We Need to Stay Healthy to Save the Health Care System
On February 5th, Alberta Health Services President and CEO Vickie Kaminski announced that AHS would be implementing cost reductions.* Small wonder. Spending on health care in Alberta is very high and is increasing quickly. In this note I want to show this and then talk about the implications. The graph below uses data from the Government of Alberta’s budget. The red line shows what percentage of government revenue has been devoted to paying for health care (Health) since fiscal year 1980-81. The blue line shows what percentage of government revenue has been devoted to paying for all other goods and services provided by the provincial government; what I call All other Spending. About half of this, what I label as All other Spending is spending on education and social services.
From 1980-81 to 2013-14 (the last year for which data is available) spending on Health increased from absorbing 18% of all revenue to absorbing about 40%. The amount of revenue devoted to providing All other Spending has, of course, correspondingly fallen; from 82% of revenue in 1980-81 to about 60% currently.
The change in these ratios has not been smooth. Particularly noteworthy is the period during the mid-1990s when spending on Health, measured as a fraction of total revenue, stopped rising. This was the period when the government of Premier Klein introduced draconian cuts to health and, indeed, all provincial government spending. By 1999-2000, however, Health spending reverted to absorbing an ever growing share of provincial revenue.
Over the period 1999-2000 to 2013-14, spending on Health grew at an average annual rate of 8.7%. Over that same period, total provincial revenue grew at an average annual rate of 6.0%. This is the crux of the problem: The cost of the health care system is growing significantly faster than government revenue. As a result, over this period Health was absorbing an additional 2% of revenue each and every year. This annual increase was on top of the already large share of revenue absorbed by health spending.
To the right of the vertical gray line is a projection of what we should expect if trends continue. For this projection I assume that all components of the provincial budget – all spending and all sources of revenue — grow at the average annual rate we have observed since 1999-2000. My projection shows how Health and All other Spending – both measured as a fraction of total provincial revenue – will grow over time.
Ten years from now, in 2024-25, Health spending and All other Spending will each absorb 50% of total revenue. Ten years after that, Health spending will absorb about 65% of revenue while All other Spending – the majority of which is spending on education and social services – will be absorbing only 35% of revenue. The steady fall in All other Spending is indicative of the size of the cuts to education and social services that is required for spending on health to continue to absorb a larger and larger share of total provincial revenue.
The next graph presents two indices of real per capita spending. These calculations remove the effects of inflation and show how much spending is done on behalf of the average Albertan.
I present these data as an index that takes a value of 1.0 in 1980-81. What this does is allow one to run a horse race of real per capita spending on Health versus real per capita spending on All other Spending. The figure shows that while the Klein cuts “stuck” with respect to All other Spending they did not “stick” with respect to Health. In fact, since 1994-95, real per capita spending on Health has doubled.
Those are the facts. So, given those facts, what can be done to protect spending on education and social services and all the other components of All other Spending from being steadily eroded?
Can we raise tax rates? Yes, but that will not solve the problem. The crux of the problem is that the cost of the health care system is growing significantly faster than government revenue. Raising tax rates will solve the problem only if we raise them a bit more every year. Thus, we would need to increase the personal income tax from 10% to some higher rate this year, then raise it to a still higher rate the year after that, and again and again. Raising tax rates, then, can only delay the problem as eventually we run out of income to give to the tax collector.
Can we find “efficiencies” in the system as suggested by Vickie Kaminski? Yes, surely. Alberta spends more on health care than all but one other province to achieve comparable health outcomes. From this perspective, Alberta health care has plenty of funding but it does not use it well. But simply cutting out fat has not proven to be a successful strategy over the long-term. We know that is true from our experience with the Klein-era cuts. Those efforts resulted in only a temporary lull in the inexorable increase in Health spending.
Can we cut back on what the health care system provides? Yes, that will work. But understand that this means de-listing medical services and merely shifting responsibility for payment from taxpayers to the patient. It means asking Albertans to pay out of pocket more and more and more for their health care and for those unable to afford care to go without.
Are those our only choices? Yes they are, unless we consider changing the emphasis of the publicly-funded health care system away from acute care – fixing us when we break – and toward maintaining our health – keeping us from breaking. This will reduce the flow of people into the acute care system and save the publicly-funded health care system from going broke. This, then, is the only way of saving the health care system as we know it currently: Making a greater effort to keep people healthy. This requires a re-orientation of scarce health care dollars away from acute care and toward an investment in preventative health care approaches. Importantly, it requires a challenge to the status quo.
A research paper recently released by The School of Public Policy shows the potential for this reorientation toward preventative health care approaches. The paper shows that investing in keeping Albertans healthier can bend the red lines in my graphs downward and save us from steadily increasing tax rates, loss of health care coverage and the strangulation of our education and social service sectors. Advice suggesting a reorientation toward an investment in preventative health care is not new. In 2013, for example, Canadian Medical Association President, Dr. Louis Hugo Francescutti argued that “Policymakers should start looking at the health system beyond disease treatment and think about prevention. Prevention can pay a fiscal dividend.” ** The advice is commonplace and now we have evidence. All that remains is the political courage to challenge the status quo and make this investment.