Election 2011: Funding restraint ahead for health care

In 2011-12 health care represents an expenditure of $47.1 billion on a $124 billion annual budget – an increase of $2.1 billion over 2010-11.

No matter which party gets elected, we can expect annual increases substantially below $2 billion. This will add considerable stress to the existing system. Any promise of new investments should be seen in this context. This may also be the reason why candidates have been so reluctant to talk about health care.

In his pre-election report, the Auditor General of Ontario (AG) said that the existing budget targets for health care were aggressive and likely to lead to service cuts or increased debt, particularly among the province’s hospitals.

The AG singled out home care and long term care, where targets to reduce the annual rate of increase are very aggressive – long term care being trimmed to half the present rate of increase, home care being trimmed to one-third of its present annual increase. Given the government plans to use these two sectors to alleviate demand on hospitals, the numbers simply do not add up.

The reality is all parties are using the government’s three year projections to base their promises on.

While the AG considers the government’s target of restraining health care spending to an increase of 3.6 per cent per year to be aggressive, the Liberal campaign suggests an even more aggressive target of  3.2 per cent (average).

The Liberal plan calls for increases of between $1.6 billion and $1.7 billion per year, well below this year’s $2.1 billion.

The Tories are calling for a total increase of $6.1 billion over four years, or an average of a little more than $1.4 billion per year.

The NDP plan has provided cost estimates for new services, building on the same restraint 3.6 per cent baseline. The Ontario Health Coalition was told that the NDP would add $400 million more to the baseline increases.

All parties say they can reorganize health care to make it more efficient. The NDP is likely the most realistic – while they see up to $100 million in savings by ending the wasteful competitive bidding system in home care, they don’t anticipate full value on these savings until 2015-16. The Ontario Health Coalition estimates the present system leads to excessively high administrative costs – up to 30 per cent of the $1.9 billion we spend on home care.

On the other hand, the Tories are promising to save $250-300 million by shuttering the Local Health Integration Networks. This is not realistic. $250-300 million is the five year total of operating the LHINs, not the annual cost. That means even if the work were undertaken by a Ministry of Health that has already been dramatically reduced in size, the best they could save is $68 million per year. And nowhere in their forecast is the cost of wrapping up the LHINs, which would be much higher than the cost of closing the District Health Councils.

The revenue side of the picture is more difficult to predict in the present economic volatility. In September the private sector was downgrading their Canadian economic forecasts. The Royal Bank lowered its forecast for real GDP growth in Ontario from 3.3 per cent to 2.3 per cent this year, and to 2.4 per cent next year. The difference between real and nominal growth is important, given politicians frequently compare nominal costs against real GDP growth, which is misleading. Real growth takes inflation into account, nominal does not. In addition, government revenues usually climb between 1.1 and 1.3 times GDP growth. If the Royal Bank is predicting 2.4 per cent real growth, nominal growth should be well in excess of 5 per cent.

When the AG submitted his pre-election report in June, government was projecting revenues based on 2.4 per cent real GDP growth in 2011 and 2.7 per cent in 2012. Average annual revenue increases over the next three years included 6.2 per cent from personal income tax, 5.3 per cent for sales tax (HST), and 4.2 per cent from corporate taxes. Taxes represent 70 per cent of provincial government revenues – the rest from Federal transfers (23 per cent), income from government enterprises (such as the $1.55 billion from the LCBO) and other non-tax revenue.

Government does build in $700 million a year in contingency funds should there be variance in their estimates. In addition there is a similar sized reserve to offset the impact of unexpected and adverse future events, such as the SARS outbreak of 2003.