While public health care spending in Canada has been growing, what has not received a lot of attention is that after adjusting for inflation and population, growth rates of real per capita public health spending in Canada have actually been declining.
Does this mean that the cost curve is finally being bent and we have gotten health spending under control? The answer is maybe but likely not. Uwe Reinhardt in a piece on the recent slowdown in U.S. health care spending offered the lagged effect of the recession as one explanation. Health spending is much like the proverbial oil tanker on the high seas and it takes a while to change speed and direction. Of course, Canada was supposed to have weathered the recession better than the United States but the recession still had an impact on government budgets and ultimately health spending.
As the accompanying figure shows, real per capita spending growth rates slow down substantially in 1984 and 1985. This is after the 1981-82 recession. And in the wake of the 1991 recession, spending growth slows down in 1992 and moves into negative territory from 1993 to 1996. Indeed, the estimate of negative growth for 2011 represents the first decline in real per capita spending since 1996. Of course, the declines of the mid-1990s also coincide with the transfer reductions to the provinces by the federal government as a result of the federal deficit reduction program. But then, all of this can be tied to poor GDP performance if you want to.
Along with recession-induced effects on spending, the other bit of evidence that the health spending cost curve may not yet be bending is when the data is examined at the provincial level. Figure 2 plots the annual growth rates in real per capita provincial government health spending by province. For 2011-2012, six provinces are projected to decline declines in real per capita spending with the largest declines in Ontario and Alberta. Newfoundland & Labrador, Manitoba, Saskatchewan and Quebec are still projected to see increases. The provinces with declines in real per capita government health spending have not necessarily been impacted with the worst GDP performance. Alberta (-5.7%) and Saskatchewan (+2.7%), for example, have been doing relatively well economically and yet one is seeing a healthy increase while the other a steep decline. Alberta may be bending the cost curve or it may be having another resource revenue shock or it may be having a political reaction to the previous year's estimated massive spending increase of 11.5 percent.
In other words, it is still too early to tell whether the Canadian health spending cost curve is about to bend. After the declines of the mid-1990s, spending grew at ferocious rates and made up for the declines. But the economy also grew very rapidly during this period - meaning economic growth is the most important ingredient in driving health care spending. If the economy starts to grow at a robust rate, expect health spending to eventually also pick up as the budget constraint relaxes. On the other hand, if we enter a long-term period of slow economic growth, it will be accompanied by slower health spending growth. This may only look like the cost-curve is being bent. More convincing evidence that the health care cost curve is being bent would require that real per capita health spending rise more slowly than real per capita GDP growth.