Canada has a health-care investment problem

by Danyaal Raza. Originally published on Policy Options
October 21, 2021

Political pundits deploy talking points about health care seemingly with frequency and ease. When we hear “medicare is unsustainable” or “public health care spending is out of control,” it is often accompanied by a call for increased private financing or two-tier health care. In reality, Canada spends fewer public dollars on health care than most peer nations, and, in fact, should spend more.

A closer look at health care spending from the Canadian Institute for Health Information (CIHI) and the Organization for Economic Co-operation and Development (OECD) shows Canada not only spends fewer dollars when compared to other countries, but has been doing so while cutting taxes for those most able to support badly needed public investments in health. Inherently, Canada has a health care investment problem. It’s time to change the narrative.

Too much public and not enough private spending?

Canada spends $265.5 billion per year on health care services. Of every dollar, 70 per cent is public while 30 per cent is private (out-of-pocket spending or private insurance). This has been remarkably consistent for decades.

How does this compare internationally? Looking at the OECD, from Brazil to Britain, the average share of public spending is 73 per cent. However, compared to countries with similar levels of economic development, Canada is a miserly stand-out on public spending. For example, the U.K., Germany, Sweden, France and New Zealand all, as a share of overall spending, spend more publicly than we do. At the top end, Sweden and Germany spend upward of 84 per cent, with only Australia coming close to Canada, at 69 per cent and the U.S. falling far below (figure 1).

In a nation where universal health care is a defining feature of our national character, how is this possible? While public coverage in Canada is deep, it is also narrow. The Canada Health Act, medicare’s legislative framework, defines comprehensive services as hospital and physician care only. In each of these areas, 90 per cent or more of spending is public. For areas outside medicare, it’s a different story.

It has become a common refrain that Canada is the only country with a universal health care system that does not include universal drug coverage. Prescription drugs, along with long-term care and mental health care are examples of areas with two-tiered funding. For other health services like dental, vision care and physiotherapy, private financing is far more dominant (figure 2).

Part of Canada’s relatively low share of public spending is explained by the two-tiered nature of services outside of medicare. Part is also explained by an underinvestment in hospital and physician services. Like Canada’s 70/30 split on overall health care spending, hospital spending per capita is not only lower than the OECD average, but dramatically more so versus peer countries (figure 3). On a per-capita basis, the same relative comparison exists for the number of doctors in the country.

Is public health care spending unsustainable?

One approach to answering this question is to examine how health care spending has changed over time and examine measures for what is considered “sustainable.”

Historically, Canada’s overall health spending has been slowly increasing, a challenge faced by many similar countries. However, our rate of growth has been slow and stable. Some periods over the past three decades have even seen decreases (figure 4).

Why then do we keep hearing that health care spending will soon entirely consume provincial budgets?

Since 1980, Canada’s corporate tax rate has been cut to 15 per cent from 36 per cent. During that same time, the income tax rate for the highest income earners has also dropped to 33 per cent from 43 per cent. Prior to 1990, 75 per cent of capital gains were taxed. Today, that stands at 50 per cent.

It doesn’t take a university math degree to understand that even with relatively constant or even slowly rising and predicable public health care spending, declining tax revenues will make it appear as though health care is gobbling up government budgets.

The challenge of public investment in health care thus is not an expense challenge – it is a revenue one.

What do we do about it?

Do we need to increase our investment in health care? Yes, absolutely. But spending more is not the only answer; new investments must be spent smarter. This is true for funding services already covered under medicare and for expanding its envelope to include new ones.

Wait times for elective care need to be shortened, but this can’t be done by doing more of the same. For example, when family physicians initiate a referral to specialists, it is typically to doctors with whom they have an established pattern of consulting. It is often done with no awareness of current wait times, and no comprehensive knowledge of other specialists in the same region with similar skills. Instead, new investments can be made to create “single-entry” referral programs to provide patients with the next available provider in their region based on the level of urgency of their medical condition and priority rather then relying on informal networks. It is one solution being actively proposed to clear the surgical backlog created by the pandemic.

For doctors, the solution isn’t necessarily paying for more doctors. It is in expanding team-based care, models which already exist but only in pockets. For example, when advanced-practice physiotherapists and spine surgeons work together, a physiotherapist first assesses the patient. If surgery isn’t warranted, the physiotherapist can start non-surgical therapy on the spot, allowing the surgeon to see patients only in need of surgery. Equally transformational would be a similar model expanding interdisciplinary primary-care teams to include pharmacists, social workers, psychologists, dieticians or others in addition to family doctors and nurses.

Many of these non-physician services, when delivered outside of hospital, fall outside of medicare. Psychologists, for example, are highly trained health care workers who deliver evidence-based treatments like cognitive behavioural therapy (CBT). Mental health care remains out of reach for too many Canadians, with many having to rely on private insurance (if available) or out-of-pocket payment in a two-tier system that includes underfunded public supports. This is despite reports from government agencies like Health Quality Ontario that recommend public funding of CBT for major depression and anxiety disorders, and post-traumatic stress disorder.

For prescription drug coverage, national pharmacare would bring substantial benefits for health outcomes, which alone would be sufficient to justify its implementation. But there would be economic benefits as well. Public, universal pharmacare holds the promise of reducing national spending on drugs by $4 billion to $7 billion annually. Through evidence-based decisions on drug coverage, bulk-purchasing and unified, national negotiations with drug companies, it could not only extend access to all and reduce overall spending on drugs, but also substantially reduce costs to employers for employee benefits.

These policy reforms are a few examples among many. Some of these ideas already have a clearly laid out plan for implementation, and lack only political will. Others also exist in areas of high need but may require additional planning before implementation.

And, of course, so much of what keeps us healthy lies also outside the health care system, in the social determinants of health. Here, investments must be made in affordable housing, climate change and decent work.

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Changing the narrative

While Canadians are rightly proud of the principles our health care system is based on, there should be little doubt that those principles do not apply broadly enough or lack adequate resourcing. Fundamentally, our system is faced not with a problem of spending, but of investment. And, of course, not all investments are created equal. Canada should be smarter in how it spends its resources. Regardless of whether a “big-bang” or phased-in approach is used to expand and fund medicare, the policy rationale for action is clear. Just days after the September federal election, premiers called for an urgent increase to health care funding. The prime minister would do well to heed this call and tie it to national priorities.

This article first appeared on Policy Options and is republished here under a Creative Commons license.