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Lesson for U.S.: Canada's Medicare remains fully sustainable

Neat, Plausible, and Wrong: The Myth of Health Care Unsustainability

Canadian Doctors for Medicare
February 2011

The “Sustainability” Myth

Critics of Medicare assert that the cost of our public health care system is growing at an alarming pace. They are joined by provincial Premiers who are concerned that health care is taking up an increasing proportion of provincial budgets. They claim that the cost of health care is rising faster than the pace of inflation and taking up an increasing share of provincial budgets.

The Facts:

Any crisis in health care funding has nothing to do with Medicare. The costs of Medicare – medically necessary hospital and physician services – are not growing significantly and can easily be sustained.

Over the last 35 years, Medicare costs have remained remarkably stable at 4 to 5% of Canada’s gross domestic product (GDP).

Total government health care spending, which includes costs that are not part of Medicare, such as public health, publicly funded dental care and prescription drugs, have risen faster than Medicare spending alone so that total public spending on health care has increased from about 5% of GDP in 1980 to about 7% in 2009. But still, this hardly reflects spending that should be considered "unsustainable."

Provincial Budgets

None of this is meant to imply that health care is not making up an increasing portion of provincial budgets. It clearly is. The change in the share of provincial budgets however, is not primarily due to increased health care spending. It is the result of decreases in other provincial spending to accommodate political decisions to cut taxes.

... almost all of the growth in health care’s share of provincial budgets can be attributed to the simple arithmetic of an essentially constant numerator and a decreasing denominator. Deep cuts in federal transfers to the provinces in the mid‐1990s were compounded by provincial tax cutting policies in the latter part of the decade, causing significant reductions in total provincial budgets. Provincial revenues have fallen almost $30 billion since 1997, causing decreases in other government program spending through cuts to education, social services, and municipalities.

But it is tax cuts that have “crowded out” these priorities, not Medicare. Medicare spending has remained stable for more than three decades. That stability, in an environment of shrinking budgets, means Medicare inescapably makes up a larger share of that smaller total budget, but Medicare costs are not the part of the equation that is changing at an alarming pace. If the “runaway” growth of Medicare’s share of provincial spending is of genuine concern to provinces, they could simply address the real cause of that development by choosing not to reduce their total tax revenues each year.

Which Costs Are Rising?

While the cost of Medicare has not grown as a percent of GDP over the last 35 years, there have been significant increases in total health care system costs over the same period, and those increases have accelerated in the last decade. Overall health spending in Canada has risen from about 7% of GDP in 1975 to about 10.7% in 2008. In 2010, health care spending was estimated to be about 12% of GDP.

If Medicare costs are stable, and public sector costs are rising slowly, why are total health care costs increasing rapidly? The real cost driver is precisely the thing that critics of Medicare tout as the solution: private health care.

Currently 30% of all health spending is in the private sector, up from 24% in 1975. That growth is a result of significant increases in costs in the private health care sector, including out‐of‐pocket spending and the costs of private insurance. Pharmaceuticals and private prescription drug insurance are the most significant driver of these costs, followed by dental care and private dental insurance.

The Private Funding Option

Those “concerned about sustainability” recommend breaking the “monopoly” Medicare has on insuring medically necessary hospital and physician services and allowing private health insurance for these services. But increased private financing offers no relief to Canadians concerned about the rising costs of health care. The private insurance market, if anything, makes the system less sustainable, as well as less equitable.

Canada’s private insurance system has seen some sharp increases in costs. Private health insurance spending has grown rapidly since the late 1980s, rising from $139 per capita in 1988 to $591 per capita in 2007. Even adjusted for inflation, (giving a per capita constant dollar cost of $377) this represents an impressive 369% increase, outpacing almost all other categories of health care. It is hard to see how this increasingly costly system can be expected to reduce cost in health care overall.

Competing private sector insurance providers have not been able to achieve the same efficiencies as the public insurance system because they are burdened by the inefficiencies of redundant administrative infrastructure, lack of coordination, fragmented purchasing power, personnel costs and corporate profit.

More Effective Options Within Medicare

a) Curb the growth of pharmaceutical costs

Regulating the prices of prescription drugs more effectively is one such opportunity.

Policy makers can also institute more effective assessment systems to identify the best and most cost effective drugs.

The rising costs are also due in part to the fact that private sector drug plans impose unnecessary administrative costs on the health care system.

The relative efficiency of single‐payer health care financing, whether for medical care or pharmacare, is well documented internationally, and benefiting from that efficiency would certainly play a role in reversing the rise in costs that the growth of private drug plans has caused.

b) Ensure more appropriate use of resources

The Health Council of Canada suggests clinical practice guidelines and more effective rules for ensuring the appropriateness of tests and prescriptions would be an effective remedy for overuse, again indicating that more coordinated management may be more useful to reducing costs.

c) Continue to make the delivery of Medicare services more efficient

More fruitful are the many opportunities to improve our Medicare system by drawing on its strengths and building the changes that advance it. To name but a few, such reforms include: greater emphasis on primary prevention and health promotion; integrated patient‐centred primary care by multi‐disciplinary teams; enhanced scope of practice for allied health professionals; shared care with increased coordination between family doctors and specialists; national pharmacare including national procurement processes; better uptake of evidence‐based guidelines for diagnosis and treatment; stronger patient safety protections; and deployment of the long‐awaited electronic health record.

Health System Transformation

Reforms, such as the ones outlined in this paper, would foster healthy partnerships between physicians, other health practitioners, public policy decision‐makers and the public, regardless of their political outlooks, focused not on rehashing the public/private debate that Canadians have settled countless times, but on improving the public health care system. The distraction caused by recycling the old debates has taken up far too much of our policy efforts. It’s time we got down to the real process of improving health care.

Full report (9 pages):
http://www.canadiandoctorsformedicare.ca/images/stories/Neat_Plausible_and_Wrong.pdf

Comment: 

By Don McCanne, MD

Conservatives in Canada have been fairly successful in disseminating the concept that their Medicare program is unsustainable, and that only privatization can save it. Their campaign has been downright dishonest.

This report from Canadian Doctors for Medicare shows that Medicare has been very stable through the decades and that the increasing cost pressures have occurred in the private sector. The Canadian health care system clearly needs more government involvement, not less.

There are lessons here for the United States. Our much higher costs have been due to unconstrained pressures in the private sector. Our health care prices are by far the highest, and our private insurers have been ineffective in constraining these escalating costs. Since our Medicare program covers only selected populations (elderly, long-term disabilities, end-stage renal disease) it has not had the leverage to control spending as effectively as the Canadian Medicare system. Also, being only a part of a highly fragmented financing system, Medicare is forced to deliver within a system steeped with wasteful administrative excesses.

In the United States, we need a Medicare system that administers financing for our entire health care delivery system, while eliminating the privatizers who continue to drive up health care pricing to unsustainable levels. Canada has shown us that a single payer system works just fine, as long as you don't give free rein to the privatizers.