 




Figure 5 plots the annual growth rates in real per capita provincial government health spending with the average annual growth rate for the four ages of Ontario health spending growth.  The first age, in the wake of the creation of the Medicare system stretches from 1975 to 1989 and sees 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 sees a decline in real per capita provincial government health spending averaging -0.7 percent annually.  From 1998 to 2010 – there is a recovery in the growth rate of provincial government health spending as a result of a recovering economy, the fiscal dividend from low interest rates, as well as the healthy increases in federal transfer funding.  There is a return to 3 percent average annual growth in real per capita provincial government health spending. 

Finally, with the expiry of the Health Accord in 2017 – and the pre-emptive response to bend the cost curve in advance – combined with 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.  This last phase in Ontario is the slowest growth in real per capita provincial government health spending since the mid 1990s and has resulted in strains exhibited by crowded emergencies, hallway medicine and waiting lists for procedures and long-term care.  The period since 2010 also coincides with an immense boom in Ontario’s population growth especially in the GTA area and the Ontario government has been pressed to keep pace with that growth.  Effectively, real per capita provincial government health spending has been practically constant since 2010.

While there is a tendency to see the recent issues in Ontario government health spending tied to the new Ford government and its efforts to rein in the deficit, it remains that the slowdown in provincial government health spending growth has been going on since 2010.  It starts under the McGuinty government and continues during the Wynne administration.   It is a function of a slowdown in resource growth – federal transfers as well as the economic growth since 2010 –and deliberate attempts to rein in the cost curve and try and make health expenditure growth more sustainable.  In this regard, the provincial government has been quite successful in reining in expenditure growth since 2010. 

A sustainable rate of provincial government health spending growth would see increases in health spending match the increase in GDP, population and inflation.  In other words, to be “sustainable”, real per capita provincial government health spending should match the growth in real per capita GDP to be sustainable.  Since 2010, real per capita GDP in Ontario has grown by 9 percent- making for a low annual growth rate of just under 1 percent.  Ontario’s economy was in the doldrums for a long time and growth has only begun to pick up in the last couple of years.   

Meanwhile, real per capita provincial government health spending has grown at about 0.5 percent annually.  The provincial government has actually outdone itself in reining in its health spending costs with much of the credit to date actually going to the previous Liberal government.  Oddly enough, there is a lot of clamour about the Ford government making cuts to health care as it rolls out the Ontario Health Team reforms while the Liberal restraint appears to have gone largely unnoticed. I guess, when it comes to expenditure cuts, the Ontario public is fine if a Liberal government makes spending reductions but goes to the barricades when the Conservatives do it. It is an interesting observation on Ontario’s political culture.

More on what areas of spending got the most reductions in the next post.