Canada’s unique public debt dilemma

Whether it’s the sovereign debt crisis unfolding in Europe or the Super Committee charged with finding $1.5 trillion in savings from the U.S. budget over the coming decade, public sector austerity is de rigueur in most developed nations. Canada is no different, and while the federal situation is reasonably healthy, some provinces are facing major challenges.

The politically-sensitive healthcare file constitutes the largest single expenditure for every province in Canada. Even before the recession hit, it was abundantly clear that healthcare spending wasn’t on a sustainable pace. It consumes 42% of Ontario provincial spending (other provinces have similar ratios), and the debt piled on during the recession only made finding a sustainable spending path even more pressing.

Last week The Mowat Centre, at the University of Toronto, published a study advocating that the Ontario government look towards productivity gains, restructuring provisions and making more effective use of technology in tackling the healthcare file. Getting more healthcare services out of each dollar spent would certainly be akin to a silver bullet, but there has been a long running debate with respect to how technology impacts healthcare spending.

While technological progress has made items like electronics less costly and reduced costs for industries dependent on technology (banking, telecommunications, etc.) the evidence shows this hasn’t occurred in healthcare. In fact, the U.S. Congressional Budget Office (CBO) published a study in 2008 entitled ‘Technological Change and the Growth in Healthcare Costs’ concluding that about half of all the growth in healthcare costs over the past couple decades is attributable to technological progress.

Why has the healthcare industry been the exception and not the rule? It’s largely because technological progress has allowed for treatment of previously untreatable health ailments. The result has been spending that otherwise would not have occurred. This is naturally viewed positively, but a peculiarity of the market for healthcare services (whether in Canada or the United States) is the way in which it is priced, making it very hard to ever capitalize on cost efficiencies even when they are present.

Competition ensures that the benefits of technological change are widely dispersed, allowing consumers to benefit from the lower unit costs and better products. The key difference in the market for healthcare services is that as technology advances (lowering the cost of treating a patient) there is no competitive pressure to pass on the unit-cost savings because of the fee-for-service pay schedule.

Adding to the problem with the fee-for-service model is how it induces excessive treatment.

There’s a blurring of lines between what is strictly necessary and what might be considered overkill. There’s a basic asymmetry of knowledge, similar to what occurs when you get your car fixed, but if the bill is paid by a third party (the government) it is rarely questioned. Most physicians won’t engage in unethical practices, but there’s no denying a similar situation exists (studies in the U.S. have also shown it not a trivial issue). The authors of the Mowat study were aware of these shortcomings, but believe that they can be overcome with some structural changes.

Getting any of the disparate groups involved with the provision of healthcare (even within professions) to agree on anything other than funnelling more money into the system will be like herding cats – especially if it means one group will see a reduction in its take.

In Europe, some member states have very good public finances, others terrible; Canada is not so different, only the fiscal transfer system is far better. Healthcare costs are the elephant in the room, pushing spending ever higher. And it’s a beast that will have to be tamed before bond markets determine that the youth and unborn simply can’t pay the bill.

Will Van’t Veld is an economist with ATB Financial

Just Posted

Dan Davidson up for five ACMA Awards

Davidson will head to Red Deer with Brett Kissel in the New Year

Blackfalds RCMP respond to serious collision

Car collides with moose, driver suffers life threatening injuries

RCMP offer crime prevention tips for the holiday season

Red Deer RCMP give tips so holidays aren’t marred by theft or damage

Sagmoen neighbours recall alleged hammer attack

Woman was screaming outside Maple Ridge townhouse in 2013

RCMP lay 34 charges in stolen vehicle operation

Red Deer RCMP arrest 13 people in four-day covert stolen vehicle operation last week

Troubled Monk releases new spirit

Troubled Spirit vodka was introduced in early December

Firefighter dies, thousands more take on California blaze

This is second death linked to the Thomas fire, northwest of Los Angeles

FCC votes along party lines to end ‘net neutrality’

Move rolls back restrictions that keep big providers from blocking services they don’t like

Truck driver volunteers to take dog lost in B.C. back home to Alberta

Frankie, a pit bull service dog, was found wandering in the Lower Mainland

Disney buying part of 21st Century Fox in $52.4B deal

Disney is buying a large part of the Murdoch family’s 21st Century Fox for about $52.4 billion

Bountiful polygamist believed he couldn’t be prosecuted: lawyer

Winston Blackmore’s lawyer says Blackmore did not believe he could be prosecuted

Woman charged after altercation injured baby in Toronto

Charges have been laid after a four-month-old baby girl was critically injured in Toronto

Ottawa Senators forward Chris Neil announces retirement

Veteran Ottawa Senators forward Chris Neil spent 15 seasons with the NHL team

Trudeau’s office confirms staffer being probed over allegations

PMO confirms staffer being probed over allegations of reported “inappropriate behaviour.”

Most Read