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Livio Di Matteo: Health spending during COVID-19: It’s Complicated

Commentary

The National Health Expenditure Trends 2021 report from the Canadian Institute for Health Information (CIHI) has just been released, and the data provides a much-awaited, macro level first look at what happened to health spending during the COVID-19 pandemic. At first glance, the numbers are what one expects—and quite sobering.

Canada is expected to spend a new record of $308 billion on health care in 2021. That is $8,019 per Canadian. It is also anticipated that health expenditure will represent 12.7 percent of Canada’s gross domestic product in 2021, following a high of 13.7 percent in 2020.

In terms of composition, hospitals (25 percent), drugs (14 percent), and physicians (13 percent) continue to account for the largest shares of health dollars (more than 50 percent of total health spending) in 2021.

A new spending category—COVID-19 Response Funding—makes its debut, and consists of the federal direct and provincial/territorial government–sector spending to combat the pandemic. This includes money for treatment costs, testing and contact tracing, vaccination, medical goods, and other related expenses, and is a separate category from the standard ones used. Overall, it constitutes 7 percent of total health spending.

As reported by the CIHI, total health spending is expected to have increased by nearly 13 percent between 2019 and 2020, a rate of increase not seen in more than 30 years and triple the growth rate experienced from 2015 to 2019 (which was steady at approximately 4 percent per year). This historic spending increase took place alongside a contraction in the economy that was due in part to the ongoing pandemic. However, 2021 is expected to see a moderation of spending growth down to 2.2 percent as COVID-19 response support drops from $30.6 billion in 2020 to $22.8 billion in 2021, a decline of 25 percent.

While total health spending is up, it remains that the closing of outpatient departments and postponing of medical visits and procedures during the height of the pandemic meant a reduction in some aspects of health service provision and health spending. According to CIHI’s own analysis of COVID-19’s effect on hospital care services, from March to December 2020 overall surgery numbers fell 22 percent compared with the same period in 2019, a drop of 413,000 surgeries.

Indeed, once one starts to examine spending both including and excluding the COVID-19 response spending provided, as well as adjusting for inflation and population growth, the picture looks more variable depending on the categories examined and the financing sector considered. The public sector accounts for three quarters of Canadian health spending, with provincial and territorial governments alone responsible for about two-thirds of health spending in Canada. Other public sector spending accounts for about 9 percent, with the remaining 25 percent coming from private sector spending (mainly out of pocket and private insurance).

Figure 1. Graphic credit: Janice Nelson

Figure 1 presents annual real per capita health expenditure growth rates for the years 2019, 2020, and 2021 (the latter two being forecasts) for total Canadian health spending (public and private sector), provincial-territorial government spending, and private sector spending calculated using the CIHI data. In 2019, real per capita total health spending in Canada grew about 1 percent and soared to 7.2 percent in 2020 but is expected to rise barely one-tenth of one percent in 2021. However, when the COVID-19 response spending is removed it turns out that real per capita health spending (net of COVID) in 2020 declined 3.6 percent but is expected to rebound by 3.1 percent in 2021.

Variable spending across the provinces

Meanwhile, when provincial-territorial governments alone are examined, their real per capita total health spending in 2020 rose 8.1 percent. However, once the COVID-19 response is factored out, their spending declined by about 1 percent, though it is also expected to rebound in 2021. Hardest hit in provincial-territorial health spending in 2020 in terms of percentage declines in real per capita spending were physicians (-5.8), other professionals (-6.1), drugs (-2.3), and hospitals (-0.5). These results are not unexpected given the decline in surgeries and physician visits brought about by the pandemic. Meanwhile, public health grew 4.1 percent, other institutions (including long-term care) grew 1.2 percent, and capital spending grew 10 percent.

Moreover, real per capita spending growth net of the COVID-19 response funding was also variable across provinces in 2020. Newfoundland and Labrador, Prince Edward Island, New Brunswick, Quebec, Manitoba, Saskatchewan, and Alberta saw a decline in real per capita spending net of COVID-19 response funding. On the other hand, Ontario, British Columbia, and Nova Scotia saw small increases, with Ontario the largest at 1.2 percent.

New Brunswick, Quebec, and Alberta saw the biggest declines in real per capita health spending at -3.3, -3.5, and -3.6 percent respectively. This demonstrates that during the health system disruption of the pandemic, the decline in service provision, at least as measured by real per capita spending, was greater in some provinces relative to others.

The postponement of so many treatments and surgeris will have health consequences for years to come.

The impact of COVID-19 was exceptionally severe on elective and discretionary health expenditures as borne out by the private sector impact, driven particularly by spending on private physicians, dentists, and optometrists. Real per capita private health spending in Canada in 2020 dropped by 11 percent. It is only expected to rebound by about 1.6 percent in 2021. Real per capita private sector physician spending declined 24 percent in 2020 while that on other health professionals fell 22 percent. For hospitals this was down 13 percent, and for drug spending this was down nearly 5 percent.

Future consequences

In the end, the impact of COVID-19 on Canadian health spending was not simple. While overall spending grew dramatically in 2020 in response to the pandemic, there was a displacement effect as spending on surgeries and other treatments fell with cancellations and postponements. This hit provincial government health spending hard, but private sector spending was hit even harder. The postponement of so many treatments and surgeries will have health consequences for years to come.

In terms of the implications for future health spending, this snapshot needs to be placed in the context of the longer-term trends in health spending, which has generally grown both in terms of real per capita spending and as a share of GDP. The 2010s saw a moderation in spending growth rates which led some to conclude that the health cost curve may have finally been tamed. Part of the moderation may have been a provincial response to the end of the six percent growth rate of the federal health transfer in 2017 and the new formula restricting the growth of federal transfers to GDP growth subject to a minimum of three percent.

However, there was also a moderation of cost drivers during this period, such as technological extension and the onset of new pharmaceutical products, and that may be coming to an end given that the pandemic has been a catalyst for pharmaceutical development. Combined with the concerns about health human services shortages in health care and the need to reinvest, the pandemic may indeed be the trigger event that starts a new cycle of rising health expenditures.

Sean Speer: Climate policy needs more growth and innovation, less red tape and self-righteousness

Commentary

The COP26 climate change conference in Glasgow, Scotland, has thus far been marked by inclement rhetoric about the exigencies of climate change. One can discern a growing tendency on the part of some political leaders and climate activists towards alarmism, despair, and an overarching message of degrowth. 

The U.S. climate czar John Kerry, for instance, recently described the meetings as “the last best chance the world has to come together in order to do the things we need to do to avoid the worst consequences of the climate crisis.” Young climate activist Greta Thunberg has similarly characterized the gravity of the climate challenge as “dark and hopeless” and called for “fundamental changes to our society.”

Not only are these messages bound to fail in terms of animating and inspiring citizens as Macdonald-Laurier Institute senior fellow Ken Coates rightly notes, but they also fail to recognize that “climate change is fundamentally a technology problem” as American innovation scholar Eli Dourado has put it.

Substantial and durable carbon emissions reductions will not come from a Thunbergian rejection of capitalism’s capacity for invention and innovation. It will only ultimately come from leveraging the dynamism and ingenuity inherent in the Schumpeterian process of Creative Destruction. The goal of net-zero emissions, in short, must be a pursuit of progress rather than the succumbence to stagnation. 

It’s worth stating it as clearly as possible: there’s no constituency—except perhaps for a minority of fringe voices—prepared to accept lower living standards in exchange for significant climate action. That trade-off is a non-starter in Canada and elsewhere around the world. 

If degrowth is a path to inevitable political instability and ultimate backtracking on the environment, then we must choose a different one.

Our climate goals must instead be rooted in developing and scaling breakthrough technologies in energy, industrial production, building construction, transportation, and so forth. So-called “eco-modernists” like Michael Shellenberger and Alex Trembath are the true proselytizers of climate progress.  We need a frontier agenda for climate-related innovation and technology.

When U.S. President John F. Kennedy famously committed to reaching the moon by the end of the 1960s in a September 1962 speech at Rice University, he acknowledged that some of the necessary materials and technologies hadn’t yet been invented. His audacious goal was, in this sense, “an act of faith and vision.” 

The same goes for today’s goal of achieving net-zero emissions by 2050. Uncertain scientific and technological breakthroughs will necessarily be a key determinant as to whether we hit that target. 

Research by the Canadian Institute for Climate Choices, for instance, estimates that “safe bet” technologies such as electric vehicles, energy-efficiency equipment, and electric heat pumps and baseboard heaters can contribute at least one third of the emissions reductions required to meet Canada’s 2050 target. The rest of the progress will need to come from “wild card” technologies that are currently undeveloped or may not yet even exist.

The goal of net-zero emissions, in short, must be a pursuit of progress rather than the succumbence to stagnation. 

Faith and vision are therefore necessary but insufficient conditions to catalyse these much-needed breakthrough technologies. We also need an ambitious policy agenda to bring faithful expression to such a vision. 

This will necessarily involve a combination of scientific pursuits, major capital investments, and broad-based technology adoption. There will doubtless be a role for public policy to support in each of these areas—including expanding support for scientific research, using public investments to reduce investor risks, and providing incentives to encourage the domestic adoption of new, emission-reducing technologies. 

The basic goal of this panoply of public-private arrangements must be to catalyse a pipeline of new ideas and technologies and then help them transition from the laboratory to the market for the purposes of commercialization and broad adoption in the name of ultimately achieving a zero-carbon economy. 

But as important as individual government programs and policies may be, they’re no substitute for a clarity of purpose and vision. A major foundation of a frontier agenda will require a similar culture of endeavour and progress that Kennedy envisioned in his historic “moonshot” speech. 

If one accepts that climate change is fundamentally a technology problem—that new technologies are our only realistic means of significantly netting out carbon emissions—then public policy must be oriented towards greater development and progress. 

Take one example: Canadian climate policy experts have argued in favour of major energy infrastructure projects to connect provinces with “abundant clean hydroelectricity with parts that are currently more dependent on fossil fuels for electricity generation.” This might involve, for instance, connecting British Columbia’s emissions-free electricity to Alberta where more than 80 percent of the province’s electricity comes from fossil fuels. The projected return-on-investment in terms of emissions reductions would be significant.  

The problem, of course, is that in the current context of never-ending Indigenous consultations, environmental assessments, and regulatory permitting, virtually no one thinks that these types of major, emissions-reducing projects are credible in the short term, or possibly even ever. It’s important to recognize that the obstacle here isn’t a technological one. Instead it reflects the cumulative consequences of our own political and policy choices. 

We’ve so wrapped ourselves up in a labyrinth of bureaucratic red tape that we’re unable to pursue public or private investments that could make meaningful contributions to our climate goals. One of the perverse outcomes is that it will invariably force governments and companies to accept far more costly yet still more achievable emission abatement options. 

The key, then, is that, as Dourado argued in a recent testimony to a U.S. congressional committee on net-zero emissions, “We must make it easier to build.” We must come to see climate change as a problem of scarcity rather than abundance. 

Policymakers must in turn make it far easier to build public infrastructure, invest in private capital (including industrial plants or new forms of energy or lithium mining projects), or carry out research and development that can contribute to the goal of decarbonization. We must, in other words, reject decadence and paralysis in favour of development and progress. 

Which brings us back to the ongoing COP26 conference. Bill Gates, who first attended the 2010 Paris climate talks, has since said that he was struck by how they never talked about innovation. Early signs suggest that this hasn’t changed enough more than a decade later. 

For the roughly 20,000 attendees, there’s still a preference for what Gates has called the “easy” over the “hard” among most international policymakers, and a self-righteous vision of climate action among activists that view welfare losses as a sign of earnest commitment. 

They’re both wrong. The race to net-zero emissions will only be won through innovation, technology, and progress. And that will in turn require a combination of faith, vision, and a plan.