Doug Ford's National Health Strategy

Ontario Premier Doug Ford is hosting Canada’s provincial premiers and territorial leaders  at a dinner tomorrow tonight in advance of the First Minister Meeting in Toronto on Monday.  Apparently, Premier Ford is expected to ask the premiers to get behind a call for an increase in the federal Canada Health Transfer escalator to 5.2 percent from the current 3 percent which took effect in 2017 under the Trudeau administration - after being announced nearly five years earlier by the Harper government.  This was a reduction in the growth rate of federal health transfers in the wake of the 2004 Health Accord Escalator which saw annual increases of 6 percent.

Now, asking the federal government for more transfers at meetings of provincial premiers is a practice with a long tradition and one might expect the federal government to make some bland soothing diplomatic statements but generally ignore the premiers.  Indeed, provincial premiers traditionally pine for the good old days of 50/50 health cost sharing with the federal government in the early days of Medicare.  This eroded after 1977 when Established Program Financing turned into a block grant and then the Canada Health and Social Transfer after 1996.   However, I think this time Doug Ford’s request is actually a reasonable one given recent trends in federal finances, federal health transfer funding and provincial-territorial government health spending. 

First, according to the federal Parliamentary Budget Officer, federal finances are generally sustainable but that of the provinces are not given growing and aging populations and their growing demands on the health care system.  Indeed, federal policy to grow Canada’s population via larger immigration rates is a factor behind growing demand for health services along with aging populations and the onset of new demands given changes in illness patterns and new technologies.  Immigrants to Canada are on average generally younger than Canadians, but it turns out that some of the highest growth rates in health spending recently have been for younger cohorts. And as for federal finances, it is true they are running large deficits but given the lack of interest in taming their deficits, why not spend it on something more useful like health care? 

Second, the provinces have made big strides in making their health care systems more sustainable and been bending the cost curve but a decade of this is beginning to strain their health systems.  Between 2009-10 and 2019-20, it turns out that after adjusting for population growth and inflation, real per capita provincial-territorial government health spending has been growing at 0.9 percent annually.  Indeed, a glance at Figure 1 below shows how since 2009-10, real per capita provincial-territorial health spending has essentially flattened out.  Indeed, the situation is worse in Ontario than the rest of Canada.   Along with the effects of the 2008-09 Recession on provincial finances, there was also the announcement of the coming end of the 6 percent health transfer escalator which has spurred the provinces to get their health spending under control. 

 

The average annual growth rate of real per capita federal health transfers since 2009-10 has been 2.1 percent while provincial-territorial health spending has grown at 0.9 percent.  In other words, health spending is growing slower than federal real per capita health transfer increases.  As a result, the federal transfer share of provincial-territorial government health spending has actually grown from 20 percent to 23 percent.  This is not because the federal government has become more generous but because after population growth and inflation, the provinces are increasing their spending slower than the increases in transfers.  The provinces have become more responsible when it comes to managing their health spending but after nearly a decade of much slower growth they need some help.

There are only so many efficiencies that one can obtain within the health care system without at some point needing to actually get more real resources.  The recent efforts to once again health care reform delivery in Ontario via the Ontario Health Teams is a step to further bend the cost curve but it will come to naught without the federal government also coming to the table with assistance.  Trying to do more with less eventually will create a situation where less is indeed less.  In trying to solve his problems, Doug Ford will also be helping the other provinces solve theirs.

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.

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.  

Rising Health Spending Is Not Just About Seniors

The Canadian Institute for Health Information (CIHI) has released its 23^rd annual report on health spending in Canada - National Health Expenditure Trends, 1975 to 2019.  As a member of the CIHI National Health Expenditures advisory panel, it is always great to see the wealth of data on trends in health spending across Canada.   Total health spending in Canada in 2019 is expected to reach $264.4 billion which represents an increase of 3.9 percent over last year and accounts for 11.6 percent of Canada’s GDP – a figure also up slightly from last year.  After a period of zero average annual growth in real per capita total health spending from 2010 to 2014, the period since 2014 has averaged about 1.4 percent a year.  This, however is lower than the average annual growth rate from 1996 to 2010 which was at 3.3 percent.  Health spending growth has resumed but on what currently seems like a more sustainable trajectory given that real per capita GDP growth is closer to 2 percent.

Much of the concern about rising health spending has focused on the effects of population aging.  Health spending does rise with age as Figure 1 below shows rather dramatically.  Aside from those aged less than 1-year, per capita provincial/territorial government health spending is well  below $5,000 until the 60-64 age group when it starts to rise above that threshold reaching over $30,000 for those aged over 90 years.  Yet, despite this surge after age 60, what is also interesting is that when the drivers of rising health spending are broken down, in 2019, aging per se only contributes 0.8 percentage points out of the 3.8 percent growth in public sector health spending – about 21 percent – with general inflation, population growth and other factors (eg. Technology and utilization) accounting for the rest.  It does lead one to wonder whether this is because today’s seniors are generally quite healthy compared to the past or perhaps whether there are unmet needs.


What is also interesting and seldom noted is that while provincial and territorial government per capita health spending is highest among seniors, over the last two decades, the rates of growth in per capita spending have not been for seniors.  Indeed, between 2000 and 2017, the highest average annual growth rates have been for children and youth aged 5 to 19, followed by children under age 1-year and adults aged 35-39 as shown in Figure 2.


Indeed, per capita spending for adults between the ages of 35 and 64 has been growing at a faster rate than those aged 65 to 89.  While, it is true that much lower per capita amounts are being spent on those below age 65, spending for this demographic has been growing much faster.  Again, this leads one to wonder given scarce resources whether there is an implicit transfer of resources underway away from seniors when it comes to new growth or whether younger people today have more health problems or utilize health care more than similarly aged groups in the past.  Given the epidemic of obesity and mental health issues among the young, perhaps this is having an impact on health spending needs and expenditures.

If a significant cohort shift in health care needs and utilization is underway is an interesting question. I suppose fully knowing if this is a recent development or has been underway for the last 50 years requires per capita age spending data going back quite a ways - I am only aware of the CIHI data going back to the mid 1990s or so.  This is an important issue.  While an aging population may only be contributing 21 percent of the increase in health spending now, if younger cohorts today have deteriorating health status or more health issues than in the past, they may be poised to be a more important driver of health spending both now and in the future.