There is no shortage of flashing red lights on health care funding by Ottawa and the provinces.

When Stephen Harper’s minority Conservatives introduced the 2010 budget earlier this year, all eyes were on how the government would manage to reconcile its spending commitments to the provinces for health care, arguably the most expensive social program in Canada, in the context of the economic downturn. For Finance Minister Jim Flaherty, the answer was simple: “We will not balance the budget by cutting transfer payments for health care.”

The math may not make sense, but the message sure does. Strangely enough for some, the Conservative Party has become the steward of Canada’s publicly financed health care system. It is the Conservative minister of finance who is now responsible for doling out the billions of extra transfer dollars for health care under the 2004 Ten Year Plan to Strengthen Health Care, and it is a Conservative minister of health who is responsible for the oversight of the Canada Health Act.

Of course, this stewardship comes with the territory. Ever since the implementation of federal-provincial cost-sharing for hospital insurance in the 1950s, followed by medical insurance in the 1960s, the federal government has become an essential player in the politics of health care in Canada. With the passage of the Canada Health Act in 1984, it also became the enforcer of equality of access in provincial health care systems. And for over a generation, Liberal and Conservative governments alike have found that while the commitment to health care is expensive, it can also reap significant political rewards both at the ballot box in federal elections and on the battlefield of intergovernmental affairs.

Politicians of all partisan stripes know that health care remains Canada’s most popular social program. Not only do the majority of Canadians tend to support the principles underpinning universal, comprehensive public insurance coverage, they are also loath to see cuts in health care spending that would jeopardize access and quality.

What many Canadians may not grasp, however, is that Canada is a really big spender in health care. Recent estimates show that Canada spends 10 percent of its GDP on health (that’s more than $180 billion a year), which is higher than most countries, although significantly lower than the US, where health care costs consume 17 percent of GDP. About 70 percent of this total spending is through the public sector, with the rest accounted for by private insurance and out-of-pocket spending on services not covered in provincial health care plans.

Despite the clamouring of critics, the growth in health care spending over the last decade is not off the charts — it is actually slightly less than what we see in other countries. Still, health care spending in Canada has been increasing faster than inflation and population growth. And, while most other industrialized countries are in active cost-control mode, Canada has not followed that course in recent years.

Part of that is because there has been a deliberate commitment to “reinvestment” in health care spending after a period of severe cuts in the mid-1990s. As finance minister, Paul Martin introduced the Canadian Health and Social Transfer in the 1995 budget, which accelerated the provincial wave of cost-cutting that led to hospital closures and significant reductions in health human resources, as well as the corresponding erosion in timeliness of care and public confidence. In 2002, the Romanow commission sounded the alarm about money; the Kirby committee did the same about waiting times.

As prime minister, it was the same Paul Martin who presented his mea culpa in the form of the 2004 federal-provincial accord for a 10-year plan to increase health care transfers and a special fund to reduce waiting times.

In all, the federal government estimated this would inject $41 billion into health care across Canada, a sum that seemed to correspond with the substantial federal surplus at that time.

Politicians of all partisan stripes know that health care remains Canada’s most popular social program. Not only do the majority of Canadians tend to support the principles underpinning universal, comprehensive public insurance coverage, they are also loath to see cuts in health care spending that would jeopardize access and quality.

These increases have ostensibly allowed the provinces not only to increase overall spending, but also to tackle long-overdue primary care reform and to address the waiting times issues. The former has been fraught with the difficulties of implementation on the ground, while the latter had become a thorny political issue that persuaded provincial governments to redirect funds to reduce waiting times for elective surgery. While health care is no longer the tension-filled intergovernmental lightning rod that it had been for decades, much of this is due to the fact that public opinion and provincial reaction have been favourably influenced by the federal government’s largesse. What happens when the money dries up?

Observers of the health sector in Canada point to the fast-approaching end of the 2004 Ten-Year Plan to Strengthen Health Care as a pivotal moment. Until then, and despite the economic downturn, successive federal governments, including Stephen Harper’s minority governments, are saddled with the stewardship of a major funding commitment with annual increases to the provinces to the tune of 6 percent until 2013. What happens then will also depend on the extent to which provincial governments will be willing — and able — to either make up the difference or move more firmly toward cost-control measures. Even though other issues crowd out political agendas in Ottawa and the provinces, health care remains a core concern of Canadians and an enduring issue of political saliency at the polls.

While spending rather than saving seemed to be the leitmotif of the Canadian health care sector until recently, the recession has served to focus the mind of politicians and the public alike about some of the long-term challenges facing the system.

The so-called demographic tsunami is one such concern. As Canada’s population ages, the effects on the health care system will be substantial. This is true in practically all of its aspects, from the cost of drugs to the availability of services; from the aging of the health care workforce to the impact on family care providers. The elderly in Canada consume considerably more health care services than the population as a whole, and it is still uncertain what the impact of this will be as the baby-boomer population reaches old age. Provincial leaders in Ontario and Quebec, for example, have tried to sound the alarm on this issue, but there is still considerable debate about the cost projections of an aging population, and little political will to face the health care challenge head-on.

Related to the aging population who rely heavily on inpatient and outpatient drugs, total drug spending in Canada has been growing at a much higher rate than overall health care spending and growth in hospital and physician costs. Recent estimates are that drug spending now accounts for more than 15 percent of total health spending, having doubled over the past decade, according to the Canadian Institute for Health Information’s 2009 report. The issue for the health care sector is made even more acute in that the majority of prescription drug costs fall outside public provincial systems, directly increasing the burden on Canadian consumers.

Health human resources continue to be a pressing issue, particularly within the medical community that claims a severe doctor shortage must be addressed. The federal government has promised to move forward on funding new residency training programs and attracting Canadian doctors practising abroad back to Canada, but the main parameters of physician training and supply remain at the provincial level, where concerns are focused on specific shortages in general practice and family medicine, as well as servicing remote and rural populations.

Recent provincial budgets have indicated the growing pressures of health care spending on program funding, yet provincial governments have not turned to drastic cost-cutting as a consequence. At least one province, Quebec, has turned its attention to another strategy: increasing revenues by other means.

Quebec has been at the centre of health care dramas in recent years, mainly due to the legal challenge of Chaoulli v. Quebec, the 2005 Supreme Court decision that struck down the province’s ban on private insurance for publicly funded health care services. Bill 33, the new legislation that emerged from this, limited the exposure of the challenge to specific elective surgeries, but the impact on widening the debate about health care reform had already begun. The Ménard Report deployed shock tactics to warn about the all-consuming trends in health care spending, but the suggestion to raise taxes as a consequence proved a political dud. In 2008, the Castonguay Report faced a similar political fate. The former “father” of Quebec medicare, Claude Castonguay outlined a tough-love solution that involved not only raising the provincial sales tax and imposing new health care fees, but also allowing for a much larger scope for parallel private markets in the health care system.

Given Jean Charest’s minority government situation at the time, Castonguay’s report got short shrift. But, just two years later, after the cumulative impact of an economic downturn and strapped government spending, the Quebec Liberals have changed their tune. The 2010 provincial budget introduced a new contribution sant遠or health care premium that will go into effect this year; by 2012 it will collect $200 from every taxpayer in the province. While there are some concessions for the lowest-income, the premium has been criticized as a “poll tax” because of its regressive nature. Unlike health care premiums in British Columbia or Ontario, the amounts are much more modest — the Quebec government expects to reap just under $1 billion in annual revenues — but the kicker is that the money will be stashed in a dedicated “fund” to be allocated to health care establishments based on their performance in specific criteria. In other words, the money will be used to foster competition in the health care sector.

More provocative still is the proposal for a franchise sant遠— a retroactive fee assessed on an individual’s income tax, based on the number and type of “medical visits” during the year. The Quebec government stipulates that these are deductibles and not co-payments or user fees, since the $25 fee per visit would be countered by a threshold spending of 1 or 2 percent of household income. For the time being, the government is analyzing the initiative and has not set a start date nor finalized the details of the franchise yet.

Within Quebec, the reaction has been largely about the political consequences of imposing yet another burden on tax-beleaguered Quebecers. Outside of Quebec, the reaction has been about how provincial initiatives may impinge on the Canada Health Act. Castonguay and other Quebec opinion leaders have publicly stated that the Canada Health Act is out of date so the potential for a showdown has already been raised. Maybe we are in for a political showdown. Call it a franchise, deductible or user fee: the Quebec government’s proposal is decidedly contrary to the spirit of the Canada Health Act. Whether it is against the letter of the law, however, remains to be seen.

Two important considerations should be remembered as we move yet again into a national debate over the Canada Health Act. First, the CHA was initially formulated in reaction to perceived provincial loopholes that allowed doctors to extra-bill patients and health care facilities to impose user fees. The legislation was put into place by the formidable Monique Bégin in the waning days of Pierre Trudeau’s last government, and it was guided by legitimate concerns that financial barriers could be detrimental to population health. The Act amalgamated existing rules about federal transfers to the provinces in health care matters and added another principle designed to guarantee that provincial health care plans would, in the words of the statute’s preamble, provide “continued access to quality health care without financial or other barriers.”

In other words, in addition to ensuring publicly administered, universal, comprehensive and portable health care plans, provinces also had to ensure “equal access” by which need trumped the ability to pay in all areas of publicly funded health care provision.

Also important to remember is that the only way these rules can be enforced is through federal action directed at provincial transfers; indeed, the Act stipulates a dollar-for-dollar penalty on provinces that allow extra-billing or user fees. The CHA has limited legal resonance beyond its ability to impose financial penalties — health care remains in the constitutional purview of provincial responsibility. And the CHA can only be deployed when the federal minister of health deems it is being contravened by a province — a relatively rare occurrence.

Still, this narrow claim has led to a much wider resonance in political space for the federal government’s role as the guardian of Canadians’ health care “rights.” Even though his government was responsible for some of the most severe cuts to provincial transfers, Jean Chrétien had a winning strategy that effectively exploited the CHA — some might say like Moses and the Ten Commandments — to pillory the opposition in successive federal elections.

As the Conservative government now takes on the mantle of sustaining health care funding in Canada, and the Liberal opposition gets its story straight on health care issues, who will take a page from Barack Obama and the historic health care reform that recently shook the American political landscape?

In the context of a minority government the opposition’s stance on health care spending would likely not diverge that much from the Conservatives’. But on the more elemental issue of the principles underpinning the health care system, the Liberals have had a much more profitable political script over the years. For some reason, Liberal Leader Michael Ignatieff seems to have little memory of this engagement on the part of his predecessors. His initial response to the Quebec budget was to acclaim its health care proposals, thereby turning the page on two decades of Liberal Party rhetoric on the issue. While the former UK resident is correct to remind us that user fees are prevalent in a number of European countries, his failure to contextualize this in terms of the Canadian political context was a big faux pas. Being brought to task by his caucus on this was embarrassing enough, but the real problem may be deeper. Just weeks after the Liberal leader’s acclaimed policy conference in Montreal, Ignatieff still seems iffy about one of the most salient wedge issues his party holds, and could well own, in the next electoral cycle.

As the Conservative government now takes on the mantle of sustaining health care funding in Canada, and the Liberal opposition gets its story straight on health care issues, who will take a page from Barack Obama and the historic health care reform that recently shook the American political landscape? Despite its limitations, the reform bill will change the way that Americans access and pay for health insurance, both those who are already insured and those who have not been. It took plenty of political courage but more importantly a political compromise within Obama’s own party, leaving the polarization on health care reform between Democrats and Republicans almost intact.

The other lesson from Obama is about the power of federalism. When the federal government commits to action, as it has done so many times in the United States, from the Social Security Act in the 1930s to civil rights in the 1960s, things get done even though there may be a high price — in terms of partisan support and intergovernmental relations. Obama’s reform package engages the states not only in the quest for universal access but also in the pressing concern about controlling costs in the health care sector.

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