NORTHERN ECONOMIST 2.0

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.

Ontario’s Health System is Undergoing Structural Change Again

Ontario is embarking on yet another transformation of its provincial government health care system with its creation of Ontario Health Teams which will replace the LHINs. The LHINS (Local Health Integration Networks) were created in 2006 to create regionally integrated health delivery systems to essentially streamline services. The move to a regional approach in Ontario at the time was a bit late given that most other provinces that had gone the regional/decentralization approach had done that in the 1990s and in the early 21^st century began to move away from the approach. This continual restructuring of health care service delivery in Canada has if anything been quite disruptive and we are now about to undergo another round of it in Ontario.

The LHINs were to have jurisdiction over hospitals, community care access centres, various community health services as well as mental health and addiction. However, they were not given jurisdiction over physicians, public health, diagnostics or the provincial drug spending plans. This made the LHINs only a partial health integration network and in the end that was probably their undoing as the seamless one stop shopping system of care never really fully emerged.

As for the OHTs which are going to replace the LHINS, according to the provincial news release, this is “an administrative step only and not a merger of the LHIN boundaries. Further, there will be no impact to patients' access to home and community care or long-term care placement as Ontarians continue to receive the care they need from the care providers they have built relationships with at the 14 LHINs. These changes are a means of streamlining the regional oversight as an interim measure as the government continues to work toward moving home and community care supports out of bureaucracy to integrate them with Ontario Health Teams.” The Ontario Health Teams will be responsible for all of a patient’s care including primary and emergency care, home and community care, palliative care, cancer care, residential long-term care and mental health and addiction services.

An OHT is a team of health care providers working together to deliver at least three types of health services – the initial call expressed a preference for a minimum of primary care, hospitals, home care and community care. The aim is to create a truly integrated health care system for Ontarians with seamless transitions. How many of these teams will ultimately emerge will depend on the population size covered. If there are about 250,000 people per health team – a not unreasonable number given the Northwest LHIN covers that amount – then there would be about 60 teams ultimately. Eventually, if all of this pans out, I suspect there will be anywhere from 50 to 70 of these teams covering the entire population of Ontario and they will report to a new centralized oversight agency – Ontario Health. Given population aging and the impact of new technologies and drugs on health care costs, part of the goal will also be to contain rising costs by eliminating duplication streamlining transactions costs and thereby slowing the rate of provincial government expenditure growth.

How is all this going to go? Will it be effective in improving services? Good questions. We have been reforming health care for two decades in Canada to deal with access, coverage and sustainability of the system and all the same issues still seem to be there – physician shortages, long waits for services, hallway medicine – and total spending has still grown though spending growth has moderated over the last few years. Will this time be different? We will have to wait and see. In the meantime, this is as good a time as any to look at the Ontario health system and its spending in more detail. Over the next few weeks, I will devote a number of blog posts to health spending in Ontario to provide some context for spending in the system as well as review where we have been over the last few decades. Visit this page for updates.

Wednesday, 6 November 2019

Ontario’s Finances: A Quick Review of the November 6th Fiscal Statement

The 2019 Ontario Fall Economic and Fiscal statement was delivered by finance minister Rod Phillips today and the basic message is that the deficit is down from the 2019 budget projection but spending on government priorities is up - notably in health and education. Compared to last spring, this is a “good news” statement and the outcome of a process of retreat that has marked the Ford Government over the last six months given the outcry from a number of directions that restored among other things, funding for autism programs and a new French language university.

Revenue growth is greater than anticipated, given Ontario’s booming economy and this has allowed for a smaller deficit as well as more spending. The deficit is now projected to be $9 billion which is down from the original budget estimate of $10.3 billion – but based on interim numbers had already come down to $9.3 billion.

Based on the interim numbers since the budget, spending is up from $163.4 billion to $164.8 billion (which incidentally includes a $1 billion reserve) billion but revenues are up $154.2 billion to $155.761 billion. Revenues are basically about $1.5 billion dollars more than anticipated while total spending including the reserve has gone up by about $1.4 billion. So, the deficit is lower than what was both in the budget and in the interim update but at $9 billion, it is still the largest deficit since 2014-15 when it stood at $11.268 billion. Moreover, it is expected to decline to $6.7 billion in 2020-21 and $5.4 billion by 2021-22. As a result, the net debt will rise though the net debt to GDP ratio will stay flat at about 40 percent. Nevertheless, the net debt but is expected to be $353.7 billion – up from $338.5 billion in 2018-19.

So, based on the 2018-19 numbers, by 2021-22, revenues will have grown by $11.7 billion – an increase of 7.6 percent - while total expenditures will grow by $9.7 billion – an increase of 6 percent. So, the plan is essentially to slow expenditure growth and wait for revenues to catch up which is a traditional approach used by Ontario governments before this one. Revenues in 2019-20 are definitely up with CIT revenue $936 million higher and PIT $525 million higher than anticipated. As well, if the government holds the line on further spending, the reserve will likely be applied to the bottom line allowing the 2019-20 deficit to come in at closer to $8 billion.

Nevertheless, despite all the cries of austerity, it would appear that its business as usual in Ontario given the “grow your way out of deficits” approach that is being used – again.

Saturday, 2 November 2019

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.

Friday, 25 October 2019

The City of Thunder Bay Has Spoken, The Case is Closed

Thunder Bay City Council and its municipal administrative apparatus seems to have embarked on its Roman imperial phase with respect to community relations with its taxpayer base. In response to those who provided input ( my input here ) on the 105 Junot Avenue South Rezoning application and following the October 21^st decision to uphold the rezoning in a 7-5 vote, the Office of the City Clerk provided a Notice of Passing decree that begins as follows:

“The Thunder Bay City Council passed By-law 94/2019 on the 21^st day of October 2019, under Section 34 of the Planning Act, R.S.O. 1990 as amended.

Public comment has been received and considered and had no effect on Council’s Decision as the application is consistent with all relevant planning legislation and represents good planning.”

I suppose all that was missing at the end of this statement was a simple “All Hail the Glory of the Emperor” to convey the full message of conquest and victory. The implied message seems to be that any resistance to the edicts of City Council is futile and has no effect. Whatever is decided is consistent, represents good planning, and the final collective decision is ultimately infallible.

The entire public drama and division over 105 Junot was amplified by The City of Thunder Bay because they encouraged the Ontario Aboriginal Housing Corporation to expand the scale of the transitional project from 20 to 58 beds to “maximize” the use of the site which one suspects probably really means greater property tax revenues for the City - assuming that the OAHC pays property taxes. A smaller scale facility more in keeping with other such projects around the province would have been more suitable given the many concerns raised by residents in the area and generated less discord.

Unfortunately, the Aboriginal Housing Corporation was caught in the middle of this unfortunate situation and making it into an emotional issue that attracted the attention of the Globe and Mail did not serve anyone’s long-term interests. What the City of Thunder Bay should have done in response to the input received was return to the original proposal of 20-beds but that would have required actually listening and accepting at least some of the arguments made by those who presented their concerns. Really, how can a facility approved on a much larger 58-bed scale in a neighborhood with the social and crime issues that were raised be “good planning?"

In the end, it is water off a duck’s back because many members of council believe they have been annointed as “progressive” thinkers who love their community. The strength of their love means that they are doing good and therefore the ends always justify the means. If that means tacitly implying that opponents to their good works are insensitive to poverty or diversity, then so be it. They constantly solicit input from constituents but listen through a set of political noise cancelling headphones so that the discordant notes from any input not coinciding with their vision of fighting social and economic injustice is politely filtered out.

Those in Thunder Bay who uncritically champion all social injustice issues with unquestioned fervour and feel they have the ear of City Council and its municipal-corporate apparatus should be cautious. In the end, any dispensed progressive works are to be accepted on The City’s terms because they know what is best for you. Take the example of Dease Pool as a case in point. Here, a long-standing community pool in what is considered a disadvantaged neighborhood was closed because it was old and needed substantial and expensive renovations. There is continuing opposition to the closure but The City forges ahead.

The proposed new draft plan (available here) will essentially replace the pool area with a tennis court and a community garden. Given that swimming pools accommodate a greater and more diverse number of users than a single tennis court, it seems like an oddly elitist rather than progressive use for the site. However, consciences will be soothed with a multi-user community garden – which also atones for the environmental sin of an asphalt surface on the tennis court. If all this redevelopment was designed to somehow deal with the rising costs of an old and aging pool, those of us with a more fiscally conservative bent could be understanding. However, this will still cost a lot of money and in the end not fully serve the needs of the area.

As for the money that will be spent, it does not seem to matter because a “progressive” council that wants to do great things will simply raise the tax rates on its residents - who by the way are now responsible for the lion’s share of property tax revenue given the declining industrial and commercial base. Be prepared this year for an initial budget proposal that stakes out a high increase in the tax levy. This will be blamed on the provincial government who, being conservative rather than progressive, are the source of all fiscal evil. After a cleansing public ritual of debate and input of appropriate length, The City will then retreat to an increase of between 3 and 4 percent thereby demonstrating that it is both fiscally responsible and generous in matters of expenditure.

We should not complain too much. We elected them.

NORTHERN ECONOMIST 2.0