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The Progressive Economics Forum

Aging, Health Care and Federalism

Last December I testified before the Senate Special Committee on Aging, making the point that public health care need not fear an aging population. Today, I was invited back again to comment on their draft interim report and in particular the issue of how to address the fact that some provinces have a larger share of seniors than others, and per capita federal transfers essentially put them at a disadvantage. I was pleased to see that my submission, and those of Robert Evans and Joe Ruggeri convinced them of the main point – that population aging is not a time bomb for the health care system.

The Committee is toying with the idea of recommending a transfer mechanism to address differences in age structure.  Joe Ruggeri was back on the panel with me, as well as Byron Spencer. We had a wide ranging discussion and I’ll post the link to the transcript once it is available. But here are my speaking notes:

Testimony to the Special Senate Committee on Aging

Thank you for the opportunity to come back before the Committee and to make some remarks about the draft interim report.

My overall comment, based on reading the report, is that the principle of adjusting health care transfers for differences in age structure is a sensible one. The major outlier provincially is Alberta, with a much lower population share of seniors. Thus providing a transfer on an equal per capita basis will provide more than a fair share to Alberta.

That said, a few complications should be noted:

1) The basket of health care services provided by provinces is broader than physicians and hospitals, the two areas covered by and funded through the Canada Health Act. For seniors the most important areas outside the Act are long-term care, home care and home support, palliative care, and pharmaceutical drugs. These areas are a patchwork across the country, depending on decisions made by provincial governments about the scope of coverage, co-payments, etc.

In my research, I derive age-adjustment factors by looking at per capita spending by age group and then adjusting the age structure for historical data or future projections. I thus ask what the cost of health care would be if we had the age structure we had in 1975, 1990 or 2030.

One can also look at these by use of funds. I did not publish these data, but what you find is that Hospitals generally track the overall public aging index, but physicians is less. There is almost no aging impact at all from “other professionals”, which includes a range of other health care services. But the biggest driver from an aging perspective is “other institutions”, such as residential care. Looking at a population aging perspective over the recent past and into the near future, there is about a 1 per cent per year increase in the cost of providing the same level of health care services because of an aging population.  For other institutions, it is almost 3 per cent per year.

Thus, it makes sense to first consider the need for a more comprehensive, standardized set of health care services so that service levels are more consistent across the country. Such an approach would also take pressure off of emergency wards by ensuring more and better care in the community. Only then would we want to adjust for age structure.

2) The Committee is also missing an opportunity to press for cost containment in the expansion of health care services related to new technological development. These include health technology assessments, as the Romanow report pointed out. At a time when new innovations, such as genetic screening and nanotechnology applications, are anticipated, we need to know what really works before rolling out and funding them.

The rapidly growing use of diagnostic technologies, such as MRI or PET scanners, is a case in point. While there are undoubtedly benefits from advances in these technologies, for certain patients with certain conditions, caution is required before widespread adoption. One example is the use of such technologies to screen healthy people, when subsequent interventions may be costly but not necessary. Former Prime Minister Brian Mulroney is reported to have nearly died from complications arising from surgery, the origin of which was a private scan that uncovered what ended up being benign nodules in his lungs.

3) The Committee should consider making recommendations around public sector cost controls for pharmaceutical drugs. Indeed one way of fairly addressing the aging population with respect to drugs would be to upload the responsibility for drugs to the federal government, an idea floated by BC Premier Campbell in 2004. This would have the added benefit of availing of federal control over patent legislation and drug approval, plus the gains to be had from bulk purchasing, generic substitution and compulsory licensing, and reference-based pricing.

4) A final consideration for an age-adjusted transfer is the evidence on the cost of dying as opposed to the cost of aging. While seniors have higher per capita costs, the actual population impact is often overstated because the older you get, the more likely you are to be in your final year of life. And it is the final year of life that is most costly in terms of public health care dollars spent. I cite a couple of papers in my study that find evidence that the cost of dying is unrelated to age.

Thank you.

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