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Grim outlook for Canadian health care system

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By Andrew Rickard | November 23 2015 09:37AM

An article published by the Canadian Institute of Actuaries warns that, unless changes are made to the system, spending on health care will eat up 100% of total available provincial revenues by 2037.

In the most recent issue of the CIA’s Seeing Beyond Risk newsletter, actuary Stéphane Levert says that health care costs are accelerating faster than provincial revenues. This is due not only to an aging society that is using an increasing amount of health care services, but also because the fee-for-service reimbursement model has not been effective in limiting the number of services doctors perform.

"A phenomenon that economists refer to as supply-induced demand applies to health care: society will consume as many units of medical services as are available (unlimited elasticity of demand)," reads the article.

Levert outlines a number of solutions to the problem. For example, health care services could be rationed, especially when the patient is not following the doctor's advice about issues such as quitting smoking or exercising. Another option would be to reward healthy habits (such as regular physician visits, or properly following prescriptions) and promote wellness programs. Overall economic activity could also be increased; according to Levert's calculations, a 2.7% annual increase in real GDP is required to sustain current benefit levels.

Besides cost-containment and revenue generation, the article notes that other, less appealing options are available to deal with rising costs. Provincial governments could increase taxes and reduce spending on things like education, social welfare, and infrastructure. There are also ethical issues to consider. "A significant portion of one’s lifetime health care expenditures are incurred during the last six months of life, leading to questions about the effectiveness of such social investments using taxpayers’ money," he writes.

Unless governments act to address these problems, the article suggests that the outlook for Canada’s health care system's is less than promising. "The challenge is that the concept of medicare, or socialized medicine in general, is so woven into the Canadian fabric that change will not be easy," concludes Levert. "This change will become even more difficult as the public learns about the actions that would be required to maintain the system as we know it."

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