CBC News Indepth: Health Care

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INDEPTH: HEALTH CARE
Price of care
CBC News Online | September 15, 2004

It started out as a simple question: how much do Canadians spend on health care?

The simple answer: a lot.

But the numbers are complicated, and to help navigate through the labyrinth that is health-care spending, The National called on University of Toronto business professor Joe D'Cruz for help. Health-care spending is one of his specialties.

"In 2003, Canadians spent a total of $121 billion on health care," he said. "That represents about 10 per cent of the total amount of money spent in the country."

For a family of four, D'Cruz says, it works out to about $16,000. It's an amount that's growing as a percentage of the Gross Domestic Product – or the total value of goods and services Canada produces.

The numbers D'Cruz analysed come from a report by the Canadian Institute for Health Information called National Health Expenditure Trends, 1975-2003.

"In 1975, health-care spending in Canada was seven per cent of GDP," D'Cruz said. "By 2003, health-care spending had gone up to 10 per cent of GDP. That's a very significant change over a fairly long period of time."

The costs are rising because of new technologies, new drugs and an aging population.

Compared to other countries with similar economies, Canada's spending is in the ballpark, according to a report from the Organization of Economic Co-operation and Development. The latest figures on what countries spend on health care come from 2002, when Canada spent 9.6 per cent of GDP on health care:

France 9.7%.
Germany 10.9%.
Denmark 8.8%.
Sweden 9.2%.

At the high end of the scale is the United States, which spent 14.6 per cent of GDP on health care.

Canada's spending trend has been steadily on the rise: between 1975 and 1991 it grew by an average 3.8 per cent per year. D'Cruz notes that the rate of growth slowed between 1991 and 1995 as Ottawa focused its efforts on cutting its record deficit. Spending actually grew by only 0.8 per cent – less than the rate of growth of the overall economy. Between 1996 and 2001, health-care spending again accelerated, growing by 5.4 per cent per year.

It's not the basic numbers that are in dispute. But there are disagreements over what the increase in spending means.

"The key thing about health care is the rate of increase in health-care costs to government, because the cost of health care to government is increasing at all levels at a faster rate than the increase of any government's revenue," said Janice McKinnon, a former Saskatchewan finance minister and a professor of public policy at the University of Saskatchewan.

"In the long term, if something is increasing at a faster rate than the increase in government revenue it's not sustainable. Eventually it will be 100 per cent of your budget, particularly if you have a downturn in the economy."

Of all the items on Canada's health-care spending list, the one that sucks up the most money is hospitals. But a closer look at what the country spends there reveals a dramatic change.

D'Cruz notes that governments spent $36.5 billion on hospitals in 2003 – or 30 per cent of all health-care spending in the country. In 1975, hospitals accounted for 45 per cent of the health-care budget.

"This is a really dramatic change in emphasis," D'Cruz said. "In other words, hospitals have gone down very significantly as the primary spend in health care. They're still the number 1 spend, but they've gone down from 45 per cent to 30 per cent."

Spending on doctors has also fallen over the same period, from 15 per cent to 13 per cent. But spending on prescription drugs is rising faster than anything else in the health budget.

"We're spending more on drugs than we're spending on doctors in this country," D'Cruz said. "Drugs used to be nine per cent of the total spend in 1975 and drugs have now gone up to 16 per cent. Drugs have become the second most important component of health-care spending in this country."

Some of the money comes out of private pockets and some comes from private insurance companies. But most of it comes from governments, raised through tax revenue.

D'Cruz breaks down the $121 billion Canada spends on health this way:

$85 billion governments – 70%
$36 billion private – 30%

Of the $85 billion in government spending, Ottawa pays about $14.3 billion and the provinces and territories about $70.3 billion. It's the federal government's share that creates the most debate.

"The provinces argue that Ottawa is putting in about 14 per cent, 13 per cent, 15 per cent of the public health dollars in real cash transfers to the provinces," said Steven Lewis, a professor of health policy at the University of Calgary.

This is where things get fuzzy, Lewis notes. Ottawa argues that you also have to count in the "tax point transfers" that took place in the 1980s. Ottawa transferred some taxing powers to the provinces, allowing them to raise more money to pay for health care. Taking that into account, Ottawa argues it contributes about 30 per cent of the health-care budget.

There is agreement on one thing. Health-care spending is eating up a larger share of provincial budgets, leaving less money to spend on other things like schools, roads and fighting pollution.

Janice McKinnon suggests less money for education, the environment and social programs affects people's health.

"The trend line in Canada is a very dramatic one and it's not sustainable with our taxation levels," McKinnon said. "If you compare us to European countries, one of the difficulties is they don't live next door to the United States. They are able to sustain higher levels of health spending, higher levels of education spending, higher levels of environment spending because they can have higher taxes. If our tax levels get too out of line, we lose people, we lose companies to the United States."

Lewis notes that in most polls, Canadians will say they're prepared to pay higher taxes, if it means better health care. "But I think the real choice dilemma is – at what point are we spending too much on health care relative to other social sectors where we might think the money can get better value?"

The irony at the heart of the debate about health-care costs is that spending on health care does not necessarily buy better health.

An OECD study of 24 countries ranked Canada 13th in terms of health. The study found that your health depends twice as much on your living situation as it does on the health-care system. It found that half the equation depends on education, social programs and the environment – things Canada has been squeezing out to pay for health care.

"If you look internationally, and you look at what you're getting for health-care spending, beyond about $600 or $700 US per person per year, there is literally no correlation between life expectancy, infant mortality, and how much you're spending," the University of Saskatchewan's Janice McKinnon said. "So countries that spend $800 to $1,000 Cdn have pretty much the same health care indicators as we do. And we're spending four times as much."

There is agreement that as long as health-care spending rises at about the same level as the overall economy, Canada can afford to sustain its public system. But over the past few years, it has been rising faster than the economy, in part because governments have been catching up on cutbacks they made in the past.

The challenge for governments is holding costs to a sustainable level and still solving problems like long waiting lists.

"These will be difficult choices," McKinnon said. "It's not rocket science – you're going to have less coverage or you're going to pay more or a combination of those two. And that's the trouble. Politicians will avoid that as long as they can until they think, 'OK, now we're really up against it.'"

Others say the system can be made more affordable if it simply becomes more efficient.

"The health-care system in Canada is not unsustainable," D'Cruz said. "It does have some problems which need to be addressedbut the system is in relatively good shape, it's a good strong system...but some important decisions have to be taken."

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