Flaherty's plan to tie funding to GDP violates economic principles.
by Gordon Guyatt MD
Jim Flaherty, representing the Conservative government, has delivered a unilateral declaration to his provincial finance minister colleagues. After 2017, federal health transfers to the provinces will not exceed nominal GDP growth.
The message from the Harper government is that health expenditures cannot continue to grow out of proportion to our national wealth.
On the surface, perhaps, this seems a wise decision. Canadians would like to see a country with its fiscal house in order. Public health care expenditure growth beyond GDP growth threatens commitments to reduce deficits without reversing tax cuts.
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We should make decisions about public spending based on what we achieve, what we value, and the alternatives. |
Economic principles, however, tell us that decisions regarding expenditures should not be decided on the basis of fiscal order alone. Rather, we should think about what we are getting for the expenditures, and how we value what we are getting.
For example, growth in Canadians' spending on computer products and related software and services has far outstripped growth in national wealth, in the last decade. This is not a bad thing, but why not?
The reason is that what these products deliver goes beyond what was previously imaginable. Moreover, we place a high value on how the devices have transformed our lives.
The advances in what health care has to offer have been almost as dramatic. Many cancers are now curable. Chemo- and radiotherapy and more aggressive surgery have made many other cancers into chronic diseases. Joint replacements return those disabled by chronic pain to prior states of activity and function.
Invasive cardiac procedures prolong life and prevent disability. Intensive care units prevent otherwise certain deaths, including in the elderly. Drugs and surgical procedures prevent otherwise certain blindness. And on and on.
Further, as in the computer world, medicine's diagnostic and therapeutic advances will continue.
Ah, but computers are private expenditures, and here we are talking about public expenditures.
As a nation, again, we should make decisions about public spending on the basis of what we achieve, what we value, and the alternatives.
The US spends almost twice per capita on health care what Canadians spend. The American experience tells us that, forced to spend privately, our health care expenditures will far outstrip growth in the GDP.
The Romanow Commission, and a host of prior inquires, have demonstrated that in comparison to private funding, single-payer universal care has major advantages not only in terms of equity but also efficiency. Constraining public health care expenditures, and forcing those who can pay to go private, will result not only in excluding the poor from top quality care, but in the rest of us spending more, and getting less.
But can health care expenditure growth outstripping GDP go on forever? No, but enormous leeway remains. In 1992, we spent 7.0 percent of our GDP on publicly funded health care. Today, it is still under 8 percent.
In 1992, we were second among industrialized countries in per cent of GDP spent on health care. We are now approaching the middle of the pack, outspent by not only the US, but also France and Germany, among others.
We can, and should, get more efficient in running our health care system, and ensure that our public dollars are spent to best advantage.
But, come Flaherty's 2017 deadline, if recent history is any guide, medicine will be introducing diagnostic and therapeutic measures that substantially improve quality and quantity of life. Because we value health so highly, and because efficiency and equity are served by universal health care, it is foolish to tie public spending to nominal GDP growth.
Economics tells us that allocating resources requires careful consideration of what we are getting for our money, and how we value what we are getting. As our finance minister should know, a hard cap tied to GDP growth violates that principle.
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