Health Care - Another Pillar is Crumbling"

— a Moneysaver Article by H.Michael Wise
Man: I need to see the doctor right away!
Nurse: We have an opening at 10:30 2 months from today.
Man: But I could be dead by then!
Nurse: No problem, sir. Just have your next of kin call us, and we'll cancel your appointment.

The four great pillars of the Canadian social safety net are the Canada Pension Plan, Universal Health Care, Old Age Security, and Unemployment Insurance. Each of these programs is in danger of failing to fulfill its original mandate.

This is the second of a series on the pillars of Canadian social policy. The first article appeared in Canadian MoneySaver last April. It discussed the Canada Pension Plan. This article will focus on health care. I hope that I can indicate where our health care dollars are going, and why there is a problem. I have no magic solutions.

According to at least one recent poll, "free" universal health care is the most important issue facing this nation. No wonder: health care affects every man, woman and child in the country. We all like the freedom to visit our physician when we have an illness or complaint, and we like the comfort that we can get hospital treatment whenever this is required. The problem is that "free" health care is anything but free. It is very expensive. Looking forward, it will be impossible to fund the level of care that Canadians have grown used to receiving in a public system.

I will be using the example of Alberta throughout this article. Alberta Health Care has made statistics regarding hospital use publicly available through its web site (www.health.gov.ab.ca). The other provinces have not made public health statistics readily available. It is unfortunate that governments, which need to get public support for changes to the health care system, are not making the basic factual information available to the public.

The Cost of Medical Care

In 1996, Alberta Health Care spent an average of $1,367 for medical care for every man, woman and child in Alberta. Health care was the largest single expense for the provincial government. It represented 30% of total government program spending. Hospital care accounted for $697, or 51% of total medical spending. Information from the Alberta Medical Association indicates that payments to physicians represented around $300 per person, or 22% of total health expenditures. Unfortunately, AHC has not provided information about the remaining 27% of spending.

30% of government revenues may not be enough. The Government of Alberta is accused of spending "too little" on health care. There is a lot of pressure from the public for increased spending on health issues. The problem is where to find the revenue. The same public feels that they already pay too much tax. It is not politically possible to raise taxes to pay for an increased level of health services. The public has become aware that user fees or the off-loading of services to the private sector are taxes in another form. These have become increasingly difficult to implement.

Distribution of Hospital Expenses

Age is the most important factor affecting health costs. There is little difference between the cost of providing hospital services to males or females. Women have higher expenses during their childbearing years, but this is from a very low baseline. Figure 1 shows that, on average, someone under the age of 60 will not be an intensive user of the hospital system. Families in Alberta pay health care premiums of $816 annually. The premiums paid by a young family cover almost all of the cost of providing the family's medical care; the government does not need to finance the health care costs of most Alberta families from general revenues.

Figure 1
Annual Per Capita Hospital Expenses in Alberta, 1996

Hospital Expenses in Alberta

It is virtually impossible for an able-bodied person to obtain welfare in Alberta. The welfare ranks consist almost entirely of those who are physically or mentally unable to work. It is therefore not surprising to find that adults who receive welfare in Alberta incur hospital expenses 4 times higher than their peers. The children of those who receive welfare also have higher hospital expenses than do other children.

After around age 50, people enter their higher-maintenance years. Per capita expenditures for hospital care rise rapidly, and continue to rise in every age group. After age 50, per capita annual hospital expenses double with each decade.

There are fewer people in the older decades than there are at a younger age. Nevertheless, the total hospital expenditures of the 50,000 Albertans in their 80's are almost 1.8 times the expenditures of 500,000 Albertans in their 30's. This is consistent with previous research in Canada and the United States that has shown that medical costs of all kinds skyrocket in the last five years of life. For example, those within five years of passing away receive 70% of prescription drugs.

Half of all hospital expenses go to those 65 and older. This group represents only 10% of the total population in Alberta. Figure 2 breaks down hospital expenditures by procedure. This figure clearly shows that long term and palliative care is a major requirement for the elderly.

Figure 2
Hospital Expense by Procedure in Alberta, 1996

Hospital Expense by Procedure in Alberta

Demographics

Figure 3 shows the demographics of Alberta in 1996. The largest population group in the province is in the 35-39 age group. This is the peak of the Baby Boom. There is another peak in the 10-14 age group. This is the Echo Generation; the group in between these demographic peaks is the Baby Bust generation.

The first of the Baby Boomers will hit 65 years of age in 2012. That is just 14 years from now. The massive group that is presently between 35 and 39 years old will reach age 65 in 2022. Alberta Health Care estimates that by 2031, 25% of all Canadians will be 65 or older.

Currently, 10% of the population consumes, in effect, 15% of the entire provincial budget on their health care. In a little over 30 years, that population will grow by 2½ times. If no changes are made to the system, and there are no increases in overall taxation levels, health care will need to represent more than 50% of total government spending!

Figure 3
Population Distribution in Alberta, 1996

Population Distribution in Alberta

It may be impossible to reallocate additional government revenues toward health care. There are pressures for spending on other publicly financed sectors such as education, public safety, social assistance and transportation. The Baby Boomer generation will expect governments to finance their Old Age Security and Canada Pension Plan as well as their health care costs.

Governments may be hard-pressed to maintain current levels of taxation, let alone increase it. The number of wage earners between the ages of 20 and 65 will decrease. This group represents 60% of the population at present, but will decline to less than half of the total population 30 years from now.

The data suggests that there will be a shortfall of up to 40% between the demand for health services, and the funds which governments can provide. Something has to give!

The United States has the same problem. According to the Congressional Budget Office the "current budget policy is unsustainable, and attempting to preserve it would severely damage the economy". Budget documents show that if there were no change to Medicare or Social Security policy, the real standard of living of Americans would start to decline after 2020, and the tax rate on younger workers would have to rise to 82%!

The solution in both Canada and the United States will have to be some combination of higher taxes, more user fees, reduced services, and structural changes to the system.

Control of health care costs must ultimately lie in finding cost effective methods of providing quality care to the very elderly. The Alberta Ministry of Health has struck a steering committee with this specific object, and the Calgary Regional Health Authority has recently asked for proposals regarding "innovative approaches to the development of long term care services". No doubt health care providers in other provinces are doing much the same.

Entrepreneurial MoneySavers may want to take advantage of the restructuring and innovation that must take place in the Canadian health system. There appear to be large opportunities, particularly in geriatric services and long term care.

Prudent MoneySavers may want to ensure that they have sufficient financial resources to finance their own twilight years. This may prove to be the only way of ultimately controlling one's own fate.


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