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Millennials can’t pay for boomer health care without productivity gains

David Dodge is senior adviser at Bennett Jones and former federal deputy minister of health. Brian Golden is vice-dean of professional programs at the Rotman School of Management, and the Sandra Rotman Chair in health-sector strategy at the University of Toronto and the University Health Network. Tiff Macklem is dean of the Rotman School of Management.

How will millennials pay for baby boomers' health care? They won't, unless there is a major change in the way that care is delivered.

As a generation, millennials are facing a double squeeze. The growth potential of our economy over the next two decades is projected to be 1.5 per cent, just about half of what it used to be. This growth slowdown reflects both declining labour force growth as baby boomers retire in large numbers and a reduced pace of aggregate productivity growth.

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At the same time, without a sizable improvement in the efficiency of our health-care system, real health-care spending is set to increase at 3.5 per cent a year, with about 1 per cent coming from technology-driven improvements in quality of care and 2.5 per cent a year from the direct effects of population aging. In recent years, health-care spending for the typical senior ($20,000 at age 80) has averaged about five times that for the typical person under 65 ($4,000 a year on average). And the ratio of seniors to labour-force-aged population will increase from 25 per cent in 2010 to 50 per cent in 2035.

This double squeeze has millennials with almost stagnant incomes facing ever-increasing taxes to pay for aging boomers' care. At some point, millennial taxpayers will not be willing to accept this burden.

So what do we do? In short, we need to improve productivity of the economy at large, and of the health-care system in particular.

We need relentless focus from government, labour and business on raising overall productivity in Canada. Our best shot is a four-pillar growth strategy anchored on innovation, talent, trade and infrastructure. But truth be told, policy levers on overall productivity have proven elusive.

This makes it doubly important to increase productivity in the health sector. Fortunately, we actually know a great deal more about how to improve the productivity of health-care delivery.

Compared to the United States, our health-care system is on average more equitable, less costly and more likely to deliver better health outcomes. This is a source of pride for Canadians. But when we compare our provincial systems to those of many other developed countries, ours deliver less and cost more. A host of countries, including Britain, Australia, the Netherlands, Germany and New Zealand, all rank ahead of Canada in efficiency, equity and quality. Many U.S. affordable care and HMO (health maintenance organization) subsystems also outperform Canada.

Elsewhere, privately insured medical services have played an important role in providing competitive pressure – an admittedly difficult approach that would require considerable public discussion for us to adopt. But other countries have also demonstrated that economic incentives to providers within a public system can improve the efficiency and effectiveness of delivery. There is much we can learn from them.

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The move to create greater "positive competition" among providers (doctors and hospitals) involves governments allocating more money to those caregivers and organizations that provide the most health-care value to their citizens. This is already beginning to happen in some provinces; it's welcome, but needs to accelerate. The basic principle is to pay for results, not inputs. This would create incentives for Canadian hospitals and partner providers to innovate, increase efficiency and improve outcomes.

Bundled reimbursement is an example. This involves payments to "consolidators" (hospitals) of a fixed fee for a bundle of services, based on outcomes. A hospital could receive a dollar amount for treating a patient in need of a hip replacement, and that hospital would purchase or provide the operating-room time, labour (surgeons, nurses, physiotherapists, home care) and medical equipment. The payment is contingent on quality care and outcomes. The consolidators that find ways to provide quality care for below the set price earn a margin. This is one of the ways that efficient European public systems and U.S. accountable care organizations (and HMOs) are achieving lower costs and good access to timely services.

Evidence from other countries is compelling that better organization and management can increase the productivity of public health-care delivery in Canada, yielding better outcomes at lower cost. Big productivity gains can be made here by simply catching up with best practice.

System change is not easy. But relying on stretched millennials to pay an increasing share of their income to care for boomers is not the solution.

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