Is Canada’s public health-care system financially unsustainable?

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It is often stated that Canada's health system is unsustainable – a vague, undefined term that is used as a synonym for unaffordable.

The problem is the unsustainability argument is based on a few dubious assumptions :

• That annual spending will continue to grow at the same rate as in the past, if not higher;
• That the aging of the population will actually accelerate the increases and;
• That there is nothing that can be done to reduce spending. This, in turn, assumes that there is nothing that can be done to change the way we deliver health care or to keep people healthier longer.

In short, it is a pretty cynical world view. And, more importantly, there are rarely concrete solutions proposed to the problem, other than to privatize more health services. Philosophical arguments aside, doing so does not reduce overall costs but merely shifts them from the collectivity to individuals.

What that dreary set of assumptions does do, however, is remind us of one of the major failings of Canada's publicly funded health system: We do very little planning and analysis, especially of a financial nature.

That's why a newly released report from the Canadian Institute of Actuaries is a welcome contribution, albeit a modest one.

The CIA (the actuaries, not the U.S. spy agency) undertook a straightforward task : To create a model for projecting future health care costs. They used the province of New Brunswick as an example of how that model could be used.

The limitation is that the modelling exercise examined only steady state healthcare costs – meaning costs based on the assumption that there would be no changes to healthcare coverage or financing, and no major changes in the economic environment.

But this is nonetheless useful because it provides some concrete data about what health spending would look like if all things remain the same.

In this steady-as-she-goes analysis, health costs would rise 4.43 per cent annually over the next decade, just as they have done in the past decade.

Practically, that means the provincial health budget would increase to $4.6-billion in 2020 from $2.8-billion in 2009. Per capita costs would rise to $5,976 from $3,711 in that same time period.

Put another way, it currently costs about $75 a week to provide healthcare to each of the 750,000 residents of New Brunswick. By 2020, it will cost $115 a week. (That is slightly above the Canadian average.)

Is that unreasonable? Unsustainable?

The actuaries' report doesn't answer those questions. It just crunches the numbers. But data make for a much more concrete discussion that rhetoric.

One of the more interesting set of numbers is a breakdown of the 4.43 annual increase. Based on data from the Canadian Institute for Health Information, the actuaries say the rise in health costs has three main elements:

• Healthcare inflation accounts for 1.99 per cent of the increase, money that goes mostly to wage increases. Let’s not forget that about two-thirds of all health spending is for labour;
• Aging, which is often cited – wrongly – as the principal reason health costs are becoming unsustainable, accounts for 1.27 per cent of the annual rise in costs. This is because per capita costs increase as people age;
• Increased utilization makes up the rest of the cost escalation, at 1.10 per cent. This is a reminder that people of all ages are using more services, not just seniors.

The report also estimates projected annual increases in major categories, including hospitals, physician services, drugs and other institutions (like nursing homes).

Overall, the numbers are sobering. Without changes in how we deliver health care, per capita costs will triple from 2000 to 2020: to $3,599 from $1,219 for hospitals; $1,105 from $354 for physicians; and to $452 from $104 for drugs.

These data give some ammunition to those who argue that the system is unsustainable, at least superficially.

But what they should really do is provide impetus for reform. What is really needed in this country is not a discussion of how to rein in costs because that usually results in little more than trimming around the edges.

What needs to be discussed is delivering care differently, including actuarial modelling of new approaches.

A public insurance plan should, like a private insurance plan, ensure that it has adequate money to provide insured services.

But the first crucial step is determining what those insured services are. Those are political and societal choices. The accounting exercise comes later.

André Picard is the health columnist at The Globe and Mail.