Healthcare is Canada's favourite punching bag. Admittedly, Canadian healthcare has many problems and, sometimes, it feels as though the system cannot get anything right. But is all the criticism fair?

Many Canadians experience the underbelly of provinces' and territories' publicly funded healthcare systems, which results in a perception that governments are spending too little money to fix the problems. This perception is in stark contrast with healthcare policy wonks' debates regarding whether Canada spends too little or too much. This editorial takes aim at the question of whether provinces and territories spend enough money on healthcare.

What Does Canada Currently Spend on Healthcare?

Canada was projected to spend $344 billion on healthcare in 2023, an annual increase of 2.8%. This is a lot of money. The spending is split into 70% public spending by governments and 30% private spending (CIHI 2023). The former includes spending on hospitals and physician services while the latter includes individuals' out-of-pocket costs for uninsured physical and mental health services, therapies and devices.

The big-ticket items are well known. Approximately 25% is spent on hospitals, 14% on prescribed medicines and 14% on physician services. The remaining 44% is spent on home and community care, allied health professionals, public health, capital for building and so on. Approximately 3% is spent on administration (CIHI 2023).

The financing of public healthcare spending comes from two sources. Approximately $47.1 billion is financed through the Canada Health Transfer from the federal government to provinces and territories (Department of Finance Canada 2024). The remaining $190 billion of public funding is generated through taxes, fees and levies by the provinces and territories.

How Does Health System Performance Compare With Other Nations?

Provinces' and territories' health systems perform well on some measures. Canada has among the best population health outcomes across the Organisation for Economic Co-operation and Development (OECD) nations (OECD 2023). For instance, Canada comparatively has a low number of avoidable deaths and a low percentage of people who self-report their own health as bad or very bad (OECD 2023).

On measures of health system performance, provinces' and territories' health systems perform dismally. Canada has among the worst outcomes on measures of access to primary care and timely access to advanced imaging or non-life-threatening surgeries (Schneider et al. 2021).

To address the question of whether the provinces and territories spend enough money on healthcare, there are two pieces to the puzzle. The first is whether the trade-offs related to spending on healthcare outweigh the benefits of spending on other provincial and territorial programs. Second, once the budget for public spending on healthcare is set by the government, what are the trade-offs regarding how the funds are spent?

Overall Spending on Healthcare

If we consider how much should be spent on healthcare in Canada, the options are unlimited. At one end, provinces and territories could devote their entire budget to healthcare. In fact, some argue that this outcome is approaching since healthcare spending is growing as a proportion of all government expenditures. We argue that this is implausible since Canadians also highly value other public programs, such as education.

At the other end of the spectrum, governments could spend as little as possible on healthcare. This could be achieved by restricting public spending to mandatory services outlined in the Canada Health Act (1985). This option is equally implausible since it would do away with provinces' drug insurance plans for seniors, for example.

The middle ranges of the spectrum leave a lot of room for governments to determine how to spend their revenues – and how much on healthcare. Framing the allocation between programs in this way lays bare that government programs are competing for the available funding.

The question is then this: What is the best allocation of taxpayers' dollars to healthcare?

The best allocation is measured with opportunity costs. In other words, what are the benefits to Canadians of spending on other programs that compete with healthcare for the government's dollars? For instance, what are the potential gains to Canadians of spending more on new bridges to alleviate traffic or spending on libraries, schools and parks in growing communities as compared with spending the same amount on healthcare?

The analysis to determine the opportunity costs of government spending in areas other than health – even within health – are beyond current data and information. This means that there are few evidence-based tools available to governments, their analysts or the public to determine whether healthcare spending is providing health benefits of comparable value in lieu of spending on other programs.

One of the few points of comparison is whether other OECD countries spend similar amounts on healthcare after adjusting for population size. Surprising to many Canadians, our country's spending on healthcare is among the highest when compared with other OECD nations (OECD 2023).

The other point of comparison is whether some provinces are meaningfully spending more or less than others on healthcare. The data indicate that, as a proportion of government spending, provinces tend to spend around the same amount on healthcare. The absence of outliers suggests that provinces and territories are not out of line with each other in their spending.

From these, albeit limited, perspectives, provinces and territories are spending what they ought to on healthcare. Canadians can draw little solace from this flawed comparison since nobody knows whether comparator countries or provinces spend too little or too much. That is only the beginning of the story though.

Spending Within Healthcare

Once the dust has settled and budget negotiations are over, there is still much hard work ahead in terms of deciding which healthcare programs receive the money. Should spending on hospitals or home care be prioritized? It turns out that nobody knows how to spend the money to get the highest benefit in terms of patients' health relative to the amount of spending. That is, the opportunity costs of spending between sectors, settings, providers or products are unknown. Since we are unable to reliably quantify the benefits across all these sectors, we do not know what we are trading off with the spending decisions.

Not knowing the opportunity costs of different healthcare programs means there is no insight into whether additional spending on surgeries buys more health than spending the same amount on homecare services or funding new assisting living spaces, for example. The uncertainty causes programs' allocations to be based on combinations of incomplete data, advocacy and political expediency, with some exceptions. The results are unpredictable – uncertainty regarding what spending buys more health can result in inappropriately downsizing capital projects, such as with hospitals, in rapidly growing communities.

Not knowing how to best spend the money has meaningful implications within provinces and territories since the numbers are so big – they impact budgets and the people whose livelihoods rely on them.

The Trajectory of Healthcare Spending

Perhaps the best we can hope for is to slow the trajectory of spending on healthcare. This is not a novel concept. Bend the curve was all the rage 10 years ago and then disappeared during the profligate COVID-19-related healthcare spending surge. “Bend the curve” means slowing the rate of growth of healthcare spending so it does not consume too much of the government's revenue (Marchildon and Di Matteo 2014). Given the implausibility of other options, the “bend the curve” concept offers potentially the best achievable outcome for Canada, slowing the rate of healthcare spending growth.

Fortunately, there are many good ideas on how to slow down spending growth. Some are legislative, others are technology- or policy-based. All require a significant shift from the current approach of the status quo. We name a few ideas here:

• The federal government, the provinces and the territories legislate a cap on healthcare spending growth. This approach has been tried in the UK, where multi-year growth caps would provide predictability and create incentives for robust budget management. This approach could be twinned with commitment between political parties to put caps on healthcare spending growth.
• Expanding non-hospital-based models of care. Since hospitals are the most expensive locations to receive care and, in many cases, not the optimal location, there would be a commitment to building outpatient care centres, community care and virtual care delivery.
• Focus spending on the social determinants of health. Since the cheapest hospitalization is the one that never happens, more funding should be directed into affordable housing, basic income support, accessible education, climate change and public health.
• Working at or near the top of skill levels. Spending on human resources is estimated to be 63% of hospital expenditures (CIHI 2022). Drawing from evidence, there is untapped potential to reconsider the type of skills required to provide specific kinds of care. This will provide support for highly trained care providers to focus on activities or scopes of practice that they are trained for.
• Continue focusing on medicine price negotiation and management. The rate of growth of spending on medicines is outstripping other programs. Governments should continue to focus on applying and expanding cost management tools, such as mandatory generic substitution, mandatory biosimilar switching and price negotiation for individual medicines.

Conclusion Regarding Healthcare Spending

This editorial is not able to provide a definitive judgement regarding whether Canada's spending on healthcare is enough or appropriate.

There are no easy answers regarding the level of public spending on healthcare. Absent revenue increases, increases to healthcare spending come at the cost of investments in other programs – this cannot go on for too much longer. Provinces and territories could shift more spending to the private sector though this shift negatively affects those without the means to pay privately, increases inequities over time and decreases the overall health of Canadians over time.

The most viable option is to slow the trajectory of healthcare spending growth. The status quo cannot be maintained for much longer so governments need to move quickly. 

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