Ex-central banker warns on Canada health spending

Then Bank of Canada Governor David Dodge speaks during a news conference upon the release of the Monetary Policy Report in Ottawa January 24, 2008.

TORONTO (Reuters) - Canada can't keep spending on healthcare at its current rate, and must choose between a number of unpopular options for its state-funded medical system, a former central bank chief said on Wednesday.

David Dodge, co-author of a study by the market-friendly C.D. Howe institute, said healthcare spending would rise from 12 percent of GDP in 2009 to 19 percent in 2031 if spending kept growing at its current pace.

That would force Canadians to choose between a combination of a sharp cut in other public services, higher taxes, more private spending or a degradation of healthcare standards in the public sector, the report said.

"None of these options is appealing; Canadians have no easy way to manage the chronic healthcare spending rise," the report said. Co-author Dodge was a deputy minister of health before becoming head of the Bank of Canada.

Opinion polls show healthcare is a top concern for voters ahead of Canada's May 2 federal election. But the campaign has so far included little debate on how to tackle rising costs.

Healthcare in Canada is delivered through a publicly funded system, which covers all "medically necessary" hospital and physician care and curbs the role of private medicine.

Healthcare spending has been rising about 6 percent a year under a deal that added C$41.3 billion ($43 billion) of federal funding over 10 years. But the deal between federal and provincial governments expires at the end of 2013, and Ottawa is unlikely to be as generous in future.

In 2010, total national spending on healthcare was expected to reach C$191.6 billion, up an estimated 5.2 percent, since 2009, according to Canada's Institute for Health Information.

Provinces have tried to curb the rate of healthcare spending growth while weighing new sources of funding, including means-testing and moving toward evidence-based and pay-for-performance models.

Ontario, Canada's most populous province, kicked off a fierce battle with drug companies and pharmacies last year when it said it would halve generic drug prices and eliminate "incentive fees" to generic drug manufacturers.

Other problems include trying to control salaries for top hospital executives and doctors and rein in spiraling costs for new medical technologies.

But change may come slowly. Universal healthcare is central to Canada's national identity, and decisions are made as much on politics as economics.

The study said its base case envisaged annual spending per capita rising to C$10,700 in 2031 from C$4,900 per head in 2009, taking inflation into account.

($1=$0.96 Canadian)

(Additional reporting by Louise Egan; editing by Janet Guttsman)