Essay on "Cost Benefit Analysis and Risk Assessment"

Essay 13 pages (3778 words) Sources: 5

[EXCERPT] . . . .

Benefit Analysis and Risk Assessment

The Future of Health Care Costs in Canada

The heath care systems play an increasingly important role within the contemporaneous societies. More money is being poured into medical facilities and technologies as the populations strive to increase their life expectancies and become more self-conscious. In some countries, this trend is being further enhanced by the growing numbers of elderly. This scenario is more common within highly developed and economically powerful countries. In these regions, such as the United States, Canada or Switzerland, the young adults became more focused on careers and professional fulfilment and postponed the establishment of a family. This materialized in reduced birth rates. But as the natality rates were significantly higher five decades ago, today, the number of elderly is increasing, revealing as such a shortage in the labor force. Foremost, as the American and Canadian baby boomers reach the age of retirement, they place an increased pressure on the health care system, which now has to deal with more requests.

Today's medical sector is able to deal with the growing demand for health care services, but the question resides in its future ability to sustain its operations. In other words, will the federal and provincial governments be able to adequately fund the health care facilities? In answering this question, several forces have to be considered.

2. Overview of Canadian Health Care

The Canadian heath care system is simply called medicare - it is publicly owned, but privately run. Medical services are provided to all in need and are free at the point of use. The health care system is based on five principles, revolving around a need for the care to be universal, portable, comprehensive, accessible and publicly administrated (Irvine, Ferguson and Cackett, 2005). The implementation of these principles, guarded by the Canadian constitutions, materializes in that differences occur between medical care centers. These differences may refer to the fees charged, or the quality of the services, generally determined by the staff's ability in negotiating their salaries. Differences can also occur in insurance policies, as some may offer more or less extensive coverage. Canadian patients have the right to choose the hospitals and physicians they desire.

As of 1968, the Canadian government implemented a universal medical coverage policy, provided that the hospitals meet the established principles. This requirement shows that the state power manifest fiscal federalism over the public health care system. By 1971, all Canadians were offered access to medical services, regardless of income or employment status (Irvine, Ferguson and Cackett, 2005).

In terms of costs, the Canadian health care system registers the third largest numbers across the globe, after the United States and Switzerland. The funding of the system comes from taxes and medical institutions may at times not pay their taxes to cope with the costs. In 2004, 70% of all medical costs were registered by the public sector and only 30% were accounted for by the private health care system. The average medical expenditure per individual was of $4,078. All medical costs accounted for 10% of the country's gross domestic product. An observed trend has been that of shifting percentages in the composition of the health care funds. Otherwise put, the funds from the federal government have manifested a decreasing trend, while the funds from provincial governments have been increasing. In 2002 for instance, the federal government only accounted for 30% of all costs, while provincial governments accounted for an estimated 63.8% (Klatt, 2002).

The primary concern regarding the Canadian health care system revolves around its future financial sustainability. This question has been raised due to the observed trends in the aging of the population. And this is a problem for the health care sector as the senior citizens will require additional efforts and attention. The older adults over the age of 55 become hospitalized three times more frequently than an adult younger than 55. The Canadians over 65 for instance, cost the health care system 4.8 more than the younger population (Freund and Smeeding, 2002).

3. The Economic Problem

The most obvious economic problem residing within the Canadian health care system is that of the incurred costs. These expenditures are multiple and to name but a few, they include the costs of medicine, hospitalization, surgery, utensils or the wages of the medical staff. And the problem resides in that all medical costs are expected to increase in the following decades. The increases are generated by multiple forces, such as an increase in the overall population or an increase in the elderly population, generated by the aging and retirement of the Canadian baby boomers.

The population over 55 years has been estimated at 22% in the total population of the year 2001; by 2020, a 10% increase is expected, resulting in a population older than 55 of 32 percentage in the total Canadian population. The birth rate is expected to remain constant and the slight population growth will be due to immigration. Foremost, the medical costs for the population aged between 55 and 64 are expected to double by 2020. Consequently then, the total public health care costs are expected to increase from 31.1% in 2000 to 42.0% by 2020, by an annual average of 5.2% (Brimacombe, Antunes and McIntyre, 2001).

Another modification will occur in the type of medical services offered. In this order of ideas, it is to be understood that the senior citizens need medical assistance on continuous basis and that their problems are often multiple or chronic. This then means that the focus of the medical staff will not be to cure, but to ease the suffering, try to reduce the negative aspects of the illnesses and ensure a functional independence for as long as possible (Winston, 1984).

The question being posed then refers to the future sustainability of the Canadian health care system, in light of the increasing expenditure. A favourable answer could be argued by an expected economic growth, which could be able to support the growing medical costs. However, the real economic growth in the Canadian gross domestic product is of only 2.5% per annum, rather insufficient to cover the 5.2% in public health care costs.

A negative take could be offered by a decrease in taxes as the elderly are cost aware and therefore tend to save more and spend less. This means that indirect taxes through consumptions, such as VAT, will decrease, leaving the governments with lowered funds. Looking at the matter from another angle however, the savings of the senior population could represent an engine for economic growth and development. To better explain, by making bank deposits, the elderly contribute to the growth of liquidities in the market. This then means that banks have the possibility to offer financing opportunities in the form of loans to the Canadian entrepreneurs, who would use the money to administrate their companies in an effective manner. They could create additional incomes, additional taxes and additional jobs.

4. Applicable Economic Theory

The economic theory at the basis of the topic at hand revolves around macroeconomic forecasting, meaning the future estimations made relative to the growth in the elderly population, health care costs, governmental incomes and contributions, as well as Canada's projected economic growth. The question relative to the future costs of the Canadian health care system considers these macroeconomic forces and the clarity and correctness of the answer depends directly on the correctness of the estimates. In this order of ideas then, one should look at the elements which may affect the objectivity of the projected data.

First of all, the future of the economic growth, the population, the taxes and other forces may be underestimated as they do not consider an increase in the costs with the medical staff. For instance, the wages of the medical staff are only projected to increase by 2.2%, a rate equal to the estimated inflation. But it is quite likely that the wages of the health care professionals increase at a rate higher than the inflation. Then, the projections do not consider the global forces and threats. For instance, the United States, Canada's primary trade partner is facing an economic recession. If this occurs, it would beyond doubt impact the Canadian economy. Ultimately then, as the projections do not consider the possibility of an economic recession, they are underestimated.

Another force which could make one believe that the estimations are not entirely correct is the fact that they do not consider a potential increase in the size of the medical care sector. And this could indeed happen as the demand for medical services will increase and the current facilities may prove insufficient. Also, the type of the services provided is also considered a constant. Given however the technological advancements, one could expect that the range of medical services offered would expand. A final argument stating the underestimation of the projections is given by the fact that they consider tax rates constant. In the future however, these levels could decrease as a result of… READ MORE

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