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A mythology has grown up about the superiority of our system’s ability to control costs. Indeed, Mr. Romanow in his report repeats the argument that, up until the introduction of Medicare, our health care costs tracked those of the U.S. After the introduction of Medicare, however, our growth in costs, and especially physician costs, dropped significantly after the predictable short-term rise. In a paper for my Institute, by health care economist Brian Ferguson, a wholly different picture emerged.
We see the spike in expenditure associated with the introduction of Medicare, and the drop off in expenditure growth as the adjustment to universal coverage works itself through. But by the late 1970s, the two countries’ expenditure growth series are back in sync – in fact they are more closely aligned in that period than they are in any previous period. They diverge again only in the mid-to late 1980s, when, arguably, Canadian governments became really serious about controlling spending.
While we can identify transitional effects surrounding the introduction of Medicare, it is not possible to identify a lasting effect of the introduction of Medicare on expenditure on MD services. Basically, the introduction of Medicare had no effect on the rate of growth of expenditure, and the reason the Canadian GDP share figure fell below the U.S. figure was not because of differences in the rate of growth of expenditure but rather because Canada happened to have the good fortune to bring Medicare in during a period in which the Canadian economy outdid the U.S. economy in terms of real growth.
Had our economic growth been as weak as U.S. growth was through the 1970s and 80s, and had our health spending nonetheless remained unchanged, for two decades our share of GDP devoted to health care would have been higher than the actual US GDP share. Canada, in other words, would have had the most expensive health care system in the world, a situation which would have changed only in the 1990s.
Why, given Canada’s apparent success at controlling health care costs through the 70s and 80s, at least as judged by the GDP share evidence, were recent efforts at cost control not handled with less disruption?
The answer now seems to be not that we were poor performers this time around, but rather that our earlier "success" at cost control was illusory. Simply put, the introduction of Medicare did not introduce a period of, or efficient mechanism for, health care cost control. When it came to the question of how much of our national income we were spending on health, we weren’t particularly good, we were just lucky.
