The Fraser Institute

The Fraser Institute

August 13, 2007 08:00 ET

The Fraser Institute: Wishful Thinking to Believe Canada's Current Health Care System Is Financially Sustainable

TORONTO, ONTARIO--(Marketwire - Aug. 13, 2007) - The current rate of government spending on health care is not sustainable, despite the wishful thinking expressed in articles published in a recent edition of the Canadian Medical Association Journal, says Brett Skinner, Director of Health, Pharmaceutical and Insurance Policy Research for independent research organization The Fraser Institute.

In his latest paper, Misinformation and Wishful Thinking about Medicare's Sustainability, Skinner refutes arguments put forth by Irfan Dhalla and Francois Beland in the July 2007 edition of the CMAJ suggesting there is no reason to worry about the annual rate of growth in government spending on health care.

"The articles contained methodological and conceptual errors that resulted in misleading conclusions," said Skinner, who has published several peer-reviewed studies examining the sustainability of Canada's health care system.

Skinner points out that the Dhalla and Beland articles only looked at health expenditure trends during the 1990's -- a time dominated by unpopular government restrictions on health spending and rationing of access to health care resources.

"But the slowdown in spending growth was only temporary because restricting access to necessary medical care is not a sustainable way to control health costs," he said.

"Since 1997 public health spending has continued to increase, growing much faster than our ability to pay for it through the public system alone."

Skinner points out that one of the articles also excluded spending on drugs and other out-patient services funded through various provincial health programs, a logic that implies public money spent on doctors should be counted, but not the public money spent on the treatments they prescribe.

Skinner argues that the most accurate way to measure sustainability of health care spending is to look at the ratio of public health spending to government revenue, which measures the ability of government to pay from current revenues.

This metric directly satisfies the definition of long-run sustainability and immediately exposes any attempt to use deficits to finance public health spending. The ratio of public health spending to revenue also makes the tax implications clear.

For example, if public health spending is to be kept at a stable percentage of revenue, then revenue must grow at least as fast as public health spending. If the required growth rate for revenue is higher than can be generated by GDP growth alone, it is clear that, if governments insist on clinging stubbornly to the existing system of financing health care, tax rates must rise or new taxes must be introduced.

"The most recent five-year trends clearly show that public health spending in six of 10 provinces is on pace to consume more than half of total revenue from all sources by 2020. The findings are consistent with dozens of government reports and studies."

Skinner finds that researchers who deny that the growth of government spending on health care observed in Canada is unsustainable base their analyses on four unrealistic assumptions:

- That the scope of coverage for and access to medically necessary care can be reduced indefinitely;

- That tax rates can increase indefinitely to fund health spending growth;

- That the proportional growth of spending on health care can indefinitely squeeze out spending on other things; and

- That any of the above can happen without negative medical, economic or political consequences.

"Past research has clearly demonstrated that each of these assumptions are not realistic and Canadians should not be lulled into a false sense of security by such wishful thinking," Skinner said.

"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."

The Fraser Institute is an independent research and educational organization based in Canada. Its mission is to measure, study, and communicate the impact of competitive markets and government intervention on the welfare of individuals. The Institute does not accept grants from governments or contracts for research. For more information, visit www.fraserinstitute.org.

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