2.0 Total Health Expenditure by Source of Finance

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1 2.0 Total Health Expenditure by of Finance Both the public and private sectors finance Canada s health system. Public-sector funding includes payments by governments at the federal, provincial/territorial and municipal levels and by workers compensation boards and other social security schemes. Private-sector funding consists primarily of health expenditures by households and private insurance firms. As shown in Figure 9, provincial and territorial government spending on health accounted for 65.3% of total health expenditure in Another 5.1% came from other parts of the public sector: federal direct government, municipal government and social security funds. The private sector was made up of three spending categories, the largest of which was out-of-pocket spending (14.7%), followed by private health insurance (11.8%) and non-consumption, iii which accounted for 3.1% of total health spending. Figure 9: Total Health Expenditure by of Finance, 2011 (Billions of Dollars and Percentage Share) iii. Non-consumption expenditure includes a number of heterogeneous components, such as hospital non-patient revenue, capital expenditures for privately owned facilities and health research. 12

2 2011 and Outlook for 2012 and 2013 In 2011, governments and government agencies in Canada (the public sector) spent $140.8 billion on health care (Figure 10). Public-sector expenditure is forecast to be $144.6 billion in 2012 and $148.2 billion in The growth rates associated with these forecasted increases are 2.7% and 2.5%, respectively. In 2011, the private sector spent $59.3 billion. Private-sector expenditure is forecast to reach $61.3 billion in 2012 and $63 billion in 2013, with expected growth rates of 3.4% in 2012 and 2.9% in Since 1997, the public-sector share of total health expenditure has remained relatively stable at around 70%. It accounted for 70.4% of total expenditure in 2011 and is forecast to account for 70.2% in 2012 and 70.1% in Figure 10: Health Expenditure by of Finance, Canada, 1975 to 2013 Note See Table A

3 Trends 1975 to 2011 The average annual rate of growth in public-sector health expenditure between 1975 and 1991 was 11.0%. There was a pronounced change in public-sector expenditure trends following the 1990-to-1992 recession. During this period, governments introduced fiscal restraint measures, which affected spending for health and social programs. Private-sector growth rates were considerably higher than the public-sector rates during this period and, as a result, the private-sector share of total health expenditure increased to 29.9% by 1997; it has remained stable since then. The private-sector share is estimated to be 29.9% in 2013 (Figure 11). Figure 11: Public- and Private-Sector Shares of Total Health Expenditure, 1975 to 2013 Note See Table A

4 2.1 Public-Sector Health Expenditure by of Finance Health expenditures by governments and government agencies (the public sector) are financed by three levels of government provincial and territorial governments; federal government direct health care spending; and municipal government and by workers compensation boards and the Quebec Drug Insurance Fund. The distribution of public-sector expenditure among these four sources of finance is shown in Table 1. Provincial/territorial government expenditure was $8.7 billion in 1975, accounting for 93.6% of public-sector expenditure. The other public sources together totalled $0.6 billion, or 6.4% of the public sector in The provincial/territorial government share of public-sector spending declined in 1997, when the Quebec Drug Insurance Fund was introduced, as the portion that is self-financed by premiums was included in the social security funds sector. By 2011, provincial/territorial government expenditure was $130.7 billion, accounting for 92.8% of public-sector expenditure. Table 1: Distribution of Public-Sector Health Expenditure by of Finance, Canada, 1975 and $ Millions (%) $ Millions (%) Provincial/Territorial Governments 8, , Federal Direct , Social Security Funds* , Municipal Governments Total Expense 9, , Notes * This includes workers compensation boards and premiums to the Quebec Drug Insurance Fund. See tables B.4.1, B.6.1, B.7.1 and B.8.1. Federal Transfers National health expenditures are reported based on the principle of responsibility for payment rather than on the original source of the funds. It is for this reason that federal health transfers to the provinces are included in the provincial government sector. There are now four major programs: the Canada Health Transfer (CHT), Canada Social Transfer (CST), Equalization and Territorial Formula Financing (TFF). In September 2004, first ministers signed a 10-year plan to strengthen the health care system. This agreement included $41.3 billion in new federal spending, beginning in It included funding for the financial recommendations in the report of the Commission on the Future of Health Care in Canada, wait times, additions to the Medical Equipment Fund, an increase to the CHT and improvements to Aboriginal and northern health. The increases in federal transfers were reflected primarily in increased expenditures by the provincial and territorial governments over the past several years. 15

5 Direct Federal Health Expenditure In 2011, federal government departments and agencies provided direct health care services to Canadians worth $6.7 billion, accounting for 3.3% of total health expenditure (including the public and private sectors). Forecasts indicate that the share of federal direct spending will be 3.1% in 2012 and 2.9% in Federal departments that had the largest shares of total federal direct health expenditure in 2011 were Health Canada, which funded 82.5%, the Department of Veterans Affairs (7.6%), the Solicitor General of Canada (4.4%) and the Department of National Defence (3.3%); several minor departments totalled 2.3%. The Canadian Institutes of Health Research, which is included under Health Canada, accounted for 15.4% of total federal direct health expenditure. Social Security Funds Workers compensation boards are included under social security funds, along with a portion of the Quebec Drug Insurance Fund. Both workers compensation boards and the Quebec Drug Insurance Fund meet the conditions of social security funds. Social security funds are financially autonomous social insurance schemes that are imposed and controlled by a government authority. They generally involve compulsory contributions by employees, employers or both, and the government authority determines the terms on which benefits are paid to recipients. Workers compensation boards operate under provincial and territorial statute and are considered agencies of the provincial/territorial governments. They are financed through compulsory contributions by employers, who pay a percentage of their total payroll depending on the accident experience of each category of employer. On January 1, 1997, the government of Quebec created a basic drug insurance plan with the objective of ensuring the population of Quebec has access to drugs as required by health status. All residents of Quebec must be covered by drug insurance, whether by private group insurance or by the public plan administered by the Régie de l assurance maladie du Québec (RAMQ). The Drug Insurance Fund was the chosen mechanism to pay all drug and pharmaceutical service costs provided to subscribers iv insured by the RAMQ, as well as their children. Since July 1, 2002, the Drug Insurance Fund has also covered persons age 65 or older and social assistance recipients insured by the RAMQ. Accordingly, the public plan has been financed, since July 1, 2002, both by the expenditure allocated to this program by the Quebec government (provincial government sector) and by the amounts collected by the Drug Insurance Fund as premiums and proceeds (social security funds sector). The premiums are paid by the subscribers of the Quebec Drug Insurance Fund and by persons age 65 or older insured by this plan. The premium component of the Quebec drug program is considered to be a social security scheme, while the remaining portion of the program that is paid through the ministère de la Santé et des Services sociaux (MSSS) is included as a provincial government expenditure. iv. Subscribers are defined as Quebec residents younger than age 65 who do not receive social assistance benefits and who do not have access to private group insurance. 16

6 Table 2 presents estimates from 1997 to 2013 for the Quebec Drug Insurance Fund. The premiums are calculated as the difference between the total Drug Insurance Fund, extracted from RAMQ annual reports, and the fund financed by the MSSS, extracted from Quebec public accounts. Table 2: Quebec Drug Insurance Fund, 1997 to 2013 (Millions of Dollars) Year Financed Through Premiums Financed by ministère de la Santé et des Services sociaux du Québec Total , , , , , , , , , , , , , , , , , , , , , , , , , f , , f , ,432.1 Note f: forecast. 17

7 2.2 Private-Sector Health Expenditure by of Finance Private-sector expenditure in the national health accounts has three distinct components: household out-of-pocket expenditure, commercial and not-for-profit insurance expenditure and non-consumption expenditure. The distribution of private health expenditure among these three sources of finance is shown in Figure 12. In 1988, the first year for which data at this level of detail was available, out-of-pocket expenditure accounted for 58.1% of private-sector expenditure. By 2011, the proportion dropped to 49.6%, as expenditure by insurance firms grew more rapidly. The share of non-consumption expenditure dropped from 12.7% to 10.5% during the same period (Figure 12). Figure 12: Distribution of Private-Sector Health Expenditure by of Finance, Canada, 1988 and 2011 (Millions of Dollars and Percentage Share) Note Private-sector data was revised following a methodology review in the early 1990s. The revised private-sector data incorporated information estimated directly from insurance, out-of-pocket and non-consumption sources for 1988 and subsequent years. See Section 8.0: Methodological Notes for further details. 18

8 Figure 13 presents the trend for private-sector health expenditure by source of finance from 1988 to The share of private health insurance in private-sector health expenditure increased from 1988 to 2011, while the share of out-of-pocket expenditure dropped. During the same period, the share of non-consumption remained relatively stable. Figure 13: Share of Private-Sector Health Expenditure by of Finance, Canada, 1988 to 2011 Private health insurance expenditure per capita has grown more rapidly than the other sources of finance (Figure 14). Over more than two decades, private health insurance expenditure per capita increased from $139.4 in 1988 to $686.3 in 2011 (7.2% annual growth); out-of-pocket health expenditure per capita increased from $277.5 to $853.3 (5.0% annual growth); and non-consumption expenditure per capita increased from $60.7 to $179.9 (4.8% annual growth) during the same period. 19

9 Figure 14: Private-Sector Health Expenditure per Capita, of Finance, Canada, 1988, 1998 and 2011 Table 3 presents the distribution of expenditure financed by insurance, households (out-ofpocket expenditure) and non-consumption in Of more than $59 billion financed by the private sector, almost half was paid by households and individuals out of pocket for health care goods and services, while less than 40% was made up of health insurance claims paid to individuals by commercial and not-for-profit insurance firms. The remaining 10.5% of total private-sector health care spending was non-consumption expenditure. Drug expenditure in the private sector was $21 billion in 2011, accounting for 35.4% of total private-sector spending. Prescribed drugs accounted for the largest portion of spending on drugs, at nearly $16 billion in More than 59% of prescribed drugs were paid for by insurance companies. Over-the-counter drugs and personal health supplies were paid for out of pocket by Canadians. The second-largest share of private-sector spending was on dental care services. Canadians spent $11.2 billion on private dental care in 2011, of which about $6.6 billion was paid for by insurance firms and $4.6 billion by households. When looking at expenditures on private vision care services ($4.0 billion), only 21% was paid for by insurance companies, while 79% was paid for out of pocket. Of more than $5.2 billion spent on hospital services by the private sector in 2011, households and insurance firms together spent $2.3 billion providing income to hospitals for patient services. v v. Income to hospitals for patient services includes charges for preferred accommodation, care of non-residents, chronic care copayments, uninsured services and other patient services. 20

10 Non-patient revenue earned from investments, food services, real estate, parking, rentals, donations and other sources provided the remaining $2.9 billion of the private-sector expenditure. Table 3: Private-Sector Health Expenditure by of Finance and Use of Funds, Canada, 2011 (Millions of Dollars and Percentage Share) Households (Out of Pocket) Insurance Non-Consumption Total ($ Millions) (%) ($ Millions) (%) ($ Millions) (%) ($ Millions) ($) Hospital , , , Other Institutions* 6, , Physician Care Other Professionals Dental Care 4, , , Vision Care 3, , Other Other Professionals Drugs 1, , , Prescribed Drugs 6, , , Over-the-Counter Drugs 2, , Personal Health Supplies 2, , Capital 2, , Administration 3, , Other Health Spending Health Research* 1, , Other Health Care Goods Other Health Care Services Total Expense 29, , , , Note * Estimated for See Section 8.1 for definitions. 21