One of the global challenges of public policy is the rising relative cost of health care.
Total government spending on health in Canada rose to $191-billion in 2010 from $140-billion in 2005. Much of this growth is fueled by the $24.8-billion (and rapidly growing) transferred to the provinces by the federal government specifically for health.
Regardless of party or partisan stripe, health-care costs across Canada – and much of the Western world – have grown at rates far exceeding other social programs. The result is budgets where health care threatens to take over so much of tax revenue that other programs, from welfare to roads to the military, are reduced below quality measures anyone would want.
The phenomenon is obvious to anyone in public policy, but the question of why it happens is more complex. A recent paper in the British Journal of Political Science provides a new angle. Danish political scientist Carsten Jensen argues that “health care is inherently different from the politics of social policy related to the labour market.”
Most elements of the welfare state – social assistance, unemployment insurance, injured worker's insurance, sick pay, etc – are programs where the benefits fall more heavily on those with lower incomes, and thus there is a major income skew along the labour market. Those with lower-income tend to be more supportive of social programs than those with higher income.
Jensen argues effectively that health care is different. “Failing health is a life course risk, meaning that it is largely uncorrelated with income distribution. High-income and low-income individuals are almost equally exposed to the risk of failing health.” Only the most well-to-do have the resources to self-insure against catastrophic health risks.
The result is that health care remains popular among the middle class, far more so than other elements of government transfers to individuals or programs. In the parlance of political science, there is an electoral exposure between the median voter and the income at which a voter can self-insure which splits the natural conservative coalition. Some can afford to self-insure and some can't.
As a result, conservative governments do two things.
First, they are as likely as left-wing ones to increase spending in health care, even while cutting spending in other parts of the welfare state. They do this to mollify concerns among lower-income conservative voters in a world where “amount you spend” is used to equate with “how much you care.” Second, they tend to offer opt-outs or Private Health Insurance (PHI) as a way to mollify high-income conservatives who want access to higher quality care.
The data Jensen tests shows that since 1980, conservative governments tend to result in lower unemployment income replacements, but have no significant impact on total health spending. As a result, we can see why across the world health care continues to grow while the rest of the budget shrinks. The left tends to ramp up spending across the board. For conservatives, it is good electoral strategy to match the financial spending bids of parties to their left, while promising to cut programs that are more income-dependent.
The result is health just keeps growing. Jensen tests his hypothesis with two case studies, Denmark and Australia, as well as data from across the developed world.
We see the same phenomenon in Canada. This year, the looming renegotiation of the federal-provincial Health Accord – renewing Paul Martin's “fix for a generation” – was a key issue in the federal election.
Before 2006, Stephen Harper's position was simple. Asked about the accord in 2005, Harper answered: “I would rather have the federal government focus on the things it can do and let the other governments get on with the issues they are supposed to deal with.”
As the election opened, the Liberals tried to make the accord a key issue, pledging billions in new money for a post-2014 Health Accord with the provinces. Within minutes, the NDP matched the Liberal pledge. And within hours, the Conservatives had matched them both.
Stephen Harper was determined not to repeat the mistake of the 2004 campaign, where he let Paul Martin define him as supporting Ralph Klein’s musings on private health care – and wound up taking a surprising defeat as a result. In a single day, all three major parties promised to extend transfers to the provinces at 6 per cent annually, guaranteeing a multi-billion dollar increase in funding.
The quick match of the Liberal position makes perfect sense for the Conservatives politically. The issue was certainly salient. After the election, Nik Nanos found health care negotiations with the provinces were the No. 1 issue Canadians wanted Stephen Harper to address.
The issue was also one that the Conservatives did not want to spend any time on. Private coverage and lower funding split the Conservative Party coalition, so they wanted to fight the election elsewhere. By matching the spending commitments of the opposition, they were able to do that.
The Canadian case study reinforces Jensen’s basic finding: If you want a way to explain accelerating health care spending, don’t just point to the left. Parties on right are just as responsible for the extraordinary increases.