Healthcare Spending and GDP
Healthcare’s share of the GDP has always waxed and waned. This reflects different rates of spending and different periods of economic growth and slowdown. To illustrate, consider the share of GDP healthcare has comprised over the relatively recent past. For the duration of the 1980s, health spending remained stable at around 8% of GDP. When the economy fell in 1990, however, health spending as a share GDP rose to 10% by 1992. In an attempt to save money in the struggling economy of the time, governments greatly reduced health spending in 1992 for five years, and health costs dropped to less than 9% of GDP. Canadians became alarmed about problems in the healthcare system which resulted in political pressure to increase funding starting in 1997. Further concern led to the creation of the Commission on the Future of Healthcare in Canada chaired by former Saskatchewan Premier Roy Romanow.
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After the commission delivered its report, two rounds of Federal Provincial Territorial negotiations led to the 2003 and then the 2004 Health Accords which raised federal health spending by 6% per year for ten years. Even in good years, the economy only grows at 3% so the commitment to increase healthcare spending by 6% per year reflected the political choice of Canadians to invest in their health system by deliberately spending a larger proportion of government resources on healthcare.
Over the next five years, as planned, overall healthcare costs increased slowly as a share of the economy, from 10.2% to 10.8% of GDP. 2008 was a year of rapid economic growth and a good year for government revenue. In 2009 overall healthcare spending only increased by 4.3%; however, Canada had just began a very serious recession, so while the rest of the economy shrank rapidly the 4.3% increase in health spending translated into a large jump in health’s share of GDP to 11.9%. Almost all of this sharp increase was due to the economic downturn. If the economy had grown at the same rate in 2009 as 2008, overall health spending would have only been 10.9% of GDP.
Since the summer of 2009, the economy has been growing. Because (among other factors) provinces have implemented various healthcare cost control manoeuvres, it is probable that healthcare’s share of GDP will fall at least somewhat in the next two years, just as it did after Canada’s last serious economic downturn in 1992. CIHI estimated that healthcare’s share was expected to fall in 2010 to 11.7% of the GDP. Although healthcare costs have increased in absolute terms during the past ten years, healthcare costs did not increase dramatically as a share of the overall economy until 2009 when the economy collapsed.
Healthcare spending is a summary measure capturing spending from both the public and private sectors. So what happened to public spending over this period? Public spending on healthcare was relatively stable through most of the 1980s at 6.3% of GDP but jumped up to 7.4% in 1992 following the recession. Following the tight budgets of the mid 1990s, public sector health spending returned to 6.5% in 1997. After the 2003 and 2004 health accords which committed to increased public spending, public health spending increased to 7.6% of GDP by 2008. Public sector health spending increased to 8.4% of GDP in 2009 almost entirely because of the recession. If the economy had grown at the same rate in 2009 as 2008, public sector healthcare costs would have been only 7.6% of GDP, identical to the year before. In 2010 public sector healthcare costs were estimated to have held steady at 8.3% of GDP.
Government spending is under pressure from tax cuts
Even though publicly funded healthcare has not markedly increased its share of the GDP, it has received an increased share of government spending in recent years. This is partly because of the major tax cuts which governments have made in the past decade. In total the three levels of government cut their revenues by 5.3% of GDP from 2000 to 2008, resulting in approximately $85 Billion in foregone annual revenue. Since over this same period public sector health budgets increased by $52.6 billion, there has been a decrease in the amount of money available for public programs. Additional decreases in government revenue through the scheduled corporate tax cuts will continue to pressure government spending.
So what do Canada’s healthcare costs look like relative to those of other countries? They are similar though at the high end of other wealthy countries (but much lower than those of the United States). According to the latest data from the Organization for Economic Cooperation and Development (OECD), Canada spent slightly more than 10% of its GDP on healthcare which was slightly less than Belgium, Germany, Switzerland, and France and slightly more than about ten other wealthy countries including Sweden and the Netherlands. The United States leads the pack in healthcare spending by a long way, spending 16% of its GDP on health in 2007.