New CIHI Health Numbers: Health Care Cost Curve Still Bending

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. 

FIGURE 1

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 2

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.

 FIGURE 3

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. 

Comments

[Majromax]

> 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.

This is a bit confusing, since Figure 2 seems to use a net, "total" figure as "percentage of budget." If 30% of health spending is private, then I'd expect Ontario's figure to be closer to $4,000/per rather than the $5,894 listed.

Either the $6,045 figure is only public spending, or there's some hidden math to get "percentage of budget" not otherwise reflected in the provincial figures.

[Livio Di Matteo]

Majromax:
The $5894 is total health spending for Ontario. Of this, about 70 percent is public. The provincial government per capita amount for Ontario is $3768. Ontario has a lower public share than the national average.

[Nick Rowe]

Livio: "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 45.2 to 44.6 percent between 2002 and 2012."

Typo?

[Majromax]

> The provincial government per capita amount for Ontario is $3768. Ontario has a lower public share than the national average.

And that's what is reflected in the "41% of budget" figure, I take it?

[Livio Di Matteo]

Nick: Thanks. Correction made.

[Livio Di Matteo]

Majromax:
The 41% of budget I believe refers to the proportion of the provincial government budget that is devoted to health spending. Given that the per capita figure is for total health spending, I think the Figure is a bit confusing. The fine print at the bottom of the figure does say that total health spending is for both public and private health spending.

[Ian Lee]

Livio - in the Globe article in which you were quoted yesterday, ""Government health care spending, and how much seniors account for"", no where did the article provide the empirical info you provided in this post:

""the share of public sector health spending on seniors has only grown from 44.6 to 45.2 percent between 2002 and 2012"".

Indeed, the article provided the following quote:

So far, the aging of Canada’s population has been gradual, allowing the health-care system time to adjust. “It’s popular in the media to be really worried about the grey tsunami,” said Colleen Flood, a University of Ottawa law professor who specializes in health policy, “but it’s not like this massive spike that hits the system at any one time.”

I was puzzled by both the article and the quote for it seemed to suggest that seniors do not account for a significant share of health care spending.

Yet, Stats Can states http://www12.statcan.ca/census-recensement/2011/as-sa/98-311-x/98-311-x2011001-eng.cfm, ""Seniors accounted for a record high of 14.8% of the population in Canada in 2011, up from 13.7% five years earlier""

So if understand correctly, 14.8% of the population accounts for 45.2% of total health care expenditures.

And if I recall, Dodge in Chronic Healthcare Spending Disease http://www.cdhowe.org/pdf/Commentary_327.pdf, provided estimates that seniors will rise to 20% of total Canadian population.

To my admittedly simple mind, this suggests that the grey tsunami has already arrived - if about 15% of pop accounts for almost half of spending?

No? Or are there some mitigating stats that I have missed?

Ian

[Jim Sentance]

Much of this seems to basically confirm my feeling on health spending, that the availability of government funding is a more telling indicator of where spending will go than anything on the demand side. On that note, I'd be willing to predict that those provinces getting hit by the move to per capita cash transfers will be bending that curve more diligently than those that benefit, whatever the differences in demand pressures are (and they are probably the ones where the grey tsunami is coming in hardest).

Looking at the differences in per capita spending, I'm also wondering what the basis for those differences is, or rather how this supports the various arguments that are out there about that. One thing it looks like to me is that economies of scale might be a factor.

[Livio Di Matteo]

Ian:
Seniors account for a very large share of current health spending - as you have noted - and have done so for quite a long time. Spending rises with age but the growth in that expenditure share has been modest to date.

[ianlee]

Livio - thanks.

I was just surprised that an article titled explicitly, ""Government health care spending, and how much seniors account for" - did not in fact, tell us how much health care spending seniors account for - contra the title.

And contra the tone of the article, the share of seniors will increase - whether slowly or quickly is a red herring to the central issue - as the share of seniors in the population increases, likely passing 50%.

This in turn suggests the need for greater attention to this issue.

[AngelaMiller]

I enjoyed your post. Thanks