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October 6, 2022

From: Marcel Saulnier and Owen Adams

To: Canadians Concerned About Healthcare

Date: October 6, 2022

Re: It’s Time to Unfreeze Canada’s Healthcare Reform Paralysis

“Paradigm Freeze” is the academic term that summarizes progress on healthcare reform in Canada over the past few decades.

The Medicare program that affords universal access to Canadians remains much as the same as when the federal government put forward its cost-sharing proposals for hospital and medical services in the 1950s and ‘60s.

A main reason is the absence of any meaningful cost-sharing negotiation between the federal and provincial/territorial governments since Established Programs Financing (EPF) was implemented in 1977-78.

Ever since, the federal contribution has been unilaterally adjusted by Ottawa from decade to decade. This has included a freeze in the growth of the cash transfer in the 1980s, a $6-billion cut in the cash transfer in 1996, a decade of 6-percent annual increases linked to the 2004 health accord, and the 2011 announcement that beginning in 2017, growth in the Canada Health Transfer (CHT) would be capped at the rate of growth in nominal GDP with a 3-percent floor.

More recently, both sides appear to have anchored their positions in a stalemate.

Since 2020, the premiers have demanded an increase in the federal share of provincial/territorial spending from 22 to 35 percent with no strings attached, which would represent an immediate increase in the CHT of $28 billion annually.

For its part, the federal government has continued the 2011 CHT growth formula and has added one-time funding such as the $11 billion over 10 years announced in the 2017 budget, funded close to 90 percent of the national pandemic response, and provided a $4-billion CHT top-up in the 2021 budget.

An added wrinkle in the mix is that the federal government has recently reclaimed credit for the value of the tax points that were transferred to the provinces and territories in 1977 in their share, which would bring it to 33 percent, something it had not done since 2004.

Meanwhile, the federal government is adamant that any increase in health funding must be accompanied by conditions, but overtures to engage provinces and territories in discussing how to improve access in key areas such as pharmacare, mental health, long-term care, and dental care appear to be falling flat. The federal government is also worried that an unconditional CHT increase might result in health funding being diverted by provinces and territories to support other priorities such as lowering their taxes.

Canada’s health system has outgrown the original focus of Medicare.

For example in 1977-78, the year that EPF came in, hospital and physician spending accounted for 75 percent of provincial and territorial health spending. As of 2021-22, this figure has declined to 55 percent. Spending on prescription drugs accounted for 2 percent of provincial and territorial health spending in 77-78 and has now grown to 7 percent.

Another way of looking at it is the share of provincial/territorial program spending. In 1977, health accounted for 28 percent, which had increased to 37 percent in 2019.

A recent analysis of 2022 budgets prepared by Deloitte for the Canadian Medical Association shows the pressure that healthcare is putting on provincial and territorial governments. On average, health spending is increasing by 4.4 percent in 2022, roughly five times the average increase of 0.9 percent across the total budgets.

This stalemate must end. The lack of adequate home and long-term care means patients who could be better cared for in other settings languish in acute care hospitals, which in turn causes emergency room bottlenecks and “hallway medicine.” At least one in 10 Canadians has problems paying for prescription medications, having to choose between them and food or rent.

It is long overdue for the federal government to convene a table or some other process to engage in a fundamental re-examination of the key questions that will determine the future of Medicare. These include:

  1. What is our collective vision for a modern, high-performing health system, and how can we build on our current foundation to achieve that vision?
  2. How much more does Canada need to spend to stabilize the system, modernize its organization and the services it covers, ensuring future sustainability?
  3. If more money is needed, how should the federal-provincial funding partnership evolve?
  4. How can funding arrangements best ensure that Canadians have timely access to reasonably comparable health services regardless of where they live?
  5. Are there new models and rules of the game that both levels of government could agree on – earmarked taxes, tax-sharing, social health insurance, pay for performance and accountability arrangements for new federal/national healthcare initiatives – that would set the foundation for a more sustainable approach?

While this would not provide any overnight resolution to the impasse, there is no other indication of a breakthrough anytime soon.

Canadians and their families are suffering, and healthcare workers are strained beyond the breaking point. There is no time to lose.

Marcel Saulnier is an Associate with Santis Health and a Senior Fellow at the C.D. Howe Institute. Owen Adams is Senior Advisor to the CEO of the Canadian Medical Association.

To send a comment or leave feedback, email us at blog@cdhowe.org.

The views expressed here are those of the authors. The C.D. Howe Institute does not take corporate positions on policy matters.