Published On: Monday, 09 April 2018

Warning Signs in Healthcare Spending Point to End of Restraint

Warning Signs in Healthcare Spending Point to End of Restraint

CANADA - Preliminary figures show faster growth in the amounts governments are budgeting for healthcare over the past three years, according to a new report from the C.D. Howe Institute.

In “Healthcare Costs in Canada: Stopping Bad News Getting Worse,” author William B.P. Robson warns that the preliminary figures likely understate the acceleration, since later figures typically reveal that provinces and territories have overshot their budget targets.

“If past differences between preliminary and revised spending are any guide, healthcare budgets are threatening to crowd out other government programs and push taxes higher,” says Robson.

Historical increases in government health budgets that have outpaced Canada’s economy have caused concerns about the fiscal sustainability of our healthcare system.

While initial projections of government spending on healthcare in the Canadian Institute for Health Information’s annual National Health Expenditure (NHEX) report have recently suggested growth rates that would not outpace tax revenues, the initial figures reflect intentions.

The revised figures in later NHEX reports have turned out to be materially higher. The historical overshoot – 0.9 percent on average across Canada since 1999 – would, if it continues, put healthcare spending on a fiscally unsustainable path.

Addressing this tendency to overshoot budget targets – and the consequent threat to healthcare’s sustainability – will require reforms to encourage more cost-conscious behaviour from officials, managers, providers and patients, as well as better budgetary discipline overall.

The report recommends:

  • Adopting reforms that introduce more market-like incentives – such as appropriately blended mixtures of per-patient and per-treatment remuneration for providers, and deductibles and co-payments for some services – to steer the behavior of providers and patients toward more cost-effective treatments.
  • Avoiding budgeting practices that foster spending overruns – in particular, under-projecting revenue to produce “windfalls” that fuel ad hoc spending.
  • Long-term capital budgeting to mitigate pressures to spend more, or less, in response to near-term fiscal and political pressures.

Click here to view the full report.