Canada's health care crisis is an economics problem, not a management problem

Government health spending is growing at unsustainable rates, while patients are facing shortages of medical resources and declining access to necessary medical care. The president of the Canadian Medical Association recently called on the federal government to become more involved in the management of provincial health systems in order to solve the serious problems plaguing Medicare. Unfortunately, the CMA president seriously misdiagnosed the cause of the health system's ills.

The Canadian health system has been run as a government monopoly since 1970. It doesn't really matter which level of government tries to manage the system, our experience shows that political planning doesn't work. Adding federal management would be as effective at averting disaster as rearranging the deck chairs on a sinking ship.

The current health system does not have a 'management' problem; it has an 'economics' problem. The looming crisis in our system has three identifiable causes: the government's monopoly over funding for medical care, the politically planned allocation of medical goods and services, and the lack of consumer exposure to the cost of using health care.

Politically managed, 100 per cent redistributive financing produces a "pay more, get less" result: unsustainable cost growth and rationed access.

According to a recent Fraser Institute study using provincial government data, total government spending on health grew at an average annual rate of 7.5 per cent across all provinces over the period from fiscal years 2000-2001 to 2009-2010. During the same period, total available provincial revenue from all sources, including federal transfers, grew at an average annual rate of only 5.7 per cent. At the same time the economy, measured by gross domestic product (GDP) grew by only 5.2 per cent.

Projections based on the most recent 10-year growth trends show that health costs in eight out of 10 provinces are on pace to consume 50 per cent of total revenues by 2028. As of the end of 2011, both Ontario and Quebec will already be spending half of their total available revenues on health; and four additional provinces (Saskatchewan, Alberta, British Columbia, and New Brunswick) are on pace for government health spending to consume 50 per cent of revenues by 2017.

This cost crisis is happening despite significant government efforts to centrally restrict spending on health, which has resulted in shortages that create long waits for access to necessary medical goods and services.

The Fraser Institute's annual survey of Canadian physicians shows that in 2010, patients waited approximately 18.2 weeks from the time they obtained a referral from a general practitioner to the time they received treatment from a specialist. Although health spending consumes a larger share of provincial revenues each year, Canadians are waiting 96 per cent longer for surgery than they did in 1993 when the average wait was only 9.3 weeks long.

Our research also shows that publicly insured access to new medicines is being heavily restricted by governments. Provincial publicly funded drug programs are, to an increasing degree, covering only a small percentage of new medicines. As of December 31, 2009, only 20.3 per cent of new drugs approved by Health Canada as safe and effective in 2008 had actually been approved for reimbursement by the provinces.

The provinces have also imposed economically damaging tax increases to keep revenues growing at pace with health spending. Since 2004, Ontario and Quebec introduced new income-based health surtaxes and British Columbia recently announced that its health surtaxes will rise to keep pace with the province's increases in health spending.

The "pay more, get less" approach to health policy isn't working. It's absurd to suggest that governments can sustain the health system indefinitely by raising taxes and rationing access.

The real solutions are quite simple: user fees and private insurance options would introduce economic incentives for efficiency that would regulate supply and demand, shift costs off the public system and offer a sustainable source of additional resources. This type of funding is common in many other countries that, like Canada, guarantee universal access to medical care.

Ottawa does not need to get more involved in managing provincial health systems. If the feds want to help, they should suspend enforcement of the Canada Health Act's prohibitions on private payment, for at least five years, so the provinces can experiment with alternative funding policies without risking the withdrawal of federal transfers.