PAYING FOR THE HEALTHCARE WE WANT - MARK STABILE 1 - Canada 2020
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PAYING FOR THE
HEALTHCARE WE WANT
MARK STABILE
1
THE PROBLEM Over this same period, governments have Mark Stabile is Founding
Well before the great recession of 2008, Canada’s increased the proportion of their budgets Director of the School of Public
healthcare system was sending out signals that that they spend on healthcare. The Ontario Policy and Governance at the
it had a financing problem. Healthcare costs in government spends approximately 40% of its University of Toronto and
Canada have outpaced growth in tax revenue total budget on health: in 1980 this figure was Professor of Economics and
and gross domestic product (GDP) for much less than 30%. This increase is a function of Public Policy at the Rotman
of the past few decades. While there have been many things: shares consist of both a numera- School of Management. He
times of faster and slower growth (during the tor (healthcare spending) and a denominator is also a Research Associate
1990s while the federal government balanced (all public spending) and these are subject at the National Bureau of
the budget, healthcare cost growth slowed sig- to changes in economic growth, tax policy, Economic Research, Cambridge
nificantly), on average between 1980 and 2006 and policy decisions on spending for other Massachusetts and a fellow at
the annualized growth in healthcare expendi- things. But, overall, healthcare has become the Rimini Centre for Economic
tures was 7.5%. The average annualized growth the most significant item of public spending Analysis, Italy. From 2003 –
in GDP over that same period was 6.1%. The by provinces. Again, there are many good 2005 he was the Senior Policy
result is that we now spend considerably more reasons for this, and Canadians have indicated Advisor to the Ontario Minister
on healthcare, both in absolute terms and as a time and again that they prefer a majority of Finance where he worked
percentage of GDP, than we did in 1980. publicly-financed, universally-accessible on health, education, and
On the whole, this is certainly a good healthcare system that provides high quality tax policy. He has also advised
thing. Healthcare has improved tremendously care based on need. This is, however, an the Governments of both
over this time period with new technologies, expensive proposition, hence the financing Canada and Ontario on health
procedures, and medications that have problem described above. care reform.
helped many people. No doubt, some of the It is important to note that this problem
spending increase has been wasteful, some is in no way unique to Canada. Across the
of the care may be excessive or of marginal OECD, in countries with systems that are
benefit, and some may even be harmful, but similar to ours, and in countries with systems
the overall story is one of success. Most of us that are quite different, healthcare costs
would not want to return to the healthcare are growing faster than GDP. Indeed, when
system we had in 1980. one looks at the countries that we typically
THE CANADA WE WANT IN 2020SECURING THE HEALTH SYSTEM FOR THE FUTURE
compare ourselves to in terms of economic federal government continuing past 2014.
development – including the UK, continental Some efficiencies are certainly possible, but
Western Europe, and the broader com- if we want more healthcare in the future, we
monwealth – there is no country in which will almost certainly need to pay more for
healthcare costs have grow more slowly than it. So where should the money come from?
the overall economy. Public or private sources?
This is both comforting and concerning.
It is comforting because it suggests that it OPTIONS FOR REFORM
is not the Canadian Medicare model that is Given that we will almost certainly be
at the root of the problem. The problem is spending more on healthcare tomorrow
universal. It is concerning because it suggests than today (forecasts across the OECD are
that efforts to make our system work better – in agreement that healthcare costs in the
more efficiently, more equitably, and with better developed world are going up, not down, over
quality – while clearly important and necessary, the next 50 years), we need to decide how
are not on their own likely not solve our we will pay for it. The options for increasing
financing problem. All of the healthcare revenue fall into four broad categories:
systems in the developed world are trying
to make their systems more efficient, less 1 Increase the taxes we already
wasteful, etc. Many are far ahead of Canada in have in place.
terms of important reforms to payment and
delivery within the public system. Once again, 2 Cost-share with patients in the form
none have succeeded in getting healthcare of user charges, deductibles, etc.
costs to grow more slowly than GDP.
It is also worth noting that the financing 3 Allow for more private financing/
problem I have described does not suggest insurance.
that the healthcare system is not economically
sustainable. There is no single right answer to 4 Diversify public funding streams with
the question “how much of our GDP should new public revenue models.
we spend on healthcare?”. Most wealthy
countries spend around the same as Canada. Note that none of these options preclude
A few spend a little more. All have seen finding more efficiencies, reducing waste,
growth in the amount spent on healthcare. and improving quality in the system – we
1
I would like to thank Rich nations have the luxury of spending on need continually to do all of these as well!
my co-authors for work things they value and if Canadians are getting
that I draw on for this valuable care from their healthcare system, Raise taxes
article: Irfan Dhalla, there is no reason why we should not spend Option one, raising taxes, is certainly a
Colleen Flood, Jacuqeline more on health and less on other goods. But possibility. Taxes as a share of GDP have
Greenblatt, Sevil Marandi, we do need to figure out how we are going to come down in Canada over the last decade,
and Carolyn Tuohy. pay for it. so there is an argument to be made for
I would also like to Economic sustainability is not the same raising certain taxes again. The benefits of
extend a special additional as fiscal sustainability. What is clear is that, general taxation are well established, but the
thank you to Carolyn across Canada, governments cannot afford to public resistance to tax increases remains, so
Tuohy for an ongoing pay for the healthcare system we have now, I will not spend time on them here.
collaboration and along with all other public expenditures,
exchange of ideas that has employing only the current revenue base. Cost-sharing
significantly influenced Most provinces are in significant deficit. All There have been several proposals over the
my thinking. are dependent on large transfers from the years to increase cost sharing with patients.
Most recently, Quebec proposed a healthcare is available to cover items that are also
deductible on doctor visits. There are two covered by the public system. Individuals
main arguments in favour of such a proposal. choose private coverage because it offers
First, if one believes that there is inefficient some amenities not provided publicly, such
use of healthcare services that is patient as shorter waiting times, nicer facilities, etc.
driven, then imposing some price on care (they cannot, though, opt out of paying for
will increase efficiency. Second, cost sharing
has the potential to raise revenue.
Economists, including myself, have Private supplemental insurance
argued that using cost sharing to raise rev-
enue is not likely to be a particularly fruitful does not offer a ready solution
policy option. There are several reasons for
this. First, cost-sharing systems are expen- to the problem of increasing
sive to set up and administer. Second, given
our values in Canada, we mostly agree that public healthcare costs
any system of cost sharing should exempt the
poor and people who are very sick and need public care through general taxation).
to make heavy use of healthcare services. Some have suggested this option as
However, since the poor and sick are the a solution to Canada’s public healthcare
biggest users of healthcare (the two often go financing problems. A few points are worth
together) exempting them from user charges noting here. First, countries that have such
(which I agree is a good idea) significantly systems in place still have the same financing
reduces the revenue that can be raised by issues that Canada has: public healthcare
such a system. These two points together costs are growing faster than GDP. Therefore,
mean that cost sharing is unlikely to solve the existence of this type of private insurance
our revenue problem. does not, in and of itself, eliminate financing
problems. Second, these countries generally
Increased private funding have a higher share of public health spending
Canada’s public-private spending mix has (usually above 80%) and broader public
hovered around 70% public, 30% private coverage than Canada does. Private systems
for several years. This is on the low side of there are generally small, covering around
public financing compared to many OECD 10% of individuals. Their share of total health
countries. One reason for this is the nature expenditure is even smaller, often at only
of the public-private mix in Canada. In WHO around 1%. Third, what evidence there is on
parlance, Canada has complementary private the relationship between public and private
insurance: private insurers cover items/sectors supplemental systems suggests that private
of health that are not covered publicly. For insurance does not decrease costs in the
example, since pharmaceuticals outside the public system. If anything, public expendi-
hospital are not covered publicly for many ture often increases through complementary
Canadians, a large share of Canadians have utilization, increased overall utilization, and
private insurance to cover such expenses. the fact that tax subsidies for private insurance
Given the large role that pharma plays in are built into many tax codes (including ours:
modern medicine, it should not be surprising employer contributions to employee health
that Canada’s private share of financing is insurance are not taxable).
relatively high. Jurisdictions such as the UK Therefore, while it is fair to say that
and Sweden have supplementary private countries can have private supplemental
insurance systems in which private insurance insurance and remain committed to public,
THE CANADA WE WANT IN 2020SECURING THE HEALTH SYSTEM FOR THE FUTURE
universal and accessible insurance (both the can create inefficient restrictions in public
UK and Sweden would be good examples of allocations. However, the benefits of providing
this), private supplemental insurance does increased public funding to sustain and
not offer a ready solution to the problem extend public coverage (funding prescription
of increasing public healthcare costs. drugs through a social insurance pool might
be the ideal place to begin), of tapping into
New public revenue models willingness to pay for increased healthcare
The final option for increasing revenues costs among Canadians, and of potentially
available for healthcare is to diversify the increasing the redistribution of risks and
public financing stream. I have argued income among Canadians through a broader
elsewhere, along with colleagues from the Medicare basket, outweighs, in my view, the
University of Toronto, that one possible costs of such a scheme. Given the limita-
expansion would be to incorporate more tions of the other possibilities for increasing
social insurance funding into the Canadian revenue, this final option has the greatest
healthcare system.2 potential both to improve the scope and
quality of the healthcare system, and to meet
with (limited) public approval.
A national body that
WHAT SHOULD BE COVERED
evaluates both medical BY PUBLIC FINANCE?
Raising more revenue will not, on its own, be
technologies and best practices, sufficient to sustain the healthcare system
over the long run. It must be coupled with a
across sectors and types strong movement towards evaluation of what
should and should not be publicly funded,
of providers, is a key element and a rebalancing of the role of the private
sector to cover care that does not meet the
Many European countries use social insur- criteria for public funding. A national body
ance funding – characterized by a clearer link that evaluates both medical technologies
between funds collected and benefits received and best practices, across sectors and types
– to finance parts of their system. The experi- of providers, is a key element in making sure
ence in such countries suggests an increased that public revenues are allocated to the
willingness to pay on the part of citizens if most effective forms of medical treatment.
they clearly perceive the connection between When a drug provides significant benefit at
premiums and benefits. Often collection sys- a modest cost (e.g. insulin for diabetics), it
2
See Flood, C., Stabile, M. tems are arm’s length from the government. would be covered for all who stand to benefit.
& Tuohy, C. (eds.) (2008) Individuals are required to pay a monthly When practice decisions by physicians result
Exploring Social Insurance: amount that is scaled to earnings, which is in high costs and little benefit, they would
Can a Dose of Europe Cure used to cover the cost of the health services not be reimbursed (e.g. MRI scans for minor
Canadian Health Care provided. In many European systems employ- headaches and back pain).
Finance? McGill-Queen’s ers are also required to contribute on behalf Canadians will have to recognize that
University Press, and of their employees. The fund is usually kept the public sector cannot cover all tests and
Stabile, M. & Greenblatt, J. separate from general tax revenues, although treatments regardless of how minimally
(2010) “To Prefund in some jurisdictions, general taxes are used effective they may be. Where the potential
Pharmacare for Canadian to augment the fund where necessary. benefits of diagnostic testing/treatment do
Seniors… or Not?” IRPP Public finance theory suggests that ear- not merit public funding, it is reasonable
Study No. 2. marking funds in this way is not optimal and to expect that individuals who still choose
to pursue such care should be free to do so simultaneously phasing in drug
outside the public system, using personal coverage through social insurance
resources. premiums. This would leave coverage for
All of these changes are possible without the current elderly in place but reduce
undoing any of the current structure of the claim of the baby boom on a drug
Canadian Medicare, including any changes plan funded by younger generations,
to the Canada Health Act. The remaining thereby improving intergenerational
challenge is getting from here to there. equity.
A ROADMAP FOR CHANGE
There is a role for strong federal leadership in Use the 2014 negotiation
moving towards these changes in Canadian
Medicare. The 2014 negotiations offer to agree on a framework for
the opportunity for the federal government
to foster coordination on both evaluation diversified public funding
and on diversifying funding streams. Along
the way, there is scope to address the growing 3 In those provinces with more general
perception among the young of intergen- drug coverage, such as Quebec and
erational inequities (in financing and care) BC, the coverage budget could be more
by gradually shifting the nature of public explicitly linked to social insurance
coverage. The following steps could be part premiums and phased in over time.
such a transformation:
4 The federal government could establish,
1 Use the 2014 negotiation to agree on or require the establishment of, a
a framework for diversified public national evaluative body (it need not be
funding. Options here include having a federal body). This body could build
the federal government act as the on the experience and expertise of
collection and redistribution agent for existing provincial bodies (although
social insurance premiums and using thus far the existing provincial bodies
these funds to replace some or all of have not reached the scale that would
the current Canada Health Transfer. be required to properly evaluate tech-
If the federal government were to take nology and best practice at the level of,
on collection, it could also phase in tax for example, the National Institute for
point transfers to the provinces to Health and Clinical Excellence in the
increase the overall amount of funding UK). Buy-in to the recommendations
available while keeping its revenue
share about the same. The federal gov-
ernment does not, though, have to act as A benefit of a national
the collection agent. It could promote
this change while taking a back seat in organization for evaluation
terms of implementation.
is that there would be greater
2 In those provinces where drugs are
covered for the elderly but not the consistency in coverage
general population, eligibility by age
could be gradually phased out by raising across Canada
the eligibility age over time, while
THE CANADA WE WANT IN 2020SECURING THE HEALTH SYSTEM FOR THE FUTURE
of this body could be required for If these changes were adopted, the
receipt of federal transfers through Canadian healthcare system in 2020 would
both the Canada Health Transfer and have kept the best of what we have, and built
any future social insurance framework. in elements – diversified public funding,
A benefit of a national organization effective evaluation of technologies and
for evaluation is that there would practices, and universal access to important
be greater consistency in coverage medical care regardless of type – that other
across Canada. Currently, provinces successful societies have adopted and tested.
that deem technologies ineffective are It would allow all Canadians access to those
often pressured into reversing decision services most essential for improved health,
because the same technology is offered not just those we deem important today,
elsewhere in Canada. but those that will emerge going forward.
Perhaps most important of all, it would put in
5 As public coverage for all truly medically place sufficient revenue to fund broad-based
necessary services increases, the role of public healthcare, alongside structures to
private insurance would change, with ensure that we only fund those services that
complementary insurance covering are the most valuable.
those items deemed insufficiently cost-
effective for public coverage. The private
market for this care and coverage
would likely be small but sustainable.
There are many items/treatments
which are unlikely to yield sufficient
benefit to secure public subsidy, but
for which there is significant consumer
demand.
3
Measurement of patients’
satisfaction and of
subjective quality of
experience has been
extensively studied,
particularly in the context
of chronic diseases. A good
review of the question can
be found at http://phi.
uhce.ox.ac.uk/home.php..
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