From the mouth of the Fraser

Today’s report from the Fraser Institute finds that, surprise surprise, health care spending is unsustainable. Or at least that is what the Fraser’s funders want you to think.

I find the Fraser Institute has an excellent knack for putting out media-friendly goodies that on closer examination do not stand up to scrutiny. But the media are generally not that interested in scrutiny, and even a he said/she said story plays into their hands.

Moreover, in recent years, as health care has become the top middle-class issue, education, social services and other policy areas have not had sufficient funding increases. And this is despite (huge) federal and (medium to large) provincial surpluses. A good way of addressing their alleged concern about health care spending rising as a share of provincial budgets would be for provincial governments to better fund other aspects of those budgets.

Let’s take a walk though their press release:

Provincial government spending on health care will consume more than half of total revenue from all sources by the year 2020 and all revenue by 2050 in six out of 10 provinces if current trends continue, according to a study released today by The Fraser Institute.

And by 2100 it will consume 200% of revenues. Health care spending, as a result of a few federal-provincial deals to “save” health care, has increased in recent years. The Fraser takes this as its starting point then projects in linear fashion what would happen if such a trend continued.

“The way public health insurance is currently structured in Canada is not financially sustainable,” said Brett Skinner, the Institute’s Director of Health, Pharmaceutical and Insurance Policy Research and author of the study.

The Fraser Institute does not have employees: they are all Directors of something-or-other. I guess this makes them seem more credible.

“Provincial health spending has grown faster than revenue for a long time. We are nearing the limits of our capacity to pay for necessary medical care through public funds alone.”

How so? What really matters is not the share of health care in provincial budgets but the share of health care spent relative to our total income, or GDP. Even with an aging population, there is no reason to believe that we cannot maintain health care spending at current levels of GDP for the forseeable future.

And in fact we would do better to have more health care spending through the public insurance system, as this system provides incentives for cost control. As Bob Evans and others have long pointed out, it is the publicly insured services, doctors and hospitals, that have maintained a steady share of GDP going back to the early 1970s. Other non-Canada Health Act services are what have been increasing, in particular pharmaceutical drugs, and the best way of keeping on a lid on cost increases is to put in place a national pharmacare system (see this recent post).

Conversely, taking more of what we pay for publicly and making it private will increase total health care costs. Don’t believe me? Look at our neighbours to the south. Private insurance may make good economic sense for the folks that fund the Fraser Institute but most people are going to get a raw deal, while administrative costs balloon.

One wonders: what data would it take for the Fraser Institute to change its mind and say that public health care is sustainable?

2 comments

  • This article from Canadian Public Policy critiques the “crowding out” thesis:

    Stuart Landon, Melville L. McMillan, Vijay Muralidharan, and Mark Parsons

    Does Health-Care Spending Crowd Out Other Provincial Government Expenditures?
    32(2), June 2006, pages 121-142.

    Abstract: Health spending, the largest component of provincial government spending, has risen significantly over the past decade. It has been asserted that larger health expenditures have caused provincial governments to spend less on other types of government services. Using a panel of province-level data for the period 1988/89 to 2003/04, this study provides a test of the hypothesis that health spending has crowded out other types of spending. The results indicate that, for the period studied, there is no evidence that increased provincial government health expenditures resulted in lower levels of spending on other categories of government provided goods and services.

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