The Fraser Institute

The Fraser Institute

January 11, 2007 08:00 ET

The Fraser Institute: Long Term or Short Term, Public Health Insurance Costs are Growing Faster Than Our Ability to Pay

TORONTO, ONTARIO--(CCNMatthews - Jan. 11, 2007) - Government spending on health care has grown faster than government revenues since 1975, just four years after Medicare was first introduced, says a new report from The Fraser Institute, an independent research organization with offices across Canada.

"Since virtually day one, public health insurance in Canada has consumed an increasing portion of our tax dollars," said Brett Skinner, the Fraser Institute's Director of Health, Pharmaceutical and Insurance Policy research and author of the study.

"Whether you look at health care spending trends over the past five years or over the past 31 years, the conclusion is the same - our current public health care system is not financially sustainable."

Skinner produced the new study, Long-term or Short-term, Public Health Insurance is not sustainable, to counter an erroneous report by the Canadian Union of Public Employees (CUPE) in which the union agrees that short-term growth rates in government health spending are unsustainable, but says long-term trends are different.

The Fraser Institute's annual report, Paying More, Getting Less, analyses the most recent five-year trend in average annual growth rates for provincial government health expenditure and total revenue from all sources, and then projects this trend forward without any adjustments for the expected aging of the population. The 2006 report found that public health insurance costs are on pace to consume more than 50 per cent of total revenue in six of 10 provinces by 2020 and 100 per cent by 2050.

CUPE criticized the report, claiming the five-year trend is not a realistic expectation for future trends. To set the record straight and in order to allow public replication of the results, Skinner used data from Statistics Canada to compare provincial health care expenditures to total revenues over both five and 10-year periods. Since those data are not available back to the beginning of Medicare, longer term trends were calculated using publicly available data on health care spending from the Canadian Institute for Health Information and Statistics Canada data on growth in national gross domestic product as a proxy for government revenue over a 31-year period from 1975 to 2005.

"Evidence from longer trends shows that health expenditures have grown at a faster average annual rate than GDP and therefore revenues for the entire 31-year period," Skinner said.

The report also points out that government health spending has grown in absolute terms, even when adjusted for Canada's population growth or inflation.

"The cost of public health insurance has consistently grown faster than our ability to pay for it through public funds alone," Skinner added. "Medicare is a government-run health insurance monopoly. Its design is flawed because it is influenced by politics not economics. It is not accountable to patients and is barely accountable to taxpayers."

The new report says solutions can be found in the type of policies used in other countries to deal with similar financial sustainability problems in their public health insurance programs. These policies include:

- Requiring patients to make co-payments for publicly insured health services;

- Acknowledging the individual right of patients to pay privately (via private insurance or out of pocket) for all types of medical services, including hospitals and physician services;

- Allowing providers to charge extra fees directly to patients above the public health insurance reimbursement level and to receive reimbursement for their services from any insurer, whether public or private, without practice restrictions; and

- Permitting private sector (both for-profit and non-profit) health providers to compete with the government sector for the delivery of publicly insured health care.

"Our recommendation for private-public competition in health care services likely explains why CUPE criticized our report and claimed that government sector delivery is more efficient than private sector delivery. Their reaction to our report indicates they are unwilling to test that claim in a competitive environment with the private sector," Skinner said.

The Fraser Institute is an independent research and educational organization based in Canada. Our mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. To protect our independence, we do not accept grants from governments or contracts for research.

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