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Konrad Yakabuski (Fernando Morales/The Globe and Mail)

Konrad Yakabuski

(Fernando Morales/The Globe and Mail)


Will U.S., Canadian health spending converge? Add to ...

No one fought Obamacare harder than the crop of Republican governors swept into power in the Tea Party wave of 2009 and 2010. They challenged President Barack Obama’s game-changing health-care law before the Supreme Court. And although the legislation was upheld, the GOP claimed a partial victory when the court ruled that states could opt out of parts of the law.

So, what are many of those same governors doing now?

One by one, they’re opting in. Florida Governor Rick Scott is the latest to sign up for his state’s chunk of the $800-billion (U.S.) the federal government will dole out by 2022 to fund a massive expansion of Medicaid, the joint federal-state health-care plan for the poorest Americans. The Medicaid overhaul is a key plank of Obamacare and will add millions of adults and children to the public health-care rolls.

The expansion, set to take effect in 2014, confirms an irrefutable trend. In the United States, public spending on health care is growing faster than private health-care spending. And that trend is set to accelerate as millions of retiring baby boomers move from private insurance plans to federally funded Medicare and Obamacare’s vast subsidies kick in starting next year.

The public sector’s share of total U.S. health-care spending had already reached 49 per cent by 2010, according to the Congressional Budget Office. As tens of millions more Americans are enrolled in Medicaid and Medicare, public spending will easily surpass private spending.

The direct subsidies provided under Obamacare to enable low- and middle-income Americans to purchase private health insurance will further increase the public share of overall health-care spending. Even though the subsidies will show up in national accounts as private spending – due to a quirk in accounting rules – McKinsey & Co. notes that they will still “represent a substantial increase in overall government expenditures on health care.”

While governments in the U.S. will make up a growing share of the health-care spending in coming years, the opposite is likely to occur in Canada.

Contrary to Canada’s self-image as a public health-care monopoly, the private sector already accounts for more health spending here than in any other developed country except the U.S. and Switzerland. Private spending totalled more than $62-billion (Canadian) in 2012 alone.

What’s more, private health-care spending has grown faster in Canada in recent years than public expenditures. The private sector’s share of total spending increased nearly a full percentage point between 2010 and 2012, to 30.3 per cent last year.

A new study led by University of British Columbia professor Michael Law found that Canadian households spent an average of $1,523 (Canadian) for health care in 2009. After inflation, that amounted to a 37-per-cent increase since 1998, as individuals dole out more in private insurance premiums and co-payments for such necessities as prescription drugs and eye care.

As Ottawa scales back health-care transfers in coming years, already-squeezed provinces may have no choice but to resort increasingly to user fees and co-pays for more health-care services. Former Saskatchewan finance minister Janice MacKinnon recently addressed the elephant in the room by suggesting that a portion of public health-care services be treated as a taxable benefit.

Then there’s the unresolved question of whether Canadians should be unconditionally allowed to buy private insurance for medically necessary services performed outside the public system. Pending court decisions could dramatically reshape Canadian health care.

It’s possible, therefore, that the public share of overall health-care spending will settle at the same level – say, about 60 per cent – in Canada and the United States. Americans don’t like to admit it, but they will depend more on the state for health care. Canadians are reluctant to say it, but more private health spending will become a reality here.

This convergence won’t mean that the Canadian and U.S. health-care systems will look alike in other ways. Their system will continue to cost vastly more, driven by juicier physician salaries, exorbitant administrative costs and the overuse of expensive equipment. Despite Obamacare, greater income inequality will mean continued variance in health outcomes among different socioeconomic groups. The chasm between those with gold-plated private insurance and those with basic Medicaid will remain as glaring as it is today.

Still, the trend toward more public health-care spending in the U.S. and more private spending in Canada will challenge each country’s notion of itself.

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Follow on Twitter: @konradyakabuski

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