Flaherty’s non-negotiable terms fit health spending reality [UPDATED]


Finance Minister Jim Flaherty’s decision to lay down the law, rather than open up negotiations, on health care transfers from the federal government to the provinces might have been a tad undiplomatic. But there’s only so much anyone can say about the etiquette of federal-provincial relations without losing all contact with reality, and that leaves us with numbers, not niceties, to consider.

And the figures Flaherty put on the table look pretty big. He promises to maintain the current 6-per-cent a year pace of growth in health transfers to the provinces until 2016-17, and after that peg the annual hike to nominal gross domestic product growth, or the increase in GDP plus inflation. Projecting with confidence that far out is impossible, but you’d expect nominal GDP to grow by at least 4 per cent [check the update below].

So what Flaherty guaranteed is large annual increases for many years. Yet quite a few provinces are outraged. Is it only because he was heavy-handed in dictating, rather than dickering, over this major element in provincial budgets? If this is only about politesse, of course, it won’t amount to much. To gain public sympathy, the provinces will have to make a solid case that the new federal transfer track can’t possibly keep up with inexorably rising health costs.

That’s an argument many Canadians will be primed to accept. After all, we’ve been told for years that our aging population will inevitably turn into a crushing burden on an already strained health system. The problem with this argument is, however, that the data available so far don’t support it.

Consider some recent projections. Last year, the Organization for Economic Cooperation and Development forecast that an aging population between 2010 and 2025 will translate into increase in health spending in Canada equal to 1.9 per cent of GDP, or about $30 billion in 2010 dollars—about $900 per person. That’s real money but not overwhelming as it mounts over a 15-year period.

Could the OECD have it wrong? Sure. Time will tell. But recent history does not show any reason to assume the worst. The Canadian Institute for Health Information took a close look at the impact of an aging population on health spending in Canada and came to this conclusion:

“Analyses of the drivers of increases in public- sector health expenditures over the last decade showed that the contribution of aging has been relatively modest. To date, system-level cost drivers such as inflation and increased utilization have played bigger roles in health spending increases.”

Provincial health spending grew 3.9 per cent in 2010 and 5.2 per cent in 2009—below the “escalator” that’s been automatically increasing federal transfers by 6 per cent a year since the 2004 fed-prov health pact. Make no mistake: provincial health spending has generally grown faster than combined inflation and population growth. But the recent pace of growth is neither so punishing, nor the outlook for the future so daunting, as to make the transfer scheme Flaherty announced yesterday look unreasonable.


Early comments below suggest a healthy skepticism about my assumption for nominal GDP growth. I’m always hesitant to clog up a post with too many figures, but since it’s come up, the Parliamentary Budget Officer projects nominal GDP growth of 4.8 per cent this year, 2.6 per cent in 2012, 4.0 per cent in 2013, 4.5 per cent in 2014, 5.0 per cent in 2015 and 5.3 per cent in 2016. Private sector forecasts I’ve seen are in the same ballpark. Who knows? But we’ve got to go on something.








Flaherty’s non-negotiable terms fit health spending reality [UPDATED]

  1. Why would you expect nominal GDP to grow by 4% in the face of a global economic depression and waves of baby-boomers retiring?

    Update: Fair enough. That explains why you’d postulate that type of growth. After looking through the reports, I’m not sure why they postulate that type of growth. All of those numbers seem to be basing it off of “What came before is what will continue to happen,” and don’t at all seem to acknowledge that the boomers retiring is going to make a seismic shift in what will continue to happen — as it has every other time they move on to a new aspect of life.

    • But it’s what the feds are all waiting for….that any minute now, things will ‘get back to normal’.

    • The current 6% is in  place until 2016/17. If we’re still in a global economic mess at that point, health care spending will be just one of the many things we won’t be able to afford at current spending levels.

      • Time for triage.

        And healthcare is at the top of the list for saving, along with education.

        Jets and jails aren’t even on the list.

  2. I think it’s not a terrible deal. The problem is that it leaves a bunch of jurisdictions
    to deal separately with the real cost drivers of the system .. pharma and physician
    services … which diminishes the possibility of anything along that line happening.
    So, all you young folks can prepare for health care as an investment opportunity.
    It’s all good, eh ?

  3. Let’s bring in the user fees and be done with it. The baby boomer generation has stolen billions of dollars from everyone younger than them by setting up cushy social programs that they haven’t paid for themselves, but will be the prime beneficiaries of. They voted in governments that put us hundreds of billions of dollars in debt over these programs instead of paying the tax bill that was required to give them all these programs in old age. It’s generation theft and I want it stopped!

    Bring user fees on those that are going to use/over use the health care system. I don’t have a lot of sympathy for dear old granny sitting on a better CPP payment, fewer taxes through their lives and no paying for healthcare when I’ll have to flip the bill for it all and then get little to nothing when I’m old because these systems will be used up.

    Make the grey hairs pay their share!

    • Boomers are currently between 46 and 65 years old, and they’ve paid into the system all their lives.

      • I think his point, which may or may not be valid, is that as a group  boomers (and I am one) are going to take out significantly more than  they put into the system.  It’s not a matter of having paid into all their lives, it’s a matter of whether $$ paid in is significantly less than $$ paid out, and who makes up the shortfall is there is one.

        • Well, boomers die at the same rate as everyone else….and they knew how many boomers they had.

          Bennies are worth considerably less today than they were when boomers started paying into them.

          • Jim has it right, obviously they’ve paid taxes all their lives, but not enough to cover the government expenses they’ve voted themselves. The proof is in the debt clock which currently has our debt at $575.5 billion. That is the amount that has been racked up by governments and their voters over the last several decades. Instead of paying the bill for all these social programs, the baby boomers voted to let their children and grandchildren pay for their utopia. That money and the massive interest payments that go with them have to be paid by younger/ future generations. It will be us that will have to pay higher taxes and get fewer services as the baby boomers just shrug their shoulders and escape to their graves.

          • Canada has had a debt since day one in 1867….and all of us have inherited it through the generations.

            You will also inherit an advanced 21st century country with a world class standard of living.

            So kwitcher whining.

          • “Canada’s federal debt grew steadily between 5% and 10% per year until 1975 when it began to explode; growing for the next 12 years at more than 20% per year.  It broke the $100-billion mark in 1981 and the $200-billion mark in 1985. While the growth slowed in 1988, our federal debt continued to climb, breaking $300-billion in 1988, $400-billion 1992, and $500-billion in 1994. It peaked in 1997 at $563-billion. Over the past decade it had slowly declined to $458-billion in 2008. Now this has all changed. Our federal debt grew by $5.8-billion in 2008-09, by $55.4-billion in 2009-10, $34-billion in 2010-11. It’s expected to grow by $32.3-billion in 2011-12. Further, it’s expected to grow through 2014-15. In just three years all the debt repayment of the past eight years will be wiped out. ” debtclock.ca

            As anyone can see, it’s gotten much worse since the babyboomers started voting. So suck up the user fees and the reduced government payments and the policies based in reality before it’s too late for the rest of us who have to repair the damage done.

          • Noop….the debt rises as the population does….and it’s not all baby boomers….the youngest of which is 46, prime working years.

            It’s also been paid down over the years….it varies.

            We have a trillion dollar plus economy, and our debt is just fine

            There is no damage whatever.

            Stop whining you poor baby.

  4. “Tad undiplomatic” has to be the strangest description of a Cabinet Minister’s abandonment of an explicit election commitment that I’ve ever read.

    Flaherty committing to 6% increases for the life of the to-be-negotiated deal with the provinces was a pretty big commitment on the campaign trail wasn’t it?  Even if going back on that commitment is fiscally the right thing to do, is it wise for so many columnists to be, apparently, just COMPLETELY IGNORING the fact that this announcement from Flaherty amounts to a broken election commitment?

    Sure, superficially, the provinces should be happy with two additional years of 6% growth.  However, the Minister of Fincance didn’t commit to “6% for two more years” when he was out on the campaign trail, he committed to “6% for the length of the next agreement with the provinces“.  Promising to negotiate the future duration of the 6% formula as part of the new agreement with the provinces, and unilaterally declaring that the 6% formula will be kept for two years beyond the current agreement are TWO DIFFERENT THINGS.  Flaherty committed to 6% increases for the length of the new agreement, however long that may be.  Arguing “I’m afraid I can only commit to a two year agreement with the provinces now because 6% is too big an increase” would be one thing, but unilaterally declaring “the 6% formula will now end in 2016, negotiations (and election commitments apparently) be dammed”, is something else entirely.

    • Just about all parties do this, though. LPC: wage and price controls, gas tax, FTA, GST. CPC: income trusts. Ontario Liberals: tax increases. BC Liberals: public worker contracts, HST harmonization.

      They all lie to some degree in order to get elected. I don’t like it, but it’s the reality that we have (I’ll leave it to others to decide if we voters basically ask to be lied to).

      So the best I can now hope for is that the media will take some notice (I believe they have in this case), and that I agree with the course of action being taken despite promises to the contrary.

      In this particular case, I don’t have a real problem (in spite of any associated stench) since it’s just not mathematically possible to continue increasing health care spending faster than the real increase in the GDP. At some point health care crowds everything else out. Is this the best course of action?  I don’t know. But it is a plausible course of action IMO, and since the opposition parties are not exactly lining up to tell us how they’d make quality health care sustainable, it’s all I have to go on. YMMV.

      • We have years worth of studies and reports that tell us exactly how to make it sustainable.

  5. Re: the update

    The trouble with those figures is that there’s no explanation of what they’re based on.  Seems to be just a vague hope that we’ll grow.

    I agree we need something to go on, but there should also be some planning for ‘worst case scenario’.

  6. “To date, system-level cost drivers such as inflation and increased utilization have played bigger roles in health spending increases.”

    My question of CIHI would be how did they adjust out for age in “increased utilization?” The heaviest users of the system have multiple chronic diseases, Chronic disease prevalence increases with age.

  7. B.C. Finance Minister Colin Hansen was just on the radio, and he endorses the health funding.  Says it gives them 5 years to plan and find ways to make improvements.  Also, by 2017 world economy should be better and can see getting well over 6% with higher GDP.  Gave today’s news on Nanaimo General Hospital as example of successful innovation.
    In the past nine years, the number of patients thronging emergency has grown from about 30,000 a year to 54,000.
    And yet, thanks to organizational changes, plus the incentive of extra government cash for meeting waiting time targets, the average length of stay in the hospital’s emergency department has been cut in half.
    Now, the department has taken another bold step to further reduce congestion.
    Just down the corridor, an innovative, clinical decision unit (CDU) has been set up to ease crowding, both upstairs in acute care and in the adjacent emergency department.

    After only seven months, the CDU is showing solid results. The average stay of emergency patients is going down again, and money is rolling in from the government for meeting more and more of its treatment targets.
    “Nanaimo is one of the hospitals that have figured out exactly what we want, and they’ve figured out how to do it very well,” said Les Vertesi, head of the Health Services Purchasing Organization that oversees B.C.’s patient-focused funding.

    • The BC NDP is probably giddy with excitement about how they’ll use this in the not terribly distant future when there’s an election. It almost writes itself.

      • Ha!   A. Dix-head is already crying foul.  

        BCers remember his part in the “decade of darkness”

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