By Matthew Lau (AIMS Author)
Without serious government course correction, Canada is headed for an ill-fated healthcare squeeze. The senior dependency ratio in Canada – which is the ratio of people 65 years and older relative to the working-age population (15 to 64 years old) – is projected to rise from 25 per cent today to around 40 per cent by 2042.
The healthcare squeeze will be felt most acutely in Newfoundland and Labrador, where the senior dependency ratio is projected to be more than 60 per cent, and in New Brunswick and Nova Scotia (over 50 per cent).
Will provincial governments be able to meet this increasing healthcare demand by simply spending more? All the evidence indicates not. From 1993 to 2018, provincial healthcare spending per capita, after adjusting for changes in the consumer price index, increased by 68 per cent. Over the same period, the median wait times between referral from a general practitioner and receipt of medically necessary treatment from specialists more than doubled from 9.3 weeks to 19.8 weeks.
The fundamental problem causing Canada’s healthcare scarcity is a lack of private spending. Mandating that government be the single payer is completely unworkable. There are no markets or competition to encourage innovation or improvement in quality. There are no prices to ration demand, leading inevitably to queues.
Prices and queues both impose costs on the consumer. The difference is that prices represent revenues to the supplier, thereby encouraging supply. Queues are just a deadweight loss. So costly are the wait times that, according to Statistics Canada data provided to think tank SecondStreet.org, around 276,000 Canadians headed abroad as medical tourists in 2017, paying twice for healthcare – once for Canadian healthcare with their taxes and then again for private care elsewhere.
Indeed, while the United States has significant problems with its healthcare system, wait times for medically necessary treatment isn’t one of them. In 2017, a headline in Forbes proclaimed: “Doctor Wait Times Soar 30% in Major U.S. Cities.” This was based on a study that surveyed physicians in five specialities, which found that the average time-to-appointment to see the specialist had “soared” all the way to … 24 days.
By comparison, the Fraser Institute’s latest survey of doctors across 12 specialities put the median wait time at 8.7 weeks from referral to GP to appointment with specialist, and then another 11 weeks from appointment with specialist to treatment.
The specialty with the longest wait time in Canada was orthopaedic surgery, at 14.6 weeks from referral to appointment, and then another 24.4 weeks to treatment. The American survey pegged the average orthopaedic surgery appointment wait time at a mere 11 days in major cities.
Canada’s healthcare scarcity is the predictable outcome of a lack of private markets for publicly insured healthcare services. In this environment, the only way for governments to control costs is by, as many provinces do, refusing to pay doctors properly (unlike the teachers’ unions, doctors can’t just walk off the job) and imposing ceilings on the numbers of them trained.
The refusal of provinces to pay doctors as much as they could earn elsewhere, such as in the United States, is a problem exacerbated by Canada’s high income tax rates.
Indeed, even then NDP leader Thomas Mulcair asked of New Brunswick’s 58.75 per cent top marginal income tax rate in 2015 how the province would be “able to attract and retain top level medical doctors when they’re going to be told, ‘Oh, by the way, our tax rate is now going to be close to 60 percent?’”
The two-step approach to reverse Canada’s deteriorating access to healthcare is based on Economics 101. First, use prices instead of queues to ration demand. And second, cut income taxes to encourage the labour supply of the most productive Canadians – including doctors.
Matthew Lau is an economics writer with the Atlantic Institute for Market Studies.
