This is, after all, the playbook of all privatization advocates everywhere: starve a public good, wait for it to malfunction, and then claim the free market is required to fix the problem—Mitchell Thompson, Jacobin, January 2023
The current health system does not have a ‘management’ problem; it has an ‘economics’ problem. The looming crisis in our system has three identifiable causes: the government’s monopoly over funding for medical care, the politically planned allocation of medical goods and services, and the lack of consumer exposure to the cost of using health care—The Fraser Institute, various publications, April 2011
I happened to read these quotes one after the other and the juxtaposition of the two almost made me laugh out loud. Mitchell Thompson is a Toronto-based writer and researcher, the Fraser Institute is a bunch of ghouls who think Canada’s healthcare system would be better if Canadians had the opportunity to bankrupt themselves paying for treatment.
My own views, naturally, have more in common with those of the left-leaning author of the Jacobin article than the freaks at the Fraser Institute, but my efforts to articulate those views lately have been hampered by the gaps in my understanding of Canada’s healthcare system (or, given the degree of provincial control involved in healthcare, “systems”). So, this week, I set out to fill those gaps.
Here’s the thing: it’s complicated. And though I have done my best to understand it and communicate it in a coherent way, I’ve really only scratched the surface. And it is all, I have to admit, kind of dull—I mean, to the point where it might put you to sleep. But I am going to do my best to keep us all awake. (And if you read this and notice any egregious errors, tell me!)
In the beginning…
Otto von Bismarck
The world’s oldest national healthcare system is Germany’s, established in 1883 by Otto von Bismarck. (Full disclosure: while it is true that Otto von Bismarck introduced Germany’s healthcare system, I am really just bringing him up as part of my effort to keep you awake and will not refer to him again. Sorry.) France brought in the system it has today in 1945 and the UK established its National Health Service in 1948. New Zealand’s system dates to its 1938 Social Security Act but Australia didn’t introduce a national healthcare system until 1984 (and both countries have since moved to a mixed public-private model, about which, more later).
Saskatchewan pioneered universal healthcare in Canada, introducing universal hospital insurance in 1947 under Premier Tommy Douglas and universal medical services insurance in 1962, under Douglas’ successor, Woodrow Lloyd. (Although this didn’t happen without a fight.)
According to a very helpful 2020 Canadian Medical Association Journal article by C. David Naylor, Andrew Boozary and Owen Adams, the 1867 British North America Act was mum on the subject of national health insurance, instead assigning “authority for oversight and delivery of health care services to provinces and territories,” so when the federal government decided to get involved in healthcare, it had to do so in cooperation with the provinces:
This constitutional reality means that Canada has 13 somewhat distinctive provincial or territorial health care systems. Those systems have much in common, however, given shared fiscal and legislative DNA arising from a series of agreements that, since the late 1950s, have set out terms and conditions for sharing of specified costs between the Government of Canada and provinces and territories.
50/50
The first of those agreements was the Hospital Insurance and Diagnostic Services Act, federal legislation passed in April 1957. According to the Canadian Encyclopedia entry on “health policy” (written by the late Toronto Star medical reporter Marilyn E. Dunlop), the Act:
…gave the Canadian government authority to enter into an agreement with the provinces to establish a comprehensive, universal plan covering acute hospital care and laboratory and radiology diagnostic services.
University of Saskatchewan Professor Haizhen Mou says the federal government:
…guaranteed all provincial governments 50-50 cost sharing if they adopted universal hospital coverage under a set of national standards.
Initially, this cost-sharing formula meant that:
…richer provinces received more funding because of higher per-capita outlays on hospital care. This was mitigated by using national average spending levels as a benchmark for half the allocation.1
In 1966, sparked by “the 1964 report of a Royal Commission chaired by Justice Emmett Hall,” the Canadian government passed the Medical Care Act, which “offered to cover 50% of the national average per capita cost of all insured medical services, net of plan administration costs and patient premiums2.”
These two pieces of federal legislation are the basis for Canada’s national Medicare plan. As Mou explains:
The provinces and territories that received the federal health transfers agreed to comply with four core principles: public administration, comprehensiveness, universality, and portability (a fifth principle, accessibility, was introduced by the Canada Health Act in 1984).
EPF
Passage of the Medical Care Act, according to Mitchell Thompson:
…saw Canada’s health capacity expand rapidly, especially in the area of hospital and hospital bed construction…
This expansion was accomplished under that 50/50 cost-sharing agreement between the federal and provincial governments, but by Thompson’s account, the ink had barely dried on that arrangement before the federal government was looking for out:
…by 1970, the federal Liberals were looking to make budget cuts. The government’s 1970 Economic Council suggested measures to “discourage the use of medical services” even if it meant “deterrent fees.” In 1977, the 50/50-cost-sharing program came to a quiet end…
In 1977 the feds replaced the cost-sharing grants for healthcare (and post-secondary education) with the Established Program Financing (EPF) block transfer. (I missed this development—I was at Sam the Record Man buying a 45 of Shaun Cassidy’s cover of “Da Doo Run Run.”) The EPF “was made up of roughly equal parts cash and tax point transfer.”
A Government of Canada publication by Odette Madore explains how this works:
Cash transfers to the provinces corresponded to monetary or financial contributions that were made periodically by cheque; in addition, the federal government accorded a certain tax room to the provinces through the transfer of tax points. To do this, the federal government reduced its tax rates while the provinces increased their rates by an equivalent amount. This procedure resulted in a reallocation of revenue between the two levels of government: federal revenue was reduced by an amount equivalent to the increase in the provincial governments’ revenues. The fiscal burden on taxpayers remained the same because, although they paid more provincial tax, they paid less federal tax.
(Another Madore report, from 1997, explains the history of tax transfers in Canada and it’s really interesting—the first one, put in place during and immediately after the Second World War, saw the federal government “renting” the provinces’ ability to levy taxes in order to fund the war and subsequent recovery. I am trying—and failing—to imagine action that drastic taken in the name of anything other than war.)
Under EPF, the feds transferred 13.5 tax points on personal income tax and 1 tax point on corporate income tax to the provinces:
The provinces whose fiscal strength was lower than a provincial standard received equalization payments to bring their transfer up to that standard (the provinces making up the standard are Quebec, Ontario, Manitoba, Saskatchewan and British Columbia). The cash transfer corresponded to the difference between the total EPF entitlement of each province and the value of the tax transfer.
A Word About Tax Points
I’m interrupting this article to tell you what I’ve learned about tax points, a subject I knew nothing about just 24 hours ago.
The problem with tax points is that the revenues must be collected by the provinces themselves and the provinces—understandably, really, especially after 46 years—start to think of them as general revenues, not federal contributions to healthcare.
I heard the Globe and Mail‘s health reporter, André Picard, reference the tax point transfer on CBC’s The Current earlier this week. He said it’s difficult to calculate but when you do calculate it, you find that the federal government is paying about one-third of the cost of healthcare delivery today, not the 22% figure tossed around by the premiers.
But as far back as 1997, Madore was writing:
“Whether the transfer of tax points really constitutes a federal contribution is subject to debate. The provinces regard the tax points as a one-time permanent transfer, while the federal government continues to count them as an ongoing contribution to provincial coffers.”
All by way of saying, the value of tax points is contentious.
Quebec has a special arrangement that we don’t have to get into today—or possibly ever—but there is another federal program we have to discuss. The Canada Assistance Program (CAP) was a “shared-cost program under which, from 1966-67 to 1995-96, the federal government reimbursed approximately 50% of provincial social assistance and welfare program expenditures.” (Cost-sharing models also pose problems, as they “favored the wealthier provinces, who could afford to spend more in the first place.”)
Let’s take a break, shall we?
I’ll meet you in Part II, where the Liberals under Jean Chrétien have a BIG surprise for you.
