Tuesday, September 9, 2014

Sharp decline in for-profit health insurance efficiency

For-profit health care insurance in Canada is becoming increasingly inefficient



A new study from the Canadian Medical Association Journal shows sharply increasing inefficiency in the Canadian for-profit health care insurance industry.  

The study indicates that less and less of the  premiums in employer health insurance plans are paid out in benefits by the for-profit insurance industry.  Since 1991, the amount paid out in benefits has declined from 92% to 74% in 2011.  The rest goes for profits, administration, and other items.    

The benefit pay-out is less than required by US law - - which now requires that 80% to 85% of health insurance premiums are paid out in clinical care and quality improvement.  

While this is bad, plans purchased from for-profit insurance corporations by individuals do much worse, with benefits paid declining from 46% to 38% of premiums.  

In contrast, employers that self-insure (where employers pay claims themselves and purchase only processing services from insurance companies) do much better – with benefits equal to 95% of premiums.  In fact this is up slightly from the 94% in 1991, possibly due to increased administrative efficiency associated with information and communication technology.

The authors suggest the decline in benefit pay-out by the for-profit industry is not likely explained by increasing administrative costs, increasing reserves, or innovative methods to reduce service costs. 

They do note however that the reduction in benefit pay-out was more marked when the insurance companies demutualized (after changes to Canadian insurance law in 1997) and became owned by shareholders seeking profits rather than by insurance policy holders.  

The authors consider stronger regulation of the insurance industry and more public insurance as possible solutions.

Better methods of insurance would allow workers much stronger health care protection for the same dollars.  For employers, this inefficient insurance from the for-profit industry means they are paying much more than they need to for the health services provided.  Moreover, they are getting less and less bang for the buck with  almost every passing year.


The more efficient public health care insurance system covers 70% of health care costs. But private payments account for the remainder, tens of billions of dollars.  Private insurance achieved through employment and collective bargaining plays a very major role in these payments. 

Cost increases for employer paid private insurance have created significant challenges for employers -- and for unions in collective bargaining. 

While broader public health insurance for everyone is the best solution, that may take a while for working people to achieve.  In the interim, it is notable that self-insurance by employers leads to a much better return on premiums than insurance through the for-profit insurance industry.  

Indeed, the difference in value for money that has arisen between employer self-insured plans and for-profit insurance is nothing less than shocking.  

Photo: Steve Rhodes: Health care for all protest outside health insurance conference

Thursday, August 14, 2014

Ontario's answer to the deficit: 35 years of revenue cuts

In a recent long-term report on the economy, the Ontario government recognized that own-source Ontario government revenue as a percentage of gross domestic product (GDP) has declined over the last fifteen years.  

The decline is equal to 2 percentage points of the province's GDP. That means the Ontario government is currently losing $14 billion annually.  With that revenue, the deficit (which was $11.3 billion last year) would be gone and we would have cash to spare.


But the government also forecasts that own-source revenue  as a percentage of GDP will continue to decline over the next twenty years as well.   


Declining Ontario government revenue is driving up the deficit















The plan is to cut Ontario government revenue by another 1.2% of GDP.  In today's economy that would add $8.6 billion to the deficit, increasing the deficit by about 70%.    


In total, over 35 years, the plan is to cut government revenue by 3.2% of GDP.  That is equal to an annual cut in government revenue of $22.6 billion in today's economy.

As noted in a previous post, Ontario government revenue and spending are already the lowest of all the provinces.   


So Ontario government revenue as a percentage of the economy has been falling over the last fifteen years, it is now the lowest of all the provinces, and the plan is to lower it further over the next twenty years, costing billions of dollars every year.  


With low revenue, spending is also lower than any other province.  


The immediate plan of the government is to deal with the deficit by real dollar cuts to public programs -- despite low public spending and low revenue.  

The longer term plan is to reduce revenue further. 

These plans will immediately cut public services and in the longer term make public service less viable.   Meanwhile the cuts to government revenue have mostly benefited corporations and the very well to do.

We need a politically compelling plan to increase government revenue from those same forces to allow working people to create effective public services that enrich their lives. 


Monday, August 11, 2014

Ontario falls 40% short of jobs target -- but deficit target may be met

Inflation is increasing in Ontario, while jobs and growth lag


Revenue prospects for this year:  An earlier post looked at poor job creation in Ontario and the impact that might have on obtaining the revenue goals the government has set for this year. 

Last week's jobs report for July was  dreadful on a Canada-wide basis.  But the report noted Ontario saw some pick up in July, with 15,100 new jobs overall. 


However, the job growth in July was all part-time; Ontario actually lost 29,300 full time jobs.  That is consistent with the pattern since July 2013: all the new jobs in Ontario have been part-time, while the number of full time jobs has shrunk 0.4%.  


Moreover, the first seven months of 2014 still average only 43,000 more jobs than the first seven months of 2013, less than half the Ontario government's goal of 100,000 new jobs in 2014.


Update: As widely reported, the Stats Can Labour Force Survey for July got it wrong.  The corrected report for Ontario provides some better news.  Instead of a 15,100 new jobs in Ontario, the  corrected release indicates 39,500 new jobs in July. Compared with one year earlier, the increase in employment is 60,300.  

That is more in line with the the Stats Can employment and average weekly earnings (“SEPH”) data which is more reliable but less timely than the Labour Force Survey data. The SEPH data indicates 62,600 new jobs for the first five months of 2014 compared with the same period last year.

Despite the improved news, even the new Labour Force Survey data indicates that almost all the new jobs are part time (52,000 out of 60,000).  Moreover, we are still almost 40% short of the government's 2014 target. 
 
Increasing inflation driving higher government revenue?  More promisingly -- for Ontario's revenue target -- is the rapid increase of inflation in Ontario. 

The Ontario government’s first quarter 2014 economic accounts came out  in July and Ontario’s nominal economic growth was up 1.1% over the quarter, well up from 0.2% in the fourth quarter of 2013.    

Nominal growth however is composed of both inflation and real growth and the growth we saw in the first quarter was mostly due to inflation. Economy-wide prices increased 0.9% and consumer prices increased 0.7% over the quarter. 

Real economic growth faded (due, they say, to a harsh winter) to a miserable 0.1% in the first quarter.

But, thanks to inflation, the annualized GDP in the first quarter of 2014 was $706.2 billion, a mere 1.5% short of the Budget target for the following fiscal year.  

Since the first quarter, Stats Canada reports that inflation has picked up in Ontario.  In June consumer inflation rose to 3% over the previous June in Ontario, the highest consumer inflation in Canada and double the rate forecast in the Ontario Budget for 2014. 

So higher than expected inflation is driving nominal economic growth.  Nominal economic growth is the key driver of government revenue, so, even with modest economic and job growth, this is a good sign that we will meet the Budget’s revenue forecast.

The good news: If this level of inflation continues, we are on track to exceed the Budget’s revenue goal, allowing the government to more easily meet their deficit target.

And the bad news: Higher inflation means that the government’s current spending plan will buy even fewer public services.  

As  a result, we will have to win increased spending in next year's Budget just to stop the cuts from becoming worse than already planned. 


Higher inflation also means the real wages of workers are falling more quickly, especially for workers (like many public sector workers) who will receive only modest wage adjustments.


Update 19 August:  The Ontario  Ministry of Finance has now confirmed that Ontario is on track to beat its deficit target.  

Photo: Simon Cunningham

Monday, July 21, 2014

Deficit? Public spending ain't the cause. Revenue, however...

With the election over, pressure to cut public programs has become quite intense. In almost all of the corporate owned media someone is barking on about it.

Another option -- increasing revenue from corporations and the wealthy is not mentioned.  However, data clearly indicates that Ontario does not have an overspending problem compared to the other provinces.

Instead, it indicates Ontario has very low revenue. 

Ontario has the lowest public spending of all the provinces on a per capita basis (see the chart from the 2014 Ontario Budget below).  So there is little reason to suspect that we have an over-spending problem.  If anything, this suggests we have an under-spending problem.


Ontario has lowest revenue and lowest spending of all Canadian provinces





The Ontario government has also now reported in the 2014 Budget that Ontario has the lowest revenue per capita of any province.  This is particularly notable as other provinces are quite a bit poorer than Ontario and therefore have a much more limited ability to pay for public spending.  (Also notable in this chart is the weak role federal government transfer payments play in Ontario finances.)





Low Ontario revenue is not a one-year flash in the pan.  Statistics Canada data for 2009 (the last year before Stats Can terminated the series) indicates that Ontario had the lowest per capita revenue at that time as well. And by quite a ways.


Ontario has lowest government revenue of all provinces


The Stats Can data, however, goes a little further.  It indicates that Ontario has the lowest revenue as a percentage of the economy (GDP) of all the provinces. Arguably, this is better way to compare provinces as it considers the capacity of each province to pay.   Below is a chart comparing "own source" revenues from the various provinces.  ("Own source" revenues are those only from measures imposed by the Ontario government - -they exclude transfers to the Ontario government from the federal government).


Ontario "own source" revenue 3.5 percentage points of GDP less than other provinces


Own source revenue for Ontario was 14.4% of GDP, while in the rest of Canada it was 17.9%, i.e. an astonishing 3.5 percentage points of GDP lower in Ontario.


Ontario own source revenue far less than rest of Canada as % of GDP








If Ontario had taken the same own source revenue as the rest of Canada, the treasury would have an extra $19.5 billion in 2009. The deficit would be toast and our big problem would be to figure out how to spend the extra cash.



Given the very limited assistance Ontario gets from the Harper federal government, the situation is more extreme if we consider total revenue (i.e revenue from measures imposed by the Ontario government and from transfers from the federal government to the Ontario government). Ontario total revenue falls a full 8.4 percentage points of GDP less than the average for the rest of the Canadian provinces.
Ontario government total revenue over 8 percentage of GDP less than rest of Canada

If Ontario hit the level of other provinces for total revenue, we would have an extra $46.8 billion in revenue.


It would be a challenge to spend it all.


Notably, the shortfall that arises simply because of smaller transfers from the federal government to Ontario is equal to 4.9 percentage points of the total Ontario economy -- $27.3 billion in 2009.


Little appears to have changed since 2009.  Using data from the ten year report in this year's Budget, government revenue as a percentage of GDP has remained pretty flat.


Ontario government revenue as % of GDP flat over ten years





















The data behind these charts are attached here -- over two spreadsheets that can be downloaded.


The future?  Despite very low government revenue in Ontario, the Liberal government is not likely to significantly increase taxes on corporations and the wealthy -- unless the balance of power changes in favour of working people. 


So working people may be stuck with real spending cuts. Worse, as noted last week, without better job growth, the cuts may have to be greater than currently planned  if the government keeps to its official plan to balance the budget in 2017/18.   


Increased inflation in Ontario (now reported at 3% annually) may help improve revenue growth.  But it won't help workers in the public sector who are facing a government determined to keep settlements well below that level.   

Thursday, July 17, 2014

Ontario job creation falls well short of plan


100,000 new Ontario jobs per year forecast


If Ontario tries to cut its way to a balanced budget, weak employment figures suggest the cuts may have to get a whole lot worse.  Here's why.  

In the Budget, the government projected 100,000 job growth in 2014, 2015, 2016, and 2017. That's an annual increase of about 1.4%. 


But the government is having a problem meeting its jobs target in 2014.  


Comparing the average of the first six months of 2013 with the first six of 2014 shows an increase from 6.861 million jobs to only 6.904 million.  That's only 43,000 new jobs over the year, an increase 0.65% -- less than half of the government's target.  


The Public Sector: Given sharp public sector austerity, the main brake on job creation has been public sector employment. 


Even without Tim Hudak, public sector employment has decreased between the first six months of 2013 and the first six months of 2014 by some 40,000 jobs.  


The good news is that the decline may be easing.  For the most recent month reported, June 2014, public sector jobs were down only 18,700 compared with June 2013.  Earlier in 2014 we were much further back:  in February 2014, Ontario had 57,300 fewer public sector jobs compared with one year earlier.



Public sector job losses holding back job growth in Ontario

Given the austerity both the provincial Liberal and federal Conservative governments propose, public sector jobs are likely to continue to be a brake on job creation.   


The Private Sector: There are some signs of life in private sector job creation, but not nearly enough to offset public sector austerity.  


Private sector employment has increased by 80,400 jobs, comparing the first six months of 2014 with the first six of 2013.  That is a 1.8% increase. Notably, however, for the most recent month reported, there was a loss of 49,600 private sector jobs –  a one month 1.1% drop in the number of private sector jobs.  


 
49,600 private sector job losses in June 2014 in OntarioSlow job growth and the impact on public services and public healthcare:  The recent provincial Budget was of course an election Budget  -- so it plans a larger funding increase than we have seen in recent years. A whopping 2.55% program funding increase is officially planned. In contrast, the previous three Budgets only increased program spending 4.1% in total. At an annual rate, that is about half the increase proposed in the election Budget .

Many voices for big business are now urging the government to return to a full on attack on public spending. 

Obligingly, the Ontario government’s spending plans for the following three years are extremely grim, much worse even than the three Budgets before the election Budget. A tiny 0.59% increase is proposed for next year, followed by 0.08% (yes  -- 8 one hundreds of one-percent) in 2016-17, followed by a spending cut of 0.67% in 2017-18 to balance the Budget.  In fact the plan is to spend exactly the same in 2017-18 as in 2014-15. 

With inflation and population growth, this means significant real cuts in programs. Even the Globe and Mail estimates this at a real spending cut of 3% per year.

The jobs and growth solution: One easy way out of such an unsettling picture for public sector services (and public sector workers) would be better than expected growth, and better than expected job growth.  

So far, that is not happening.  Quite the reverse.


Of course, it is early days yet.  We will see where the job and growth outlook goes in the months leading up to the next Budget


But without some improvement, even the draconian spending plans now in place may not be enough to balance the budget.


Cutting real public spending is the government's main strategy to end deficits. But it is coming with weaker than planned employment growth and that means we may fall short of the government's plan for revenue growth.  That will drive up the deficit and we are back to square one.  


What's the option then?


If jobs and growth fall short, other ways to deal with the deficit would be [1] more public spending cuts or [2] revenue increases or [3] simply putting off balancing the budget.  More on those options next week.


The full Statistics Canada numbers behind this employment report can be downloaded here.  

  

Tuesday, July 15, 2014

Ontario hospital capacity falls short of other provinces

Rest of Canada has 38% more hospital capacity than OntarioOntario has far fewer hospital beds than other provinces.  Compared to other countries, we are even further behind. 

For the club of the 33 richest nations (the Organization of Economic Cooperation and Development), the average is 4.8 hospital beds per 1000 population in 2012 (or the reported year closest to that).  The OECD reports  just 2.74 beds per 1000 population for Canada for 2011.(The OECD data can be downloaded here) 

Canadian Institute for Health Information (CIHI) data suggests a very similar average for Canada -- 2.79 beds per 1000 population in 2012. Ontario beds however only come out at 2.34 hospital beds per 1000 population.  For the rest of Canada, it is 3.24 beds, closer to the norm. (The CIHI data can be downloaded here)


In other words,  the rest of Canada has 38% more hospital beds per 1,000 persons than Ontario.   The average of the 33 OECD nations is more than two times higher than Ontario. 


In 1990, according to OECD data, the OECD countries had on average 10% more beds per capita than Canada. By 2000, that had increased to 47% more beds.  By 2005, 71% more.  And by 2012, the OECD countries had 78% more hospital beds per capita than Canada.



OECD countries have 78% more hospital beds than Canada. Sharply up from 1990.


But compared to Ontario, OECD countries had 108% more beds per capita in 2012. 


Despite this, bed cuts are happening all over Ontario as austerity forces cuts in hospital capacity. 


The low number of beds in Canada goes hand in hand with the low number of hospital discharges in Canada -- we have about half the number of the OECD average.  


Unlike other countries, Canada provides universal, comprehensive public provision only to hospital and physician services.  So it is not so surprising that in Canada government especially focus on reducing hospital beds and services.


Comparing the mix of beds: The CIHI data indicates that the mix of beds in Ontario resembles the mix found in the other provinces. Notably, however, the share of acute and “LTC” beds is somewhat lower in Ontario than the rest of Canada.  

As a result, acute beds (medical and surgical beds), fall even further behind: the rest of Canada has 49% more acute beds compared to Ontario.


Rest of Canada has 49% more acute beds than OntarioOntario has far fewer acute care beds than rest of Canada





Some limits on this data: the CIHI figures are current as of April 2012 and the data does not include Quebec and Nunavut.   Note also: the CIHI data refers to only hospital beds used for hospital purposes – it does not refer to residential long-term care (LTC) beds that are sometimes found in hospitals  (presumably CIHI's definition of “LTC” is mostly comprised of complex continuing care beds).