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September 27, 2006

Campbell's Health Conversation

Finance Minister Carole Taylor's trial balloon on the sustainability of health care dominated all other coverage of the release of her First Quarterly Report, which covered the province's financial accounting for April through June 2006. As expected, the report revised expected revenue from natural gas as a result of lower prices; what wasn't expected was that the loss of $774 million this year and $319 million next year, from lower natural gas royalties was easily offset by increases in tax revenues. A careful reading of the Report reveals there is still plenty of "caution" on the revenue side. The document assumed the status quo on the softwood dispute with the U.S. but noted that its settlement means the province will receive between $200 million and $300 million in increased corporate tax revenues when B.C.'s forest companies get their money back from the U.S. Don't be surprised if the Second Quarterly Report shows further growth in revenue.

As long as revenue growth is greater than the growth in health costs, not just year to year but over several years, it is not credible to claim that growth in health care spending is not sustainable. As is usual with financial statistics, they are constantly changing as a result of revisions. The switch to generally accepted accounting principles (GAAP) which forced the inclusion of school districts, colleges, universities, other education institutions and the health authorities (the SUCH sector) resulted in significant changes to figures for government revenue and spending, starting in the fiscal year ending March 31, 2005. Figures for comparison purposes have not been revised beyond fiscal year 2003-2004, consequently, comparing health spending as a proportion of total government spending or revenue for any period starting earlier than April 2003 and including period after April 2004 is subject to errors. Even without those complications, government's have a habit of reorganizing. Financial reports are restated for the previous year to provide a consistent basis of comparison, but comparisons using earlier data mix apples and oranges.

BC's 2006 Public Accounts show health spending by function for the previous year as $11.529 billion, but the 2005 Public Accounts reports that number as $11.633 billion. The 2006 Public Accounts reports total expenditures for the previous year as $30.667 billion and total revenue as $33.363 billion, but the 2005 Public Accounts shows the figures as $30.658 for spending and $33.233 for revenue. Purely on the basis of the revision, health spending decreased by 4 tenths of a percent, to 37.6% of expenditures and 34.6% of revenue in 2004-05. Notice that both figures are lower than the 41% quoted by Taylor when she released her First Quarterly Report. If the Minister of Finance is worried about the growth in health spending, she should make sure that her figures are correct and readily available for others who are interested in participating in the "conversation on health care".

Governments across Canada recognized the need to establish a common database when they established the Canadian Institute for Health Information (CIHI). The Institute's website shows spending on health care broken down in several ways, including both public and private spending, but it does not represent health spending as a percentage of government revenue or spending. Economists recognize that such comparisons may be politically useful but they don't mean much. As Will McMartin pointed out in his recent article in The Tyee, keeping health spending constant while cutting welfare has the mathematical effect of showing an increase in health spending as a proportion of total spending. Economists avoid these misleading representations by looking at health spending relative to an economy's productive capacity measured as health spending as a proportion of gross domestic product (GDP). It is most relevant to look at total spending on health care rather than just public spending since shifting costs from the government to the pocket of sick citizens doesn't contribute to cost control; nevertheless, the Campbell government appears to be focused solely on public health spending.

BC Health Spending as % of GDPThe graph uses spending data from CIHI and GDP data from BC Stats. There is no denying that as a percentage of GDP there is an upward trend; however, the gain of 2% for government spending and 3% for total spending took almost 25 years. Just think of the difference in health care between 1981 and 2005! In 1981 the IBM personal computer and Microsoft's MS-DOS were introduced. The use of MRIs wasn't cleared for commercial use by the US Food and Drug Administration until 1984. There were only 22 MRI machines in all of Canada in 1991, 3 in BC. Many people would say that spending just 2% more of our GDP during a period of rapid technological change indicates a major accomplishment in cost control. Between 1981 and 2005 life expectancy in BC increased by 5 years to age 81.

Taylor's scenario of health costs reaching more than 70% of government spending by 2017 is not very likely; it is possible that total health costs could increase to 13% of GDP as a result of technological change and an aging population. The U.S. already spends 15.2% of its GDP on health care.


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