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January 14, 2012

Clark Threatens Seniors

Prior to hosting the Council of the Federation, a meeting of Canada’s first ministers from January 15-17, Premier Clark made media appearances recommending that future federal contributions to health care should include an age adjustment on top of the simple per capita formula put forward by Federal Finance Minister Jim Flaherty. She claimed that failure to take demographic differences into account would be "devastating" for seniors in BC. Clark's position is interesting since she supports capping the growth in federal health transfers at the growth rate of nominal GDP (real economic growth plus inflation), but she wants a larger share of those contributions for BC, at the expense of other provinces.

There are three primary points to debate on the 2014 renewal of the federal Health Accord: Flaherty has put forward a like-it-or-lump-it position which he said is not negotiable: no strings, growth after a two-year extension of 6% to be limited to nominal GDP and distribution between provinces on an equal per capita basis.

The current Health Accord included an agreement for the provinces to make progress in designated areas, including the reduction of waiting times for specified procedures, and to issue annual reports. Flaherty's position is the provinces can take the money and do what they want. That may be consistent with the Harper government’s view of federal-provincial fiscal arrangements, but it does nothing to assure that federal contributions will be spent on health care rather than megaprojects.

Cynics might argue that Clark and Flaherty understand that limiting the growth of government spending on health care simply results in health care continuing to increase as a percentage of GDP, but with the growth increasingly taking place in privately funded care, including care that was previously publicly funded. In BC we have the example of eye exams which were once covered under MSP but are now limited by age. More concerning is the growth in private clinics where patients essentially pay for access to a physician, and may pay for private surgeries even though such queue jumping is prohibited by the unenforced Medicare Protection Act. Growth in the multi-tier health system is certain as the public system erodes. The goal of limiting growth is only meaningful if it is accomplished by realizing efficiencies in health care whether it is publicly or privately financed. As shown by the experience of OECD countries, total health spending has increased as a percentage of GDP for the past forty years. No country has been able to stop it, and artificially limiting federal contributions will be like poking a balloon; it will just bulge elsewhere. (See exhibit 7A in a paper from the Kaiser Family Foundation.) Federal Budget Officer Kevin Page has estimated that limiting growth in federal contributions to growth in nominal GDP will shift over $30 billion in costs to the provinces. This means that the part of the change embraced by Clark will cost BC almost $4 billion over 10 years.

It is true that on the basis of the most recently available census data (2006), BC has a larger proportion of its population over age 65 than the Canadian average, 14.6% vs. 13.7%. BC also has a higher proportion over age 85, 4.0% vs. 3.7%. Provinces with lower proportions over age 65 are: Alberta (10.7%), Ontario (13.6%), Newfoundland and Labrador (13.9%), Manitoba (14.1%) and Quebec (14.3%). The other provinces have higher proportions; Saskatchewan, highest at 15.4%, would be the big winner with Clark's approach. If an age adjusted formula was agreed to by all the provinces, not a likely proposition given five provinces would lose, it would be unlikely to be based on the 2006 census. Population projections by Statistics Canada, using a medium growth scenario, show that by 2036 Canada will have 23.7% of its population over age 65 (3.7% over 85); BC will have 23.6% over 65 (3.9% over 85). In other words, in the long term projections show BC's age distribution approaching the national average. It is not at all clear that claims by the Ministry of Finance are true that an age adjusted formula would give BC $250 million more per year. (Remember these are the folks who claimed the HST would be revenue neutral.)

BC has more to gain if Clark were to argue for a federal funding formula that recognizes what has been shown in the rest of the world, health care will gradually grow relative to other sectors of the economy. When she reacts in horror saying that means it would eventually consume the entire provincial budget, she is trying to fool you. That would only happen if government continues with a tax cutting agenda which will inevitably result in more people paying out of pocket for access to medical procedures. That is nothing but an inequitable disguised tax, inequitable because it means access to care would increasingly depend on the size of a families' wallet.