The Centre for Living Standards has released a report warning that Canadians are at great financial risk because of the large increase in private health care spending. They argue that since health care spending is using up a greater share of an individual’s disposable income Canadians are at financial risk if they become sick or unemployed. Fortunately this conclusion is based on a fundamental misunderstanding of how individuals make spending choices.
It is important to note that the Centre for Living Standards has also found that “there has been a dramatic increase in per-capita consumption and wealth across the country.” Which means that we are all, for the most part, better off and we own more stuff. Since we already have all this stuff we can then use our left over disposable income to do something that use to be a luxury: take care of our health.
The concept is similar to Maslow’s hierarchy of need but it focuses more on economic choices. Once one desire has been satisfied we humans move on to the next desire and then the next and so on. Once I have bought a beer my desire for beer depreciates and is replaced by something else, perhaps a desire for a steak sandwich. Every individual has a different hierarchy of desires based on their own preferences and so it is difficult to generalize, but we can observe patterns in the choices that people are making.
It is likely that the Centre for Living Standards has simply observed one of these patterns. People may be more willing to spend a greater portion of their income on health care because they can afford it and because they have already taken care of their other desires. If this is the case then this is a sign not of Canadians being worse off but of being better off because they are able to satisfy more of their desires.
Of course I could be wrong and it could be that people are sacrificing more of their desires to afford the rising cost of health care. In some individual’s cases this could very well be what is happening, but considering the rarity of health related bankruptcies in Canada I am skeptical that there is an epidemic of financial risk due to health.
We shouldn’t overlook the fact that fundamentally the Centre for Living Standards has shown what should be obvious, we are all better off than we were 30 years ago. And that is good news