The Canadian Institute for Health Information has released its 2014 edition of health spending data - National Health Expenditure Trends, 1975 to 2014 – and the numbers seem to show a continuing trend towards slower growth of health expenditures in Canada.
For 2014, total health spending in Canada is expected to be 214.9 billion dollars or $6,045 per capita and will only grow 2.1 percent compared to average annual increases of 7 percent over the period 2000 to 2010 (See Figure 1). Public sector health spending accounts for about 70.5 percent of this spending. The key areas of hospital, physician and drug spending are expected to grow this year at rates of 2.1, 4.5 and 0.8 percent respectively. The slowdown in drug spending is particularly remarkable given it used to be one of the fastest growing categories.
The CIHI report attributes the slowdown in drug spending to “jurisdictions introducing generic pricing control policies, patent expirations and the emergence of fewer new drugs on the market.” Population aging remains a modest driver of increasing health care costs as the share of public sector health spending on seniors has only grown from 44.6 to 45.2 percent between 2002 and 2012.
There is still considerable variation across the provinces when it comes to health care spending (See Figure 2). Per capita total health spending is expected to be the highest in the territories, followed by Newfoundland & Labrador & Alberta. The lowest spenders are Ontario and Quebec. The numbers for provincial government health spending are also interesting and range from a high of $5,087 for Newfoundland and Labrador and again followed by Alberta at $4,699 with Ontario and Quebec at the bottom again at $3,768 and $3,660 respectively.
Figure 3 plots real per capita provincial/territorial government health expenditure over the period 1975 to 2014 (with 2013 and 2014 as forecasts) and it would appear that we are upon a “fourth age” of health care spending. The first period of increases from 1975 to 1991 was followed by the era of restraint from 1991 to 1996. Growth then resumed-fueled first by economic recovery and then the federal transfer enrichment of the health accord after 2004 and the third period from 1996 to 2010 saw real per capita provincial health spending nearly double. Since 2010, real per capita spending has fallen and is forecast to fall.
Of course, whether this decline will persist is subject to debate. Bill Robson at CD Howe has argued that this deceleration is a forecast based on government budget estimates and that revisions generally show larger health spending increases. However, it should be noted that 2010 to 2012 show an actual decline and there is no reason to believe that the forecast spending for 2013 and 2014 will not show the decline continue. The provinces face a slowdown in federal transfer growth starting in 2017 and they have an incentive to get their health spending under control.
Of course if history is any indicator, the decline that has been underway since 2010 could prove to be as short-lived as the one that occurred from 1991 to 1996. However, that decline in real per capita spending was much more traumatic as it was the result of a recession as well as transfer cuts (not a slowdown in growth) due to the fiscal crisis at the federal level. If anything, my expectation is that within a year or two, real per capita provincial government spending will level off and then resume growth but at much lower rate than that which took place from 1996 to 2010.
The provinces will continue making a stronger effort to restraint health expenditure costs given slower growth rates in both the economy and federal transfers. This will be counter balanced by the aging of the population and the continued development of new medical technology. While aging to date has been a modest contributor to health spending growth, this will likely not continue. If you look at the numbers, the big increase in spending per capita by age group comes after age 80. Per capita spending in 2012 was $6,368 for those aged 65 to 69, which is only slightly above the national average of $6,045. For those aged 80 and over the per capita spending was $21,054. The Canadian population is aging but the front end of the baby boom - if you date the birth year of the first cohort of the boom from about 1948 - is just entering the age 65 to 69 category. The effects of aging are not fully upon us yet.