2/26/16

Health Care and the Budget: Not Much



Health care and hospital funding: Despite significant new revenue and lower than expected debt costs, health care spending is almost exactly identical to the amounts planned in last year’s Budget for 2015-2018. 

The total health budget for 2015/16 came in (on an “interim” basis) basically the same as planned in the 2015 Budget (that is unusual, more often they under-spend the health budget).   

For 2016/17 and 2017/18, they plan to keep basically to the targets set out in the 2015 budget (plus a small increase of $100 million in each of those two years -- an extra 0.2%). 

Overall, health is planned to increase 1.97% in 2016/17 and 1.93% in 2017/18. That will see health expenditures fall again as a percentage of the economy but is a little bit higher than the planned all-program expense increase (of 1% in 2016/17 and 1.7% in 2017/18).  That is far short of costs pressure due to increased utilization, aging, population growth, and inflation. 

Hospitals are budgeted to receive $345 million more in 2016/17 than in 2015/16. Based on CIHI estimates of provincial hospital spending in 2015/16 ($19.4187 billion) that is an increase of 1.78%.   

If actually realized that is a bigger increase than CIHI reports for provincial spending on hospitals in recent years:

While a little better than what we have seen, this will fall far short of cost pressures, with the result that hospital cuts and layoffs will continue. 

The government claims a 1% increase in base (or global) hospital funding -- but given that they have shrunk the role of global funding that only amounts to $60 million (0.31% of total hospital funding).  

Combined with $100 million new money for activity based funding (based on fee for service payments) and "HBAM" funding (based on population and demographic factors), total regular hospital funding is going up $160 million – or an increase of about 0.82% of total provincial hospital funding.  

Another $175 million increase for hospital funding is coming through “provincial programs” funding. On February 29th, the government claimed that this was for "access to more services in new and redeveloped hospitals" (post construction operating funding) "and for targeted priority services such as organ and tissue transplants."  The remainder of the $345 million is being set aside for small, rural, and northern hospitals (reportedly $7.5 million) and mental health hospitals.

Bottom line – we have been successful in moving them off the freeze to base (global) funding, but only in a very, very modest way.  Real hospital funding (and real health care funding) is still in steep decline.

Hospice Care: The government is investing an extra $75 million over the next three years to increase funding for hospices to almost $55 million per year in the third year.  The government sees hospices as more 'cost-effective' than hospital palliative care beds. 

Long Term Care – 2% increase for the nursing and personal care envelope. No word on the other funding envelopes

Home and Community Care: $250 million increase -- they put this at “about” a 5% increase and increases at this level will continue through 2017/18.   Community Care Access Centre (CCAC) funding is roughly half the total home and community care funding, but there's no word, yet, on the portion of the increase CCACs will get.

Family Health Teams, Community Health Centres and Nurse Practitioner-Led Clinics: To "ensure" these primary care clinics can effectively recruit and retain qualified (non-physician) staff, Ontario will invest an additional $85 million over three years. Compensation for workers in the largely non-union community health sector generally lags, and this may be a real attempt by the government to help with catch-up for at least one group of workers who have been negatively affected by that trend. But there's an awful lot of other community health workers that need this sort of help just as much.   


Deficit: No surprise -- for the seventh year in a row the government beat their deficit forecast.  Indeed, for 2015/16 they beat their 2015 Budget estimate by $2.8 billion by lowering the deficit to $5.7 billion. They even beat their forecast for the deficit in their fall economic statement of just a few months ago by $1.8 billion.  Notably, they reduced the deficit by $4.6 billion compared to the previous year (2014/15).  With another $150 million still being held by the government in reserve, the 2015/16 deficit may fall further still by the time they close the books on this fiscal year with the Public Accounts in the fall. 

Their new (and lowered) estimate for 2016/17 is $4.3 billion, ½ a billion less than the estimate in the 2015 Budget. As this is only $1.4 billion less than 2015/16 and they lowered the deficit by more than three times that amount between 2014/15 and 2015/16, this deficit estimate may also prove high, as has been the case so often in the past.   Barring changing economic circumstances, they are well placed to hit their zero deficit target for 2017/18 (despite all the naysayers). 

Notably, net debt as a percentage of the economy (GDP) is expected to stop increasing this year and then start to decline, a key positive development. 


Ontario's debt situation is improving
Total Program Expense: They have budgeted significantly more for 2016/17 than in the 2015 Budget.  While the 2015 Budget planned increased program expenditure of a modest $100 million in 2016/17 and a cut of $600 million in 2017/18, they are now planning significant increases:

2015 Budget:
2015/16 -- $120.5 billion
2016/17-- $120.6 billion
2017/18--$120.0 billion

2016 Budget:
2015/16 -- $120.9 billion
2016/17-- $122.1 billion
2017/18--$124.2 billion

So the “good” news is program expense is up $1.5 billion for 2016/17 and $4.2 billion for 2017/18 compared to the plan in the 2015 Budget.

But the much more telling bad news is that this is mainly going to men and the private sector

As noted, health care did not get any significant boost.  Of the $4.2 billion in new spending planned for 2017/18, health care will get 1/42nd of that. For 2015/16, health care got 1/15th of the new spending.  Apparently, if there was anyone fighting for more health care dollars in the Liberal cabinet, they lost. 

What did get a significant boost is “other programs”.  Under the previous Budget this item was supposed to decline at a very rapid pace – 5.5% per year. Now they are going to increase 3.2% on average.  As a result “other programs” are slated to be 7.14% higher than budgeted in the 2015 Budget for 2016/17 and a whopping 22.9% higher in 2017/18.  Quite a change. 

The cuts in spending for “other programs” forecast in the 2015 Budget  were put down to efficiencies (e.g. cuts) found in various programs and cuts to the teachers’ pension expense.  While those reductions, I will wager, remain, other expenses are going up.  The 2016 Budget papers explains the increase by reference to “investments in transit, transportation , and community infrastructure, enhancement of GO Transit, the Long-Term Affordable Housing Strategy and initiatives to support Ontario’s Climate Change Strategy."

Infrastructure expenditures are planned to increase 25.5% in 2016/17 to $16.24 billion.


Capital spending increases in Ontario



In contrast, public sector (often female) jobs have fallen for the last two years in Ontario (click here for more on this). With the real cuts in this Budget, this trend will continue. 

Bottom line: While there is precious little new for female dominant, public sector health care services, male dominant, private sector construction industries are getting a windfall boost.  So much for gender equity.

Economics: Real growth in Ontario is forecast to slow from 2.5% in 2015 to 2.2% in 2016 and 2.4% in 2017.  But even on this basis, Ontario will beat Canada for the third year in a row in 2016, and by quite a ways. Unemployment levels are also now better than the Canadian average (6.7% versus 7.2%).  

Other good news is that nominal growth (growth plus inflation) will pick up from 3.6% in 2015 to 4.0% in 2016 and 4.6% in 2017.  Nominal growth is the key driver of revenue growth, so this would drive up revenue. 

Update: On March 3, the chief economist of the Financial Accountability Office of Ontario noted that "the budget assumes nominal GDP growth slightly above that of private sector economists."  So there is some question about the government's nominal GDP and, therefore, its revenue forecast.  Tracking nominal GDP will be key. 

Inflation is forecast in the 1.8-2.0% range.  Program spending continues its rapid decline as a percentage of the Ontario economy (down 2.2% compared to 2009/10). 


Although interest on debt continues to increase (with the deficits), it is now estimated at significantly less than in last year’s budget ($600 million less for 2016/17 and $700 less for 2017/18).  Rock bottom interest rates are opening up a bit more space for program spending than expected.


Bargaining - They continue to boast about how much lower settlements in the broader provincial public sector are compared to settlements in the municipal, federal, and private sectors.  The reported gap is significant. 


In the government's view, major broader provincial public sector settlements have a "net-zero" cost for the government.  They also flag the consolidation of school board health, life, and dental benefit plans. They expect improved cost efficiency, long term savings, and believe this will be one of the biggest consolidations and rationalizations of benefits in Canada.   A key goal is harmonization of benefits as over 1,000 plans will be consolidated into a handful of trusts. 

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