Solving Ontario's health spending dilemma - Appeared in the Sudbury Star

With a provincial election approaching in Ontario, a recent Nanos poll shows that health care remains the most important issue for the majority of voters. The second and third most important issues are the economy and high taxes.  In truth, all three issues are connected. Public health spending is a major cause of higher taxes and higher taxes hinder economic growth.

But there is an alternative. By shifting some of the public costs onto health care users, Ontario can improve the sustainability of public health care without increasing taxes and without negatively affecting economic growth.

Today’s debts are tomorrow’s taxes and according to Ontario’s 2011 Public Accounts, the provincial deficit for 2010/2011 added $14 billion to the accumulated net provincial debt, which reached $214.5 billion by the end of the fiscal year.

Much of Ontario’s public debt can be attributed to health spending because half of total available revenues – including federal transfers - are currently consumed by the province’s health budget (which was over $43 billion, or around $3,255 per Ontarian in 2010).

The share of provincial revenue spent on health has significantly increased over the past 10 years. In 2000/2001, government health spending accounted for 41.5 per cent of Ontario’s total available revenues; compared with 49.5 per cent at the end of 2010. That growth results from a large difference in growth rates: government health expenditures grew at an average annual rate of 7.0 per cent while provincial government revenues grew at an average annual rate of 5.1 per cent and the economy only grew by 3.5 percent on average.

If left unchecked, it is obvious that the current growth rate in health spending is not sustainable. Under the current system, the options for dealing with this crisis are limited to raising taxes and/or cutting medical services. These are not feasible long-term solutions. Tax increases hinder economic growth and cutting medical services harms patient health.

Public health spending pressures have already led the province to raise taxes. In 2004, the Ontario government introduced a new health tax dubbed the Ontario Health Premium. While the health tax added approximately $2.5 billion to Ontario’s revenue base and temporarily increased the growth rate of provincial revenues to 13.6 per cent in 2005 from 6.8 per cent in 2004; the annual growth rate in total available revenue returned to normal levels of 4.7 per cent by 2006. Thus, despite the government’s attempt to increase revenues with the new tax, the Ontario Health premium has done nothing to control the ongoing growth of government health expenditures.

At the same time, patients are also not getting timely access to high quality health care. The Fraser Institute’s annual survey of Canadian physicians found that in 2010, the average wait between referral from a general practitioner to treatment in Ontario was 14 weeks. While Ontario has the shortest average wait times compared to other provinces, patients in Ontario are still waiting more than three months on average before they receive treatment. Additionally, thousands of Ontario families do not have a regular family physician. According to the Ministry of Health and Long-Term Care, 94 per cent of Ontario’s population has a family doctor – which leaves nearly 800,000 people that are forced to use an alternative provider (walk-in clinic or emergency room) when seeking primary care.

If health care is the number one election issue for voters, cutting medical services is not likely to be a politically popular solution. Raising taxes is not likely to win votes either. Ontario needs to change the way that health care is financed.

Under the current system, patients are not required to pay any portion of their medical costs. This lack of price signals distorts the demand for medical services and consequently, demand for health care will always outweigh supply.

Without exposure to price, expensive treatments are often used instead of less costly alternatives that could have been used to attain the same medical outcome. This leads to a misallocation of medical resources – which results in rationing - as evidenced by long times that have become customary to Ontario and Canada more generally.

The solutions are to give people the option to purchase private health insurance if they wish, and require people to pay a percentage-based co-payment for the publicly funded medical goods and services they use.  Those who opt for private insurance will reduce demand for publicly funded health care and public cost pressures will decline. Exposing users of publicly funded health care to a percentage-based co-payment will introduce economic incentives for people to use the health care system more responsibly.