Friday, May 28, 2010

A Hard Pill to Swallow for Ontario's Seniors - Present and Future

You'll see how weak the pun in the title of this posting is once you get into the article. I could also have titled it "Tough Medicine to swallow....".

In yesterday's news, there was an item that was not heavily covered by the mainstream media (at least not outside Ontario) that could ultimately affect all Canadians. I always find it interesting how governments seem to float these trial balloons just to see how we take the bad news before they hit us with the real thing. This story is nothing that will grab your attention like an oil spill in the Gulf or another Helena Guergis revelation, in fact, it won't impact you until you find yourself in the senior demographic bracket and in need of prescription medication. And for now, living in Ontario. I think we all know the day of reckoning for drug coverage is coming and it appears to be closer than I thought.

It seems that Ontario Health Minister Deb Matthews approached TD Bank to get ideas on how to curb rapidly rising health care costs. In Ontario, health care costs are rising at an annual rate of 6.5% meaning that health budgets double every 11 years. With the impending demographic shift toward an older population looming as the baby boomers reach the magic age of 65, costs will rise even more rapidly. As well, Ontario does not predict a return to a balanced budget until fiscal 2017- 2018; by that time, the province's net debt is expected to have reached $319 billion. Over the next 7 years, Ontario expects to accumulate deficits totalling $82.5 billion; that's if there are no recessions and revenues continue to grow at an average of 5% annually each and every year which is highly unlikely. From these numbers, it is apparent that Ontario's politicians are desperate to cut costs and they think that the easiest way to cut costs is on backs of their electorate. After all, the most of the electorate are not provincial employees that could threaten action if their wages are rolled back or jobs are cut. As well, hell would most likely have frozen over if Ontario's politicians had a fleeting thought of actually cutting their own expenses so we know that isn't going to happen.

In this posting, I'm going to focus on the changes that the TD Economics report recommends for drug coverage. To set the stage for those of us that don't live in Ontario, here's how the current system works. The Ontario Drug Benefit Plan (ODB) now pays for prescriptions for seniors aged 65 years and older. As the current system works, senior couples with combined net incomes over $24,175 pay a $100 deductible per person per year in prescription charges before they are eligible for ODB coverage. After the $100 deductible is accumulated, they pay a fee of $6.11 per prescription toward the dispensing fee. If the couple's income is less than the threshold, they may be asked to pay up to $2 per prescription. In addition, the ODB automatically pays for prescription drugs that are not listed on the Provincial Formulary through the Ministry of Health "Exceptional Access Program".

A few asides.

1.) Those outside Ontario should note that the Liberal government of Ontario introduced an Ontario Health Premium of between $60 and $900 annually (dependant on taxable income level) which raised approximately $2.6 billion in the 2006 - 2007 fiscal year.

2.) Don Drummond was a big proponent of Ontario's new HST. He feels that without the HST, Ontario will not be able to balance its budget. He states that the existing 8% retail sales tax makes Ontario less competitive on its export pricing.

3.) Per capita health care spending in Ontario was the lowest of all provinces (see chart at the end of this posting). As well, the average percent of GDP that was spent on health care was right in the middle of the provincial pack as was its average annual percentage change.

4.) In 2006, 13% of the total population of Canada was 65 years of age and older. By 2020, that will rise to 18%. As well, in 2006, 51% of the Canadian population were working; this will drop to only 49% by 2020 and even lower by 2030 (a date used in the report) if employment rates remain stable. There will be fewer people contributing tax revenue to more seniors who will be relying on the government for more assistance of all types but most specifically health care.

Back to the TD Bank "Charting a Path to Sustainable Health Care in Ontario" report. Don Drummond, TD Bank's economic guru, came out with his report yesterday; you can access the pdf file of the report here. It is well worth a read and is very well written if not more than slightly scary.

In the report, Mr. Drummond notes that Ontario's health care budget currently consumes 46% of its total program spending and that this is projected to rise to 80% by 2030 just as the last of the baby boomers reach 70 years of age if health care spending continues to grow at a 6.5% annual rate. He notes that there is limited scope to further increases in taxes (thankfully) since Ontario is already highly taxed. He suggest that there need to be changes to the effectiveness of health care delivery without affecting its quality.

In specific, Mr. Drummond suggests major changes to the Ontario Drug Benefit program as described above. Mr. Drummond suggests that Ontario needs to scale back drug coverage for "higher income seniors" so that only those in need have their drugs subsidized. In his report, he states that "51% of drug spending is earmarked to higher income seniors, versus only 15% on lower income seniors." He recommends that rebalancing could be done in one of two ways; first by increasing the co-payment (deductible) for higher income seniors on a sliding scale and second by forcing private insurance companies to pay first then topping up with ODB instead of the reverse as is the situation now. I'd have to imagine the insurance companies will love this one; they'll be forced to raise premiums to cover increased payouts. It would also be interesting to know what he thinks the threshold income should be for coverage; that could be a real political football if Mr. Drummond's plan is adopted.

By changing the ODB, I agree, it will save money if all else remains equal. Unfortunately, the demographic shift that will take place may make these changes moot. Basically, what this plan will do is penalize those seniors who spent their younger years living through the Great Depression and decided early on in their lives that they would make certain sacrifices so that they could save for their futures. Most governing parties live in fear of seniors as they vote in large numbers and are a very powerful lobby group. I'd love to hear Premier McGuinty explain this one to his senior electorate! As well, in the future, it is really going to nail the baby boomers that have also tried to save for their retirements once they reach 65.

Mr. Drummond's report makes other recommendations that I will comment on in upcoming posts. One of these that is particularly interesting is changes that he recommends to doctors' compensation.

Governments, both provincial and federal should have been aware of the growing pressures on their program spending resulting from future demographic changes for the past two decades. They have no one to blame but themselves if they were unaware; just because they were, and still are, playing foolishly with our futures is no fault of ours, unfortunately, we will pay the price.

Lest those of us living in other provinces wipe our brows thinking that we're immune because we aren't living in Ontario, guess again. Here's a chart from the TD Economics report to prove it; you can see for yourself that Ontario sits right in the middle of the provincial pack as far as health expenditures go by pretty much any reasonable measure.

And here I thought it was better to get old with money in the bank. Apparently, that may not be the case. Maybe it will just be easier to rely on the Nanny State while living hand to mouth, eating cat food and rocking away in the dark.


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