Well, ultimately economics is a form of story telling as McCloskey’s The Rhetoric of Economics tells us. So what is the story here? Well, here are a number of possible explanations:
Story Number One: The prescription of the Romanow Commission on health care that we should provide money to buy transformative change has worked. We have invested in new technology and transformed health care delivery and the result is declining rates of growth after the initial surge. Indeed, the accompanying figure shows that the real growth rate has been in decline over much of the early 21st century. Caveats: The average real growth rate from 2000 to 2012 was still 3.9 percent (6.6 percent nominally). This was still faster than the growth rate of GDP. As well, prolonged declines in the growth rate have characterized other time periods. As for transforming health care delivery, while wait times are down in some procedures, there are still the usual complaints of access to certain procedures or to physician services.
Story Number Two: The slowdown is entirely due to the effects of the 2009 recession and the current economic slowdown. There is some merit to this explanation as the recession of the 1990s and the transfer cuts that came with the deficit crisis also resulted in a spending growth slowdown. The economic recovery and boom after the mid 1990s is then associated with a recovery in health expenditure growth rates. Indeed, the extremely high growth rates in health spending from 1997-2003 – before the transfer increases of the Health Accord – can be seen as the result of faster economic growth, the fiscal dividend from lower interest rates and a rebound in spending after the restrictions of the 1990s. Caveats: There were recessions in the 1970s and 1980s also but spending growth was pretty high then. Those periods were marked by an expansion of provincial government drug programs and home care. As well, Canada was supposed to have weathered the recession better than any other major G-7 economy so why the slowdown in health spending? As well, interest rates are still low so one might still expect some benefits of a fiscal dividend despite the higher government debt levels as a result of the recession. However, a story based on economic conditions also helps explain why private sector health spending growth rates have also declined.
Story Number Three: Most health spending is public (about 70 percent) and quite sensitive to Federal Transfers. After all, some of the lowest growth rates are in the 1990s, when the cash portion of federal provincial transfer payments was cut. Public health care providers are forward looking and have seen the writing on the wall. After 2017, federal health transfers will no longer grow at the 6% rate of the Health Accord but will grow at the rate of growth of GDP with a floor of 3 percent. As a result, provincial governments are busy restructuring their health systems and embarking on transformative change in a reverse Romanow mechanism – the prospect of less money is buying transformative change. Caveats: Well, this suggests governments are very forward looking indeed. It does not help explain the private sector spending growth decline.
are of course possible explanations.
I’m not sure I have an answer.
There could be elements of all three explanations working as well as
others that I have not thought of.
Perhaps the last couple of years have seen provincial governments start reining in health sector compensation increases and the effect is bearing fruit? Ontario, for example, is planning to limit the increase in its health budget this year to about 2 percent. Given the size of Ontario's health care budget is this slowdown mainly the effect of Ontario on the data? Or it could be the growth spending declines are simply a fortuitious short term pause before spending increases resume at a higher rate though the reason for the recent pause still needs to be explained. I'm sure people in the health ministries are looking for explanations.