Boosting health transfers: behind the big bipartisan campaign consensus

Health policy needs closer scrutiny

The most consequential promise of this election campaign—issued this week by both the Conservatives and the Liberals—is the pledge to keep raising federal transfer payments to the provinces for health care, apparently indefinitely, at six per cent a year.

That was the “escalator” rate established under Paul Martin’s 2004 deal with the premiers, which expires in 2014. Renegotiating the pact had loomed as a major challenge for the next federal government. Now, the big decision appears to have been made in advance, not at the fed-prov bargaining table, but on the hustings.

A casual observer might conclude that the need to continue boosting the Canada Health Transfer, which this year came to about $25 billion, by six per cent a year must be so glaringly obvious as to be beyond debate. There’s a bipartisan consensus, after all. But I’m not sure. Let’s look at the latest figures from the Canadian Institute for Health Information.

According to CIHI, spending on health care in Canada increased 1.4 per cent per person last year, the lowest in 13 years. But that includes all sorts of spending, including out-of-pocket costs borne by individuals or covered by private insurance.

So what about just the core costs covered directly by provincial governments, and supported by those federal transfers? Provincial spending on health climbed 3.9 per cent in 2010, after rising 5.2 per cent in 2009.  In case you hadn’t noticed, that’s less than six per cent, which means Ottawa’s transfers over the past two years covered an increasing share of provincial health spending. (However, provincial health costs were, in fact, rising at about 6 per cent a year through the previous 10 years.)

Casting ahead, though, anyone who has been paying attention to the health care discussion might reasonably argue (citing authorities like David Dodge)  that an aging population will inevitably make it impossible for provinces to keep containing spending—as they have for the past couple of years—in the coming decades.

It’s this demographic time bomb that the campaign pledges to maintain the health transfer’s expansion at six per cent a year are presumably meant to address.

I’ve contributed a bit to the conventional wisdom about old people driving up costs myself. But given last fall’s CIHI report on spending trends, I wonder if we fully understand the so-called demographic time bomb. CIHI”s data shows that despite an aging population, the portion of health spending devoted to seniors did not increase between 1998 and 2008.

It’s hard to say what’s happening here. Maybe just a delayed impact from retiring boomers. But CIHI vice-president Jean-Marie Berthelot observed: “An aging population may have an impact on health care spending, but so far the average expenditure on seniors has not risen faster than for younger Canadians.”

None of this is to suggest that health spending isn’t a serious concern. But it seems to me that the campaign-trail promises to maintain the rate of federal spending increases in transfers to the provinces is more about political positioning than clear policy thinking.

Neither Stephen Harper nor Michael Ignatieff wants to be cast as the guy who’s less committed to sustaining health services. The voting public doesn’t like languishing for hours in ER waiting rooms or months on specialists’ waiting lists. What they do like is their universal public health insurance, and rightly so.

Yet if ever-increasing federal spending on health is unavoidable, is just boosting the Canada Health Transfer year after year the way to go? That hardly seems self-evident.

Maybe dedicated spending on aboriginal health, a clear federal responsibility, needs more emphasis. Maybe a particular federal push, backed up with significant money, could create something like a national drug insurance plan. Maybe federal funds should be devoted to special initiatives, such as large-scale pilot projects in problem areas like juvenile mental health or gastrointestinal disease. Maybe federal support for home-care really must become the top priority.

If the six-per-cent solution derails discussion around all these other possible policy thrusts, and more, then that will be a very bad outcome of this bit of electioneering.

Another potential problem with the escalator is the potential for ever-increasing federal transfers to the provinces for health to become an excuse for saying other spending is impossible.

But the backdrop, remember, is a decreasing federal tax burden and a shrinking federal government. The latest budget forecasts total program spending falling from 16 per cent of gross domestic product in 2010 to 13 per cent in 2016.

So the government is getting less expensive and less expansive. That should ease anxiety over health costs. Yes, health spending as a share of the economy has been creeping higher, from about 9.2 per cent of gross domestic product in 1998 to 10.7 per cent in 2008.  And, yes, that’s a challenge to our mainly public system—but not on the face of it an overwhelming one.

We’ll need to spend more on health, no question, but we’ve got room to maneuver. Paying for health care only looks ruinous if we assume that we can’t possibly collect the taxes to pay for it. But why can’t we, especially in an era of generally smaller government?

Federal budgetary revenues stood at 14.4 per cent of GDP in 2010, down from 16.4 per cent five years earlier. I don’t recall  the tax burden feeling so crushing during the boom year of 2005.  If we had to pay tax at that level again to support the health system, without denying other programs, I don’t see why would that would be so bad.

All this is to argue that health policy needs close attention, not just the promise of continued federal transfer hikes. We need to be strategic about where to direct more money. We need not to panic over the scope of the challenge. We need to keep in mind the capacity of Canadian governments to respond.