Attention Americans: Government and Medicare in Canada – A Cautionary Tale

By: on September 22, 2009 | Health, International

Americans considering the consequences of the various health care reform proposals being proffered by President Obama and Congress would be wise to consider the Canadian experience. As things stand today, discussions regarding health care reform in the United States all revolve around a greater role for government in the marketplace and include expansions of current government insurance schemes, regulations requiring guaranteed issue of insurance to all comers and community rating of insurance premiums, insurance exchanges, new tax credits for and taxes on health insurance, and the much-discussed “public option” where the federal government would run an insurance scheme providing insurance in the marketplace. North of the border, Canadians are ill-served by their inaccessible but expensive government-run Medicare program, whose structure is defined by the federal government.

From seemingly innocuous beginnings, this program came to be through a history of continually increasing government involvement. The lesson is clear: any government intervention today has the potential to grow into something much larger and more significant.

In Canada, health care policy is a matter of provincial jurisdiction. That is, the 10 provinces have the freedom under Canada’s Constitution to determine which health care policies will best serve their differing populations. Over time however, Canada’s federal government has increasingly used its spending power to set provincial health care policy federally from Ottawa.

The history of federal intervention into health care began in the 1940s when provincial governments maintained different approaches to health insurance policy. In 1948, federal involvement in health care funding was initiated through the Hospital and Construction Grants Program (HCGP) which provided funds to assist provinces in the building of new hospitals that facilitated growth in the number of hospital beds. This in turn led to significant increases in health care costs, which led the provinces to ask the federal government for assistance with the provision of nation-wide universal hospital insurance.

By 1961, the federal government’s funding of health care had been expanded to include 50:50 cost sharing of universal medical insurance for hospital services with the provinces. In 1968, the federal government enacted the Medical Care Act (Medicare) to ensure provincial adherence to a publicly-funded health care system. It offered to share the cost of medical services as long as provincial medical insurance was universal, comprehensive, portable, and publicly administered.

The Medical Care Act was followed by the Canada Health Act of 1984 that set additional conditions for provincial health insurance schemes that must be met in order for provinces to receive the full amount of their cash transfers for health and social services from the federal government. The Canada Health Act requires that provincial health insurance programs be universal, accessible, portable, comprehensive, and publicly administered and requires that provinces allow no user fees or extra-billing (payments beyond the provincial insurance plan’s reimbursement) for publicly-funded health care services.

Over a period of less than 40 years, the federal government of Canada went from providing financial assistance for the construction of hospitals to directing provincial health care policy. To date, the federal government has shown no sign of giving up its role in health care policy, and in fact, has increased its role in recent years through various health care agreements with the provinces in return for additional cash transfers from Ottawa.

In the process of centralizing decisions over health care policy, the federal government has denied Canadians the advantages of having provincial governments manage health care policy. Provincial governments are limited in their ability to tailor programs and policy to the unique needs and characteristics of their local populations (which can differ substantially among the provinces) through whichever policies they deem necessary without fear of losing federal support for their universal health program.

Competition between provinces in health care policy and the ability to learn from other provincial and international experiences and successes has also been lost. Finally, having both the distant federal government as well as provincial governments involved in health care policy and financing has blurred lines of accountability for citizens who have the responsibility of rating their governments at the polls.

This is not to say that the provinces are innocent parties to Canada’s problems. Provincial governments have also expanded their roles in health care over time, sometimes in concert with the federal government’s expansions. Their role in health care insurance began in the 1940s with public hospital insurance. Since that time, provincial governments expanded to the provision of physician insurance and then created a government monopoly in physician and hospital insurance by prohibiting private financing and insurance for services that are also publicly insured. In taking control of all physician and hospital care in Canada, governments have also made decisions that restricted the supply of medical professionals, medical technologies, and health care generally, in order to contain public health expenditures.

Provinces have also been reluctant to implement sensible health care policies such as private competitive provision of publicly-funded health care services, a private parallel health care sector, and output-based funding for hospital care, even though none of these policies are prohibited by the Canada Health Act.

As an empirical measure of the increasing role of government, consider that government health expenditures as a percent of GDP grew from 2.3 per cent in 1960 to 7.1 per cent of GDP by 2007.

Of course, there is a general trend to spend more on health care in developed countries and we should expect that health spending will rise over time in a wealthy nation such as Canada. The vital question Canadians need to ask is: what are you getting in return for that spending? In the Canadian model, where government has taken a monopoly role in the financing of physician and hospital care and where hospital services are delivered in monopolistic public facilities, the answer is a very poor standard of health care.

Consider that Canada maintains the developed world’s second most expensive universal access health care system on an age-adjusted basis. Yet, in spite of this high level of expenditure, Canadians endure relatively poor access to medical professionals and medical technologies, are cared for using far too many old and outdated pieces of medical equipment, and must wait for health care in some of the longest queues for treatment in the developed world.

The key lesson is that what started out as a small federal intervention in the marketplace to provide more hospital capacity has become a significant government intervention into the daily health care decisions of Canadians. Americans should be cautious of a similarly expansionary approach from their federal government. There is nothing to say that new federal regulations for private insurance providers, insurance exchanges, federal tax credits, taxes on high-end plans and the health care sector, a federal-government-run insurance option, and expansions of existing programs like Medicaid today might not become something much bigger tomorrow. Indeed, Americans might find themselves in the future looking back at a path that brought them to a complete government takeover of health care.


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About Nadeem Esmail

Nadeem Esmail is a Senior Fellow with the Fraser Institute.