Federal Budget Offers No Cure for
Ailing Health Care System

In his February 16th budget speech, finance minister Paul Martin announced what he called “a significant increase in transfers to the provinces to support health care.” He increased federal contributions to the Canada Health and Social Transfer (CHST) for 1999- 2000 by $2 billion, or about $66 for every Canadian. This addition to health spending is probably the worst thing that could have happened. It creates the illusion that health care deficiencies are being addressed. In fact, this budget is avoiding them.

The problem with health care in Canada is not a shortage of funding. The problem is with the system, a state-run, socialized system modeled on the antiquated and abandoned systems of New Zealand and Great Britain of 50 years ago. Throwing a few billion dollars at it will not solve its problems. Only by identifying the root causes of the system’s progressive failure will we begin to improve the situation.

Why more money won’t help

Increasing health spending by $66 per person will not have a significant impact on health care in Canada. Present per capita spending on hospital care is around $1,000 per person per annum, on pharmaceuticals about $400 per annum, and doctors’ bills about $370 per annum. Personal out-of-pocket spending on health care amounts to approximately $850 yearly. Given these figures it is apparent that the announced incremental increase will not significantly address such problems as the long surgical waiting lists.¹

The increase in federal spending does nothing to stop waste at the provincial level. For example, in British Columbia, a controversial pharmaceutical cost control program known as Reference-Based Pricing has been estimated to be increasing overall health expenditures by as much as $350 million annually.² If this estimate is correct, provincial health costs will be increased by about $100 per person per annum, or $34 per capita more than the extra funds provided in the federal budget.

Neither does a further $2 billion address the problems associated with the long-predicted demographic shift. Presently, approximately 12 percent of all Canadians are over 65. By 2015, that will have increased to 15 percent, and by 2030 to nearly 24 percent. Senior citizens cost far more to care for than those under 65, and as a result of the demographic shift, maintaining even today’s marginally satisfactory level of care will require a doubling in per capita spending (in constant dollar values) on health care by 2035.³ The annual incremental increases needed to achieve this are likely unsustainable, and so unless this matter is addressed, the level of care available for seniors will gradually drop below present standards.

Furthermore, the planned increase in federal spending does nothing to correct the fact that health care spending is not capitalized. The system is a pay-as-you-go scheme, and this means that while the population of seniors is aging and requiring more health care support per capita, the money has to come from current spending. There is no money being paid into government accounts, and there are no personal medical savings plans to cover the increased spending projected in years ahead.

The incremental increase of $2 billion does not solve the problems in the troubled hospital system that consumes 55 percent of taxpayer spending on health.⁴ Nor does it make any attempt to assist these inefficient organizations that are dominated by overpaid and sometimes very unproductive unionized workers.⁵ It does not address the ongoing migration of physicians and nurses to other countries, and it does nothing to correct the increasing stultifying intrusion of government bureaucracy into the practice of the professional care providers.

Canada’s health care problems are systemic and require systemic change before they improve.

The problems and how to solve them

The first and most obvious deficiency in Canadian health care is the Canada Health Act (1984). The requirement that health care be government-run is a root cause of the progressively declining level of care. Canada joins countries such as Albania, Cuba, and North Korea in having legislation which prevents its citizens from purchasing comprehensive health care insurance—and this in spite of the fact that Canadians purchase over 30 percent of their health care out of pocket now.

The essential first step in bringing sense to the Canadian health care scene is to encourage personal freedom and choice. The “publicly administered” section of the Canada Health Act must be repealed, thereby permitting Canadians the freedom to purchase their own comprehensive health insurance. This would permit those who choose to do so the option of purchasing care best suited to their individual and family needs. We must join the community of free nations by letting our citizens exercise their freedom and judgement to make choices about their own lives. Some people requiring care will then obtain the service from non-govern- ment sources, thereby decreasing the wait list for those who choose to stay with the public system. The repeal of the “publicly administered” section of the Canada Health Act is a fundamental step toward enhancing individual liberty in Canada. It is also a step toward improving health care for those so badly treated in today’s system—the poor, the chronically ill, and the elderly.

The second step in improving health care for Canadians lies in introducing competition between public sector providers. Competition is the most powerful tool for reducing prices; other countries such as the UK and New Zealand have introduced competition into public sector health care with overall beneficial effects. Canada followed these countries in adopting socialized medicine, and it is time we followed their example in curing some of the problems created by socialization. The examples are there, much of the experimentation has been done, it is time for us to take action.

Capitalization of health care is the third important step essential for ensuring an affordable health care system for the future. Recently, Premier Bouchard indicated his belief that people making $60,000 per annum were not inclined to be paying taxes to support sports figures making millions of dollars a week. The same thinking applies to health care. Is it fair that families making $30,000 per annum are paying taxes to support free medical care for seniors or for others making many times that amount? Seniors who have worked hard and paid taxes all their lives deserve the assurance that they will get top quality medical care in their old age, and without using their life savings to achieve it. However, most Canadians would like to have a personal say in how this is achieved. It is time we started to create the means so that future seniors can contribute to such things as registered medical savings plans (RMSPs), insurance, and other mechanisms that capitalize their future health care. This is much in the interest of those presently under 50, because they are the ones who will be trapped in the effects of the demographic shift.

Instead of making Canada’s health care problems worse by performing budgetary “sleight of hand,” and throwing a billion dollars here and there at health, we must begin to address the problems of Canadian health care more seriously. By giving Canadians freedom to purchase the health care they desire, by introducing competition to public sector health care, and by developing ways to capitalize health care for the future, we can begin to achieve sustainable, affordable, high quality care for all Canadians. These measures and others that will follow from them are the first steps towards creating a system that truly can be “the best in the world.” It is time to abandon political rhetoric and move ahead to intelligent and creative action.

Notes

1 Cynthia Ramsay and Michael Walker, Waiting Your Turn, 8th ed., The Fraser Institute, 1998.

2 P. Rich, “Formulary Fervour,” Canadian Healthcare Manager, December/January 1997, pp. 15-16. These calculations, with information beyond the 1997 article, were presented at a Fraser Institute briefing in March 1997.

3 D. Baxter and A. Ramlo, Healthy Choices: Demographics and Health Spending in Canada, 1980 to 2035, report 26, The Urban Futures Institute, July 1998, p. 28.

4 OECD Data, 1998, CD-ROM, May 1998.

5 William McArthur, “Making Hospitals Work for Patients,” Fraser Forum, Feb. 1999, pp. 5-6.