Public health care in Canada is portrayed with increasing frequency and urgency as being financially unsustainable. However, current patterns of public health expenditures in Canada provide little evidence for this claim. The real crisis of the Canadian health care system lies in the paradoxical situation by which its institutional underpinning—especially the nature and dynamics of federal-provincial relations—undermine rather than bolster public support for the system.
The political weakness of the health care system is the result of powerful dynamics generated out of nearly a decade of federal-provincial wrangling over funding in a context of fiscal restraint. The incentives built into federal-provincial arrangements and the resulting patterns of federal-provincial interaction have led to increasingly widespread perceptions that the public health care system in Canada is of rapidly declining quality, is wracked by a funding crisis, is unable to control costs, and is ultimately unsustainable. Because these perceptions are rooted in its institutional framework, pressures on the health care system have not eased—and should not be expected to ease—as fiscal pressures abate or as mechanisms to control future cost pressures are implemented. Reorienting the health care system to a more politically sustainable basis requires a serious rethinking of the relative roles and responsibilities of the federal and provincial governments in the funding and delivery of public health care.
The Canadian Institute for Health Information (CIHI) data on provincial health expenditures are unequivocal. Total provincial public health expenditures comprised exactly the same proportion of gross domestic product in 2001 (6.2 percent) as they did in 1990 and were actually down slightly from their peak level of 6.9 percent in 1992. Where, then, do the claims that health care is now financially unsustainable come from?
Two approaches generally underpin arguments regarding the financial unsustainability of health care. The first is to extrapolate future health care costs from current spending patterns (primarily since 1996); the second is to focus on expenditures expressed as a proportion of total provincial program expenditure. But there are serious problems with both approaches.
Extrapolations of health care costs based on the late 1990s tend to ignore the fact that expenditure restraint in the middle of the decade created pent-up demand that was reflected in higher annual spending levels later in the decade. Annual provincial health expenditures did increase significantly after 1996. However, from 1993 to 1996, actual expenditures were lower than if they had simply been maintained at 1992 per capita levels. While provinces began to reinvest in health care after 1996, actual cumulative expenditures by 2001 did not—but almost—reached the amount that provinces would have spent in the 1992-2001 period if 1992 levels of per capita expenditure had simply been maintained. As the provincial and territorial ministers report on health care costs notes, the “severe restraint directed toward health care in the early-to-mid 1990s produced a very low annual average growth rate” and “[s]ince 1996, provinces and territories have been reinvesting, partly to make up for the restraint applied in the early years of the decade.”
Cost expansion driven by pent-up demand resulting from earlier (and sometimes ill-considered) programs of expenditure restraint is not evidence of the inevitability of future cost increases. One only has to think of the costs incurred by Ontario in first laying-off and then recruiting and rehiring thousands of nurses. Extrapolating from current expenditure patterns without clearly demarcating the various underlying drivers of cost escalation and identifying their different implications for future expenditure patterns is not an appropriate methodology for forecasting future expenditure patterns.
The second explanation for the perceptions of financial unsustainability is that numerous reports and public debates have increasingly focused on health care expenditures expressed as a proportion of total provincial program expenditures. While provincial public health expenditures are no higher relative to GDP than they were a decade ago, they have increased relative to total provincial program expenditure. There are two dynamics and each provides a partial explanation for this apparent discrepancy.
First, total provincial program expenditures remained static from 1991 to 2000 in real dollar terms and have dropped to 78 percent of their 1991 levels relative to GDP. Thus, provincial health expenditures rose as a proportion of total provincial program expenditures even while remaining static relative to GDP.
Second, the overall contribution the federal government makes to provincial total revenues has declined. (All major federal transfers to the provinces including those under the Canada Health and Social Transfer (CHST) for health go directly into the consolidated revenue fund, so to identify particular transfers for health, as is often attempted, is simply not relevant to the question of the overall fiscal sustainability of provincial health care expenditures. At the same time, the issue of federal contributions to health is an extremely important issue in discussing the legitimacy of the conditional nature of specific trans- fers.)
Restraint in federal transfers has meant that an increasing proportion of the growth in provincial revenues is going to health care rather than other provincial programs or provincial deficit reduction or debt retirement. To this extent, health care is crowding out the provision of other public goods and, clearly, this is a serious problem from the provincial perspective. The financial sustainability of health care expenditures is a very real problem from the provincial perspective. It is not, however, indicative of the unsustainability of the overall financial burden of health care relative to the overall ability of Canadian governments to bear this burden.
In the longer term, the financial sustainability of public health care in Canada becomes a serious issue under two scenarios: provincial governments become increasingly unable (or unwilling) to maintain current taxation levels (for which there is currently no evidence); alternatively, there is a future escalation of health-care costs. However, according to the provincial and territorial ministers of health report, Understanding Canada’s Health Care Costs, which presents a detailed forecast of health care costs to 2026- 2027, cost drivers such as aging and population growth are not expected to increase the burden of public health expenditures relative to GDP in the foreseeable future. Including the effects of population growth, aging, inflation and a 1 percent per year increase to reflect “other” health care service needs, the report concludes that health expenditures will remain fairly constant as a share of GDP over the next 25 years.
Questions of fiscal sustainability emerge only under a scenario of accelerating costs and, indeed, there are compelling reasons to expect considerable future cost pressures. The fact that current patterns of expenditure are not demonstrably unsustainable does not mean that questions of affordability pose no future threat or that there is no need for fiscal restraint in health management. The main question is whether the acceleration of costs to unsustainable levels is inevitable. The claim that inevitable cost acceleration will make public health expenditures unsustainable in the future is a much different claim than the one that current levels of health expenditure are unsustainable.
Despite the fact that provincial health expenditures relative to GDP are the same as they were at the beginning of the 1990s, there is now an increasingly widespread perception of a financial crisis in public health care. The roots of this perception lie, to some significant degree, in the institutional underpinnings of health care—especially federal-provincial fiscal arrangements.
The preponderance of jurisdictional responsibility for the provision of health services lies with provincial governments, while the federal role lies primarily in sharing the costs of provincially-provided health services under terms governed by the federal Canada Health Act (CHA). Given this division of responsibility, the dynamics of federal-provincial relations regarding health are relatively straightforward. The federal government strives to minimize its fiscal commitment to the degree possible while ensuring both its visibility in health and its ability to claim credit for enforcing the CHA. Provincial governments, for their part, strive to maximize federal fiscal commitment while also preserving their room to maneuver vis-Ă -vis constraints imposed directly or indirectly through public pressure as a result of the CHA. Pressures on these arrangements began to build as the federal government restrained transfers first under the Established Programs Financing (EPF) arrangements and then, more drastically, under the CHST. Three crucial effects were thus generated.
The first is the illusion of health care as a rapidly growing fiscal burden relative to the ability of governments as a whole to bear this burden. Public health care expenditures do not constitute a higher proportion of GDP than they did a decade ago. Yet, as a result of federal transfer restraint, provincial governments now make a compelling case that public health care as it currently exists is no longer affordable. From the provincial perspective, this concern is real.
Second, partly as a result of federal transfer retrenchment, the federal government’s fiscal position is disproportionately brighter relative to the provinces. The situation in which surpluses are held at the federal level (which has limited direct involvement in the delivery of health care services) and deficits or near deficits are held at the provincial level of government (whose most important single program responsibility is health care) contributes to the political construction of a strong linkage between health care and the issue debts and deficits. The goals of providing public health care and debt/deficit reduction are cast into sharp political competition as a result of the fiscal imbalance between levels of government that has been exacerbated by the capricious federal manipulation of health care transfers.
Finally, these fiscal arrangements have generated perverse incentives for provincial governments. Provinces face limited incentives to forcefully combat public perceptions regarding the declining quality of health care and the sensationalist media coverage that strongly reinforces such perceptions. There are incentives for provincial governments to leverage their demands for greater federal funding by allowing such perceptions to flourish (if not actually encouraging them) so long as some measure of the blame can be successfully shifted to the federal government.
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Provinces have a similar incentive to focus disproportionately on the funding aspect of the health care issue, emphasizing the perception that a central explanation for problems with the health care system is a lack of financial resources. Also as part of the blame-shifting strategy, provinces have an incentive to claim that the CHA is a straitjacket that does not allow for serious innovation in the health care system and limits their ability to respond to the problems of health care themselves. Not surprisingly, the National Post recently called for the CHA “…to be scrapped, given the intolerable constraints it imposes on provinces’ freedom to innovate”, as noted by Andrew Coyne on January 11, 2002.
This provincial approach has culminated, somewhat predictably, in claims that the current public health care system is unsustainable. In concluding a recent meeting of premiers in Victoria, Premier Gordon Campbell of British Columbia noted, “We all agree as premiers that health care under the current situation is not sustainable”, as reported in the Globe and Mail on January 25, 2002. The National Post reported the following comments by Don Mazankowski: “Public health care in Canada will soon collapse unless bold reforms are introduced…” (January 5, 2002). A final illustration is the Ontario government advertisements which, in a banner headline, claim: “Unless Ottawa pays its fair share for health care, the prognosis isn’t good.” These responses simply represent the provincial calculation of a rational response to the incentives structured into existing federal-provincial arrangements.
Public perceptions regarding health care, which otherwise might seem puzzling, are more clearly explicable in light of these political dynamics which help explain three relatively stable and well-documented trends in public opinion.
1) A belief that the system is in crisis and that the quality of health care is declining despite personal experiences to the contrary.
The growing perception among Canadians that health care is the highest priority facing the country is nothing short of astounding. Over the course of the 1990s, health care has shifted from being a non-issue to being far and away the highest priority among Canadians. While concern for other more perennial issues such as the economy has waxed and waned, health care emerged out of nowhere to become the top issue of concern in less than five years. In part, health care has become such an important issue because of growing perceptions that the system is in crisis—a belief now held by nearly four out of five survey respondents.
This increase in the salience of health care as an issue is related to the staggering decline in public perceptions of the quality of the Canadian health care system. This shift did not take place gradually; rather, it first emerged only in the early 1990s, accelerated rapidly in the mid-1990s, and has remained relatively stable since 1997 despite the fact that provinces have begun to reinvest in health care.
The most obvious explanation for such a pattern would be that the system is in crisis. However, to the degree that Canadians’ perceptions of their own personal interaction with the health care system have been overwhelmingly positive, the image of crisis must lie elsewhere.
There is evidence of a decline in the positive nature of personal experiences with the health care system but it is limited and has emerged only relatively recently. For the most part, individual perceptions regarding the quality of care in Canada have been strikingly high and any decline in perceptions of personal experiences have followed—rather than led—declining perceptions of the quality of the overall system. Similarly, Canadians have been much more sanguine about the system’s ability to meet their own personal health needs and those of their families than to meet the needs of the population as a whole. This discrepancy is most plausibly explained by media reports of many stories depicting the stresses and strains in the health care system. While these problems are certainly not imaginary, neither are they are representative of the norm in health care provision. Key in this process is the apparent willingness of provincial governments to allow and sometimes even encourage such perceptions.
2) A belief that we are now in a major funding crisis and that the system needs more resources.
There is a widespread belief that the system is either currently facing a funding crisis or that a funding crisis is imminent. These public perceptions are not surprising given ongoing provincial government efforts to publicly demonstrate the existence of a health care funding crisis. In this context, it is also not surprising that four out of five Canadians believe that too little is being spent on health care. Certainly, while most citizens do not believe that increased funding alone is the answer, most Canadians are skeptical that the system can be improved without increased funding.
3) A striking decline in public approval ratings for how both the federal and provincial governments are handling the issue of health care and a belief that governments are losing ground in solving the issues facing health care.
Public satisfaction with both the federal and provincial governments’ handling of health care reached a peak in the early 1990s. After 1992, public approval ratings for both governments’ performance on this issue began a precipitous yet enduring decline and have not recovered much beyond their lowest points in the late 1990s. This trend has certainly been exacerbated by intergovernmental strategies in which each level of government, in an effort to avoid accepting public blame for problems with the health care system, attempts to shift responsibility to the other.
Despite the fact that the sustainability of the health care system has been overwhelmingly portrayed in current debates as a financial issue, political sustainability must also be considered. Political sustainability requires ensuring the ongoing ability of the health care system to maintain widespread popular support sufficient to guarantee that there are incentives for governments to adequately fund and effectively provide public health care services. The trends in public opinion outlined above are suggestive of how seriously this ability is coming to be challenged. Fiscal sustainability is a moot issue if the health care system is politically unsustainable and vice versa. Reforms that address only one of these components of sustainability—without consideration for the other—are likely to founder.
The most simplistic solution to the problems of political sustainability, yet one we are likely to repeatedly hear echoed from various quarters this autumn, is to suggest that the federal and provincial governments simply “get their act together and fix health care.” Certainly, the public is unlikely to disagree with this motherhood prescription. The failure of both orders of govern- ment to collaborate effectively has significantly contributed to fuelling public cynicism regarding governments’ ability to deal with health care issues.
Naively suggesting that the two orders simply work together, without fundamentally rethinking the incentives faced by each order of government under the current set of institutional arrangements, will merely raise public expectations for such cooperation without significantly increasing the likelihood that governments will deliver. It is a facile prescription that avoids the toughest issues and entails greater risk than promise. In the absence of institutional change that addresses the incentives generated by existing federal-provincial arrangements, a continuing and not easily reversible decline in public perceptions of both the quality and the sustainability of the public health care system in Canada seems likely. It is here that the real potential for crisis lies.
Gerard W. Boychuk is a professor of political science at the University of Waterloo. This article is based on the author’s paper, The Changing Political and Economic Environment of Health Care in Canada, prepared for the Royal Commission on the Future of Health Care, 2002.
