Health Care Reform From the Cradle of Medicare - Janice MacKinnon JANUARY 2013 MEDICARE'S MID-LIFE CRISIS

 
Health Care Reform From the Cradle of Medicare - Janice MacKinnon JANUARY 2013 MEDICARE'S MID-LIFE CRISIS
MEDICARE’S
                                      MID-LIFE CRISIS

Health Care Reform From
the Cradle of Medicare
Janice MacKinnon
JANUARY 2013

                   A Macdonald-Laurier Institute Publication
Health Care Reform From the Cradle of Medicare - Janice MacKinnon JANUARY 2013 MEDICARE'S MID-LIFE CRISIS
True North in Canadian Public Policy

Board of Directors                                   Advisory Council
CHAIR                                                Purdy Crawford
Rob Wildeboer                                        Former CEO, Imasco, Counsel at Osler Hoskins
Chairman, Martinrea International Inc., Toronto      Jim Dinning
                                                     Former Treasurer of Alberta
MANAGING DIRECTOR
Brian Lee Crowley                                    Don Drummond
Former Clifford Clark Visiting Economist             Economics Advisor to the TD Bank, Matthews Fellow in
at Finance Canada                                    Global Policy and Distinguished Visiting Scholar at the
                                                     School of Policy Studies at Queen’s University
SECRETARY                                            Brian Flemming
Lincoln Caylor                                       International lawyer, writer and policy advisor
Partner, Bennett Jones, Toronto                      Robert Fulford
                                                     Former editor of Saturday Night magazine, columnist
TREASURER
                                                     with the National Post, Toronto
Martin MacKinnon
CFO, Black Bull Resources Inc., Halifax              Calvin Helin
                                                     Aboriginal author and entrepreneur, Vancouver
DIRECTORS                                            Hon. Jim Peterson
John Beck                                            Former federal cabinet minister, Partner at
Chairman and CEO, Aecon Construction Ltd.,           Fasken Martineau, Toronto
Toronto                                              Maurice B. Tobin
Erin Chutter                                         The Tobin Foundation, Washington DC
President and CEO, Puget Ventures Inc., Vancouver
Navjeet (Bob) Dhillon                                Research Advisory Board
CEO, Mainstreet Equity Corp., Calgary
                                                     Janet Ajzenstat
Keith Gillam                                         Professor Emeritus of Politics, McMaster University
Former CEO of VanBot Construction Ltd., Toronto      Brian Ferguson
Wayne Gudbranson                                     Professor, health care economics, University of Guelph
CEO, Branham Group, Ottawa                           Jack Granatstein
Stanley Hartt                                        Historian and former head of the Canadian
Chair, Macquarie Capital Markets Canada              War Museum
Les Kom                                              Patrick James
BMO Nesbitt Burns, Ottawa                            Professor, University of Southern California
Peter John Nicholson                                 Rainer Knopff
Former President, Canadian Council of Academies,     Professor of Politics, University of Calgary
Ottawa                                               Larry Martin
Rick Peterson                                        George Morris Centre, University of Guelph
President, Peterson Capital, Vancouver               Christopher Sands
Jacquelyn Thayer Scott                               Senior Fellow, Hudson Institute, Washington DC
Past President, Professor, Cape Breton University,   William Watson
Sydney                                               Associate Professor of Economics, McGill University

                      For more information visit: www.MacdonaldLaurier.ca
Health Care Reform From the Cradle of Medicare - Janice MacKinnon JANUARY 2013 MEDICARE'S MID-LIFE CRISIS
Table of Contents
Executive summary................................................2         Cost saving and interprovincial co-operation .....13
Sommaire...............................................................3   Changing the way medicare is funded.................15
Introduction...........................................................4   Conclusion...........................................................17
History of medicare in Canada..............................4               About the author .................................................18
Comparisons between Canadian and                                           Endnotes..............................................................19
Western European health care models..................6                     References ...........................................................20
Changing the medicare model...............................7

     The author of this document has worked independently and is solely responsible for the views
     presented here. The opinions are not necessarily those of the Macdonald-Laurier Institute, its
     Directors or Supporters.
Health Care Reform From the Cradle of Medicare - Janice MacKinnon JANUARY 2013 MEDICARE'S MID-LIFE CRISIS
Executive summary

A       s the oldest of the baby boomers turn 67
        this year, the “fiscal squeeze” looms larger
        and larger. Providing health care for all Ca-
nadians while encouraging a robust economy will
require a more efficient health care system with
                                                         In Canada, a co-payment could be implemented
                                                         whereby individuals would pay for services used,
                                                         up to a ceiling of 3 percent of income. The income
                                                         tax system would be used to collect the revenue;
                                                         thus, the administrative costs and complexity
better methods of funding.                               would be reduced and the sick should not be de-
                                                         terred from using the system since no fees would
Changing the health care system to make it more
                                                         be collected when care is accessed.
affordable and effective will require addressing
the three main structural problems built into the        Health care has been like a car with federal and
original design of the system: the focus on hospi-       provincial governments vying for control of the
tals and fee for service doctor services; a funding      steering wheel. The federal government provides
model in which there is no relationship between          funding and sets standards, and the provinces
users of the system and its costs; and the extent to     have the power to design and administer the sys-
which federal-provincial structures and tensions         tem and control spending. Controlling costs and
have made reform more difficult.                         making structural changes is complicated by the
A better medicare system requires changing the           complexity of federal-provincial relationship. In-
traditional 1960s hospital model by funding hos-         terprovincial co-operation will also be key to re-
pitals differently, diverting patients to alternative    ducing costs.
facilities, and focusing more on a holistic, integrat-
                                                         More use of private clinics, home care, and long-
ed approach to health. An emphasis on prevention
                                                         term and chronic care facilities would produce
and health promotion would save lives and money
in the future. The current full coverage of hospi-       more appropriate and affordable care than hos-
tals and doctors does not leave funding for these        pitals. The health department established the Sas-
areas, and furthermore, it diverts resources from        katchewan Surgical Initiative in 2010 to reduce
areas like education and income support, which           wait times. Comparing the total cost of perform-
are crucial to supporting a healthy lifestyle and        ing 34 procedures in the clinic versus the health
environment.                                             department hospital reveals that it is 26 percent
                                                         less expensive to use clinics than hospitals, and in
Most Western European countries have less ex-            all cases the clinics were less expensive.
pensive health care systems with better outcomes.
Significant differences include linking patients and     Preserving the noble ideal of universal health care
taxpayers to the costs of health care through user       will require making fundamental changes in Cana-
fees or co-payments; paying doctors a salary; and of-    da’s health care system. The changes suggested in
fering broader coverage for services like home care,     this paper will make Canada’s health care system
physiotherapy, and prescription drugs. Additional-       more affordable and open the door to investments
ly, health care is seen as one of many social services   in other services and programs that are more im-
and is subject to reform, like the reforms Canada        portant in promoting the overall health of the
used in the 1990s to change other social programs.       population.

 2    Health Care Reform From the Cradle of Medicare
Sommaire

A        lors que les premiers baby-boomers attein-
         dront 67 ans cette année, le spectre du
         « resserrement fiscal » prend de plus en plus
d’ampleur. Fournir des soins de santé à tous les Ca-
nadiens tout en favorisant une économie vigoureuse
                                                              ont été effectuées par le Canada dans les années 1990 à
                                                              l’égard de différents programmes sociaux.
                                                              Au Canada, on pourrait instaurer une formule de par-
                                                              ticipation aux coûts des services en vertu de laquelle les
                                                              utilisateurs assumeraient une partie de ces coûts jusqu’à
nécessitera un système de soins de santé plus efficace
                                                              concurrence de 3 % de leurs revenus. L’infrastructure
tirant parti de meilleures méthodes de financement.
                                                              mise en place pour l’impôt sur le revenu pourrait servir
Pour transformer le système de santé en vue de le ren-        à recueillir ces frais de participation, ce qui limiterait les
dre plus abordable et plus efficace, il faudra régler les     coûts administratifs et la complexité du système et évit-
trois principaux problèmes structuraux du système             erait ainsi de dissuader les malades d’utiliser le système
depuis sa conception : l’accent mis sur les hôpitaux et       de santé, puisqu’aucuns frais ne seraient recueillis au
la rémunération des médecins à l’acte; le modèle de           moment de la prestation des services.
financement en vertu duquel il n’y a pas de corrélation
entre les utilisateurs du système et les coûts rattachés      Les soins de santé sont comme une voiture dont les
au système; et la mesure dans laquelle les tensions et        gouvernements fédéral et provinciaux se disputent le
les structures fédérales-provinciales ont compliqué la        volant. Le gouvernement fédéral fournit le financement
réforme.                                                      et établit les normes, alors que les provinces exercent le
                                                              pouvoir de concevoir et d’administrer le système et de
Pour améliorer le système d’assurance-maladie, il faut        contrôler les dépenses. La nature même des relations
modifier le modèle hospitalier traditionnel des an-           fédérales-provinciales augmente la complexité du con-
nées 1960 en finançant les hôpitaux de manière différ-        trôle des coûts et de la mise en œuvre des changements
ente, en redirigeant certains patients vers des installa-     structurels. La coopération interprovinciale sera égale-
tions répondant mieux à leurs besoins et en favorisant        ment la clé pour réduire les coûts.
une approche holistique et systémique à la santé. Si
l’on mettait l’accent sur la promotion de la santé et la      Il faut que les options comme les soins de longue durée,
prévention, cela pourrait sauver des vies et économiser       les cliniques privées, les soins à domicile et les établisse-
de l’argent. À l’heure actuelle, le financement intégral      ments de soins prolongés soient offertes pour garantir
des hôpitaux et des médecins ne laisse aucune place au        des soins de meilleure qualité, plus abordables et plus
financement de ces autres secteurs ; en outre, ce mode        rapides que ceux offerts par les urgences des hôpitaux.
de financement accapare des ressources qui autrement          En 2010, le ministère de la santé de la Saskatchewan a
seraient attribuées à d’autres secteurs dont l’éducation      mis en œuvre la Surgical Initiative (l’Initiative chirurgi-
et le soutien du revenu, essentiels pour assurer un           cale) afin de réduire le temps d’attente. La comparaison
mode de vie sain et un environnement de qualité.              du coût total de l’exécution de 34 actes médicaux dans
                                                              une clinique par rapport au coût total de ces mêmes
La plupart des pays de l’Europe de l’Ouest sont dotés de      actes médicaux en milieu hospitalier a révélé qu’il en
systèmes de santé qui sont moins coûteux et génèrent de       résultait une économie de 26 pour cent dans les cli-
meilleurs résultats. Parmi les différences notables, men-
                                                              niques et soulignons que dans tous les cas, les coûts
tionnons les suivantes : le recours aux frais d’utilisation
                                                              étaient moins élevés dans les cliniques.
ou de participation aux coûts qui établit une corréla-
tion entre les patients et les contribuables et les coûts     Si l’on veut maintenir le noble idéal des soins de santé
des soins de santé; le versement d’une rémunération           universels, il faudra apporter des changements fonda-
aux médecins basée sur un salaire ; et l’offre d’un large     mentaux au système de santé du Canada. Les trans-
éventail de services comprenant les soins à domicile, la      formations proposées dans le présent document vont
physiothérapie et les médicaments sur ordonnance. En          rendre le système de santé canadien plus abordable et
outre, les soins de santé sont considérés au même titre       vont ouvrir la porte aux investissements dans d’autres
que tous les autres services sociaux et ils peuvent faire     services et programmes mieux axés sur la promotion de
donc l’objet d’une réforme, dans l’esprit de celles qui       la santé globale de la population.

                                                                            Janice MacKinnon – January 2013             3
Introduction                                           History of medicare
                                                       in Canada
F      undamental changes to Canada’s health
       care system and its funding will be required

                                                       T
       to help address the looming “fiscal squeeze”            he fundamental problems with Canadian
caused by the aging of the baby boomers, whose                 health care are especially interesting since
oldest members turned 65 in 2011 (Ragan 2011).                 the other parts of Canada’s social safety net
Population aging will lead to increased health         have been reformed to make them more effective
costs since more than half of one’s medical costs      and affordable. Programs like the Canada Pension
occur after 65, and costs will also increase because   Plan and Canada’s welfare and post secondary ed-
of technological developments – new treatments,        ucation systems were changed in the 1990s and
procedures, equipment, and drugs (Robson 2001;         made affordable by linking the costs of programs
CIHI 2001).1 At the same time, population ag-          to their benefits, targeting benefits, changing in-
ing will lead to declining labour force participa-     centives, and introducing competition and other
tion, which will slow income and revenue growth.       market forces (Federal/Provincial/Territorial CPP
Hence, Canada’s health care system will have to        Consultations Secretariat 1996).3 The question,
both become more efficient and find new and bet-       then, is why has there not been a similar restruc-
ter ways of funding. The purpose of this paper is      turing of Canadian health care?
to recommend changes that can be made by the
provinces, which are responsible for designing and     The answer lies in the original structure and fi-
administering health care, to achieve these goals      nancing of the Canadian health care system, which
while maintaining Canada’s single payer publicly       set it apart from those in Western Europe, and cre-
funded health care system.                             ated major obstacles to change. Understanding
                                                       these structural problems is essential to identify
                                                       what needs to be changed.

                                                       The foundations for medicare were laid in the
      Medicare’s design focuses                        1950s and 1960s, when the prevailing medical
                                                       model was curative rather than preventative. For
       on curative rather than                         Canadians health care meant hospitals (with their
         preventative care.                            high tech equipment and professional managers)
                                                       and doctors, whose primary obligation was to cure
                                                       ill patients (Gagan and Gagan 2002).4 At that time,
                                                       there was not the broad range of pharmaceuticals
Relative to comparable countries Canada’s health       that are available today and it was not possible to
care system is expensive, its outcomes average,        treat diseases like cancer in the community. More-
and its wait times for many procedures long. A         over, the idea that health care involved more than
Conference Board of Canada study comparing the         the treatment of illness only began to emerge in
health care systems in 24 Organization for Eco-        the early 1960s when American and British reports
nomic Co-operation and Development (OECD)              first linked smoking to disease. Further research
countries found that Canada was the third larg-        would show how lifestyle and other factors (like
est spender on health care, but our wait times are     income, education, and the environment) affected
among the highest, and in terms of health status       people’s health (Bird and Fraser 1981, 29).
– or outcomes – Canada ranked only 13th of 24
countries (2004, 1). Subsequent studies have con-      By the time this shift in thinking occurred, deci-
firmed similar results.2                               sions had been made about funding health care
                                                       that set the pattern for the future. In terms of fi-
                                                       nancing, many early reports assumed that some of
                                                       the costs of medicare would be paid directly by pa-
                                                       tients or taxpayers. The 1939 Rowell-Sirois Report,

 4    Health Care Reform From the Cradle of Medicare
which dealt with federal-provincial fiscal relations,   The decision to fund health care solely from gen-
assumed that contributions from employers and           eral tax revenue, restrict its coverage, and pay doc-
employees would raise most of the money (Cana-          tors on a fee for service basis has had profound
da 1954, 42). One of the intellectual architects of     implications for Canada’s health care system. The
Canada’s social programs, Leonard Marsh, wrote          pre-medicare link between the costs of medical
in his 1943 report that there were “psychologi-         services and their benefits was broken. With doc-
cal” as well as financial benefits to having taxpay-    tors paid according to the number of patients
ers pay a part of their health care costs. He linked    seen, neither doctors nor patients have an incen-
the amount of coverage to the size of contribution      tive to consider what increasing use of the health
made directly by individuals – that is, if more ser-    care system means for its costs. The result, in the
vices were to be covered, then individuals would        words of former Quebec Health Minister Claude
have to pay more directly from their pockets (Bliss     Forget, is that the Canadian health care system has
1975, 12-13). Tom Kent, Prime Minister Pearson’s        “a powerful engine and no brakes”. It is a lethal
key policy adviser when medicare was created in         combination of open-ended services for patients
the 1960s, recommended that up to 25 percent of         with no mechanisms to contain costs (2002, 3).
health care costs should come from making health
care a taxable benefit. Kent believed that there was
a problem with health care being a “free good”. If
even a small part of what patients and taxpayers
paid for health care was related to their use of the         The health care system has
system, there would be some restraint on the de-              “a powerful engine and
mand for services. Kent also knew that if medicare
were to be funded solely from the general pool of
                                                                    no brakes”.
taxes, governments would only be able to cover a
narrow range of services (Kent 2005).

                                                        Moreover, in fully covering hospitals and doctors,
                                                        the government funded the expensive services,
                                                        while other services that are more cost-effective
       Early reports assumed                            and promote the prevention of illness, were un-
    patients would pay for some                         funded. This point was made in the 1985 report
                                                        on government services done by Deputy Prime
    portion of their health care.                       Minister Erik Nielson, who states that Canada was
                                                        above average in its spending on health care due
                                                        to the emphasis on “illness care” in the Canadi-
                                                        an system. His report called for more spending
A key decision point came in 1964 when the Hall         on preventative services (Canada Task Force et
Commission, established to advise on the struc-         al. 1986, 39, 52). Every major health care report
ture of medicare, recommended that medicare             since has recommended more funding for preven-
should cover more than doctors and hospitals            tion and health promotion and has pointed out
and should include other services like home care        that this would save lives and money in the future.
(Canada 1964, 19). However, the government re-          However, because hospital and doctor services are
jected the idea of having people pay directly for a     fully covered, the incentive for patients is to rely
part of health care costs by making health care ser-    on these expensive acute care services, and this
vices a taxable benefit. Without the extra revenue,     demand is so high that provinces have only limit-
the government could not afford broad coverage;         ed funds for the health promotion and prevention
thus, coverage was restricted to doctors and hospi-     services that would produce long-term savings. It
tals. The government also accepted the Hall Com-        is a classic Catch 22.
mission’s recommendation to fund doctor services
on a fee for service basis.

                                                                    Janice MacKinnon – January 2013      5
Comparisons                                              many services that are essential to primary health
                                                         care are not covered by medicare, doctors are paid
                                                         on a fee for service basis and act as the gatekeepers
between Canadian                                         for access to other services – responsibilities that
                                                         can be changed by governments only after exten-
and Western                                              sive negotiations – while other health care profes-
                                                         sionals jealously guard their own scopes of practice
European health                                          (the responsibilities assigned to their profession).
                                                         There has been progress, particularly in Ontario,
care models                                              in moving family doctors to alternative payment
                                                         schemes and in using interdisciplinary teams to de-

I
                                                         liver primary health care, but it has been slow and
     n contrast to Canada, most Western European
                                                         uneven across the country (Tuohy 2004. 88).5
     countries fund health care services in ways
     that link patients and taxpayers to costs,
through user fees or co-payments; doctors are
paid by salaries; and there is broader coverage –
for instance, there is some funding for services like
                                                            Opposition to reform makes
physiotherapy, home care, and prescription drugs.            rationing the only way to
Thus, there is less incentive to rely on expensive                 control costs.
doctor and hospital services and more reason for
people to use other services that are more cost-
effective and important in preventing illness and
future costs to the health care system. Moreover,        Another difference is that health care in Western
because of the structural differences in their sys-      European countries is seen as one of many servic-
tems, Western European countries are able to             es and is subjected to the kinds of reforms used
make extensive use of a primary health care model        in Canada in the 1990s to change other Canadian
to deliver services. In this model, services are inte-   social programs, such as competition, financial in-
grated and medical professionals work as part of         centives, and market forces. In Canada, relative to
a team, so rather than seeing a physician a patient      other areas of social policy, health care has many
might see a dietitian, a physiotherapist, or whatev-     powerful interest groups – from doctors, nurses,
er member of the medical team can best treat the         and technicians to public sector unions – and aca-
patient’s ailment. The result is a more integrated,      demics who see themselves as the intellectual gate-
holistic, and cost-effective model of health care,       keepers of the current health care system. When
which helps explain why many European systems            the use of competition or other market mecha-
are less expensive but have better health care out-      nisms are advocated (such as in Kirby and Keon
comes than Canada’s.                                     2004; Bliss 2010), public sector unions cry that
                                                         private sector delivery amounts to privatization of
                                                         health care, while the intellectual gatekeepers ar-
                                                         gue that health care is a “public good” as opposed
     Many European health care                           to “a market-driven commodity” (Lewis 2004).6
      systems are less expensive
                                                         Facing formidable opposition to change, govern-
      but have better outcomes                           ments have been left with few options to control
            than Canada.                                 costs, and they have been forced to rely on restrict-
                                                         ing the supply of medical services, equipment, and
                                                         personnel – or rationing – to control costs.7 But
                                                         rationing means shortages and Canada has fewer
Though virtually every report on health care in          doctors and hospital beds and less equipment than
Canada has recommended moving to a primary               the OECD average. Shortages mean waiting lists
health care model, the obstacles are formidable:         and Canada has for some time had longer waiting

 6    Health Care Reform From the Cradle of Medicare
lists than countries with comparable health care       tal focus in health care has been on trying to in-
systems.8                                              fluence the level of and conditions attached to
                                                       federal transfer payments to the provinces. First
Finally, while European countries are unitary          Ministers meetings on health care have not been
states with one level of government funding and        efforts to work together to reform the system; in-
administering the health care system, in Canada        stead they have provided a forum for provincial
health care has been like a car with federal and       governments to rally public opinion in support
provincial governments vying for control of the        of increased health care transfers. The dominance
steering wheel. The federal government’s use of        of the federal-provincial relationship has left little
its spending power to fund a national medicare         opportunity for the provinces to work together to
system created a major structural problem and          improve Canadian health care.
source of tension: while the federal government
provided funding and set standards, the provinces      Therefore, changing the health care system to
had the power to design and administer the sys-        make it more affordable and effective will require
tem and control spending. Moreover, it is argued       addressing the three main structural problems
that federal transfer payments have induced “a fis-    built into the original design of the system: the fo-
cal illusion”; since the money is perceived to come    cus on hospitals and fee for service doctor services;
from taxpayers across Canada, taxpayers see such       a funding model in which there is no relationship
spending as less costly than if the money were         between users of the system and its costs; and the
raised within their own province (Kneebone 2012,       extent to which federal-provincial structures and
12).9 Hence, a dramatic increase in transfers to the   tensions have made reform more difficult.
provinces, as occurred in 2004 when the federal
government committed to increase health trans-
fers by 6 percent per year for 10 years, predictably
led to a dramatic increase in provincial spending      Changing the
on health care. From 2004 until 2010 health care
spending increased at an annual average of 6.7         medicare model
percent (Health Council of Canada 2011). Thus,
controlling costs and making structural changes
have been made more difficult by the complexity
and tensions in the federal-provincial relationship.   A

                                                               more effective and affordable medicare sys-
                                                               tem requires changing the traditional 1960s
                                                       		 hospital model by funding hospitals dif-
                                                       ferently, diverting patients to alternative facilities,
                                                       and focusing more on a holistic, integrated ap-
                                                       proach to health.

     True change is complicated                        Hospitals are the single biggest cost in Canada’s
      by the federal-provincial                        health care system, accounting for more than one
                                                       third of public spending on health care (CIHI
            relationship.                              2011).10 Hospitals are dominated by health care
                                                       unions and professional associations that have
                                                       historically been very adept at using their mo-
                                                       nopoly control over services in their negotiations
What is often overlooked is that since medicare        with governments, which are fearful of the politi-
was created in the 1960s, the primary intergov-        cal implications of a health care strike.11 Thus, it
ernmental relationship of the provinces has been       has been difficult if not impossible to get changes
with the federal government. For example, federal      in contract terms that would improve productiv-
funding for hospital services in the 1950s was an      ity (Kirby and Keon 2004). Just the simple reality
incentive for provinces to go on a spending spree      of having to juggle the different contract terms of
– between 1961 and 1971, the number of hospi-          three or four unions in one hospital shows how
tal beds increased twice as fast as the population     difficult it is in a hospital setting to allocate re-
(Perry 1989, 650). Similarly, the intergovernmen-      sources efficiently.

                                                                    Janice MacKinnon – January 2013       7
Competition in the system, which can be achieved         winning bidder was Surgical Centres Inc., a Calgary
by changing the way hospitals are funded and us-         based company with more than 20 years of experi-
ing private health care clinics for specific proce-      ence performing day surgeries in non-hospital set-
dures, can produce more affordable and effective         tings in Alberta and British Columbia (Saskatoon
care for patients. Historically, hospitals have been     2011). Surgical Centres Inc. and the other winning
funded globally by health departments or regional        bidders then signed contracts with the health re-
health authorities, which means that funding is not      gions specifying the number of procedures to be
directly linked to the level of activity and patients    performed, the time frame, and the costs. The fa-
represent a cost. The 2010 OECD report is one of         cilities were accredited by the Saskatchewan Col-
many recommending “hospitals should be funded            lege of Physicians and Surgeons and had to meet
on an activity and standard cost basis to cut wait-      the same standards as hospitals.
ing lists” (10).12 When hospitals are funded accord-
ing to their activity – the procedures they perform      Public sector unions and the Saskatchewan Health
or the patients they treat – there is an incentive for   Coalition condemned the policy decision using
hospitals to perform more efficiently and to put         arguments that are often repeated across Canada.
patients first. Also, governments can benchmark          They said the decision was “driven by the Sas-
the cost and timeliness of performing procedures         katchewan Party’s privatization ideology” and that
in various hospitals and reward those with better        the Conservative government of Prime Minister
outcomes.                                                Stephen Harper was complicit since it refused to
                                                         enforce the Canada Health Act (Regina 2011a).
                                                         They also alleged that the clinics would “cherry
                                                         pick” patients by selecting “healthier patients”
     Private clinics can perform                         (Saskatchewan 2010). A recurring theme was that
       specific surgeries more                           the clinics would be more expensive since part of
                                                         the revenue would be “siphoned off” by the com-
      efficiently than hospitals.                        panies for profits (Saskatchewan 2010; Regina
                                                         2011a). They argued that instead, the government
                                                         should increase capacity in the public system by
Private clinics can also be used to deliver specific     building a $14 million publicly funded day sur-
procedures more affordably. Clinics are located          gery centre that would be staffed by public sector
outside the complex and expensive hospital set-          unionized employees. Underpinning arguments
ting and have the advantage of only performing           like these was the assumption that health care is a
specific procedures that can be delivered more           public good and should not be subjected to mar-
efficiently. Also, private clinics are generally not     ket forces, like profits or competition for services.
unionized, which allows them more flexibility in         The opponents’ arguments are not substantiated
organizing staff efficiently, and they do not have       by the facts. In terms of ideology, left wing gov-
the significant administrative costs that hospitals
                                                         ernments around the world use private delivery of
and health regions require to manage union con-
                                                         health care services. The Canada Health Act speci-
tracts and grievances.
                                                         fies only that the system has to be publicly admin-
An excellent example of the use of private clinics       istered. Moreover, “cherry picking” is not possible
is the Saskatchewan Surgical Initiative established      in the Saskatchewan process since the publicly
in 2010 by the health department to reduce wait          administered health district chooses the patients
times (Saskatchewan 2012).13 The use of private          who are referred to clinics. More generally, while
clinics to perform specific surgeries that can be        health care is not a public good in an economic
done outside of hospitals was a key part of the          sense,14 it is true that good health is highly val-
strategy. Thus, the Saskatoon and Regina health          ued and not easily quantified. Of course, the same
regions issued requests for proposals for the deliv-     could be said of education or clean air. Surely, all
ery of specific surgeries based on credentials and       services should be delivered as efficiently as pos-
experience, service factors, implementation sched-       sible and the focus should be on outcomes or
ule, and pricing (Regina 2011b). In Saskatoon, the       results.

 8    Health Care Reform From the Cradle of Medicare
The Saskatchewan Surgical Initiative: The numbers don’t lie
In an effort to reduce wait times, in 2011 Saskatoon and Regina contracted with private clinics to perform
specific day surgeries on patients selected by the publicly administered health department. The charts below show
that not only did the clinics enable patients faster access to care, the cost to the province was greatly reduced.
In 2012, services were expanded at private clinics in Regina, and a greater variety of surgeries were performed.

Figure 1 Cost per case at Regina Qu’Appelle RHA and Surgical Centres Inc., 2011

                                                                                                                                                                                                   Shoulder Arthroscopy-
5000

                                                                                                                                                                                                                                                                                                                        Bi-lateral Knee Arthroscopy
                                                                                                                                                                                                                                Bankhart Repair
                                                                                                                                                                                                   Decompression

                                                                                                                                                                                                                                Arthroscopy &
                                                                                                                                                                                                                                                                                           $4487
                                                                         Nasal Septal Reconstruction/

                                                                                                        Endoscopic Sinus
4000

                                                                                                                                         Transobturator Taping
                                                    Septorhinoplasty

                                                                                                                                                                                                                                                      Knee Arthroscopy
                                                                                                                                         & Cystoscopy
                                                                                                        Surgery
           Myringotomy & Intubation

3000                                                                                                                                                                                               $3093                      $3031
                                                                         Septoplasty

                                                                                                                                                                  Pediatric Dental
                                                                                                        $2552                                                                                                                                                                                   $2500
2000

                                                                                                                                                                                                                                                                                           Arthroscopy, Anterior
                                                                                                                                                                                                                                                                                                                   $2157
                                                                                                             $2000 $2011                                                                                                                $2000                                                                        $1920

                                                                                                                                                                                                                                                                                           Cruciate Ligament
                                                   $1803
                                                                       $1647                                                                                                                              $1700                                      $1706
                                                                         $1600

                                                                                                                                                                                                                                                                                           (ACL) Repair
                                                       $1350
1000                                                                                                                                            $1200
                                                                                                                                                                 $1058                                                                                    $1200
                                                                                                                                                                   $960
          $648

 $ 0                 $230

           Regina Qu’Appelle: Cost per case                                                                                                         Surgical Centres Incorporated: Contract price per case
       Note: The cost of implanted hardware is the same at both facilities.

Figure 2 Cost per case at Saskatoon RHS and Surgical Centres Inc., 2011
3500

3000                                                                                                                                                             $3212

2500
                                                                                                                                                                                                                                                                                                           $2618
                                                                                                                      Knee Arthroscopy

                                                                                                                                                                                                                           $2526                     $2486
                                Pediatric Dental

                                                                                                                                                                          $2500

2000
                                                                                                                                                                                                                            $2000                                   $2000                                          $2000

1500
                                                                                                                                                                                                                             Shoulder Arthroscopy-
                                                                                                                                                                           Ligament (ACL) Repair

                                                                                                                                                                                                                                                                                                                    Rotator Cuff Repairs

                     $1340                                                                                        $1300
                                                                                                                                                                           Anterior Cruciate

                                                                                                                                                                                                                                                                         Bankhart Repair
                                                                       Cataract

                                                                                                                                                                                                                             Decompression

1000                                                                                                                $1200
                                             $960
 500                                                                   $593
                                                                               $388
 $ 0
             Saskatoon RHA: Cost per case                                                                                                       Surgical Centres Incorporated: Contract price per case
       Note: The cost of implanted hardware is the same at both facilities.

                                                                                                                                                                                                                             Janice MacKinnon – January 2013                                                                                          9
Figure 3 Cost per case at Regina Qu’Appelle RHA and Aspen Medical Surgery Inc., 2012

                                                                                                                    Rotator Cuff Repair
                                                                                                                    Arthroscopy &
 4000

                      Arthroscopy

                                                                       Bankhart Repair

                                                                                                                    Shoulder
                                                                       Arthroscopy &
                      Shoulder
 3500                                                                                                                                                                                                                               $3706

                                                                       Shoulder
 3000                                                                                                                                                                                                                                                $3200
                                                                                                                    $3032

                                                                                                                                                                            Arthroscopy
                  $2957
 2500                                                                      $2645                                                                    $2700

                                                                                                                                                                            Knee
                                    $2300                                           $2300
 2000

                                                                                                                                                                            $1875

                                                                                                                                                                                                                                    Arthroscopy, Anterior
 1500

                                                                                                                                                                                                                                    Cruciate Ligament
 1000                                                                                                                                                                                            $1310

                                                                                                                                                                                                                                    (ACL) Repair
     500

     $ 0
                Regina Qu’Appelle: Cost per case                                                                   Aspen Medical Surgery Inc.: Contract price per case
           Note: The cost of implanted hardware is the same at both facilities.

 Figure 4 Cost per case at Regina Qu’Appelle RHA and Surgical Centres Inc., 2012
                                     Abdominoplasty

 3500
                                                       Breast Reductions

                                                                                                                              Excision Axilla Sweat Gland

                                                                                                                                                                                                    Tonsillectomy & Adenoidectomy

                                                                                                                                                                                                                                     Tympanoplasty     $3251
 3000

                                                                                                                                                                                                                                                            Tympanmastoidectomy
                                                                                                    Gynecomastia

 2500                               $2632
                                                                                     Rhinoplasty

                                                                                                                                                             Bunionectomy

                                                      $2377                                                                                                                                                                         $2410
                                                                                                                                                                                 Tonsillectomy

                                      $2270            $2300
 2000
               Cataract

                                                                                                   $1845
                                                                                 $1755
                                                                                                     $1760 $1637
 1500                                                                             $1670
                                                                                                                                                            $1500
                                                                                                                                                              $1400 $1313   $1334
             $1273
 1000                                                                                                                                                                 $1255   $1255
                                                                                                                                                                                                                                       $1000                   $1000
                                                                                                                                          $890

     500        $618

     $ 0
                Regina Qu’Appelle: Cost per case                                                                   Surgical Centres Incorporated: Contract price per case
           Note: The cost of implanted hardware is the same at both facilities.

10    Health Care Reform From the Cradle of Medicare
Glossary of Medical Terms
   Abdominoplasty: Cosmetic surgery to make            Myringotomy & Intubation: Surgery to
   the abdomen firm; “tummy tuck”.                     cosmetically reshape the nose and remove
   Adenoidectomy: Surgery to remove the                nasal blockages to improve breathing.
   adenoids (tonsils).                                 Nasal septal reconstruction/Septoplasty:
   Anterior cruciate ligament (ACL) repair:            Surgery to correct the nasal septum.
   Surgery to rebuild the center ligament of the       Rhinoplasty: Surgery to reshape the nose;
   knee.                                               “nose job”.
   Arthroscopy: Minimally invasive surgery using       Rotator cuff repair: Surgery to repair a torn
   a tiny camera to examine and/or repair tissues.     tendon in the shoulder.
   Bankhart Repair: Surgery to stabilize a             Septoplasty: Surgery to correct the nasal
   shoulder that habitually dislocates.                septum
   Bilateral knee arthroscopy: Arthroscopic            Septorhinoplasty: Surgery to cosmetically
   examination of both knees the same day.             reshape the nose and remove nasal blockages
   Bunionectomy: Surgery to remove a bunion,           to improve breathing.
   an enlarged joint at the base of the big toe.       Shoulder arthroscopy: Surgery using an
   Cataract surgery: Removal of the natural lens       arthroscope (tiny camera) to examine and/or
   of the eye and replacement with an artificial       repair tissues in or around the shoulder joint.
   intraocular lens.                                   Shoulder arthroscopy – Decompression:
   Endoscopic sinus surgery: Surgery to                Arthroscopic surgery to remove scar tissue and
   remove blockages in sinuses (sinusitis).            bone spurs in the shoulder.
   Excision axillary sweat gland: Surgery              Tonsillectomy: Surgery to remove the tonsils.
   to selectively remove sweat glands to treat         Transobturator taping & cystoscopy:
   excessive sweating.                                 Surgery to treat incontinence.
   Gynecomastia surgery: Surgery to remove             Tympanomastoidectomy: Surgery to remove
   excess breast tissue in men.                        a growth or infected bone from the ear.
   Knee arthroscopy: Surgery using an                  Tympanoplasty: Surgery to repair a torn
   arthroscope (tiny camera) to examine the            eardrum.
   tissues of the knee. Other instruments may be
   used during the procedure to repair the knee.

The outcomes from the Saskatchewan experiment
clearly show that private clinics can deliver surgi-
cal procedures more cost-effectively than hospi-          In all cases in Saskatchewan,
tals. (For the data, please see the editorial box on
the Saskatchewan Surgical Initiative.) Comparing
                                                             private clinics were less
the cost of performing 34 procedures in private             expensive than hospitals.
clinics and in hospitals shows that in all cases
the clinics were less expensive. The cost savings
varied across procedures, but it should be noted       Despite the campaign against them by the unions,
that in four cases it was twice as expensive to per-   the private clinics have generated little adverse
form procedures in hospitals relative to the clin-     public reaction in Saskatchewan, the birthplace of
ics. Comparing the total cost of performing the 34     medicare. They have helped to reduce wait times,
procedures in the two settings reveals that it is 26   are more convenient than hospitals, and there is
percent less expensive to use clinics than hospitals   less risk that patients will come in contact with the
(Saskatchewan Department of Health 2012).15            flu or hospital based infections.

                                                                   Janice MacKinnon – January 2013     11
As well as freeing up resources in hospitals, divert-      delivers hospital-type services in the community to
ing patients to other facilities could also produce        those with chronic diseases. Similar teams of med-
significant savings. Hospitals are the most expen-         ical professionals provide in-home psychiatric ser-
sive place to care for patients: the average daily cost    vices as an alternative to hospitalization in British
of a hospital bed is estimated to be $842, while the       Columbia. Such innovative approaches reduce vis-
average daily cost of a long-term care bed is $126         its to emergency rooms and hospitalizations and
and home care costs about $42 a day (CLHIA 2012,           result in significant savings (Council of the Federa-
4). Yet there are many patients in expensive acute         tion 2012, 15).
care hospitals who could be cared for more afford-
ably and often more effectively in other facilities if     There are also people in emergency wards who
they were available (CIHI 2009). Many should be            should be diverted to other, more cost-effective
in long-term care facilities; about 7 percent of all       centers that could better address their needs.17
hospital beds are being used by patients receiving         Some should be in chronic care facilities, oth-
long-term care (CLHIA 2012, 4). But while hospital         ers could be cared for at home, and still others
stays are covered by medicare, long-term care is a         have underlying social problems. More emergen-
provincial responsibility and financial support for        cy wards should be co-located with clinics. Sig-
care is usually linked to ability to pay. Also, there is   nificant savings and better care could be achieved
a shortage of long-term care beds, which will only         by diverting more patients to Family Care Clinics
worsen as the baby boomers age.                            where various health professionals and others like
                                                           social workers provide a more holistic, integrated
                                                           approach to treating the underlying problems that
                                                           bring people into the health care system.18
     Home care costs about $42                             De-hospitalization, by diverting patients to other
     per day; hospital care costs                          less expensive facilities, can be an effective strategy
         about $842 per day.                               for making the health care system more efficient
                                                           and effective. Other ways to improve health care
                                                           include the provision of better data to increase ac-
                                                           countability, performance evaluations, and more
Health care costs could be reduced and patient             transparency for citizens and more and better use
care improved if governments adopt a long-term             of information and communication technologies
care strategy, which includes using public-private         (Prada and Brown 2012, 4, 21). Currently half of
partnerships to increase the supply of long-term           Canadians have some form of electronic health
care beds, educating Canadians about the fact that         record, but the facilitation of timely introduction,
most will have to pay for at least part of their long-     adoption, and coordination of electronic records
term care, and encouraging Canadians to save for           has been an issue.
their future care needs. Governments could pro-
vide tax credits to Canadians who buy long-term
care insurance or they could use a Registered
Education Savings Plan (RESP) approach to give                     More emergency wards
people an incentive to save for their long-term                     should be co-located
care. As with RESPs, investment income would be
sheltered until it is withdrawn for long-term care,                     with clinics.
when people’s taxable income is lower (CLHIA
2012, 7-8).
Long-term care waiting lists could also be reduced
by providing better home care (CLHIA 2012, 6).16           There is also a consensus that health care should
There are innovative ways in which services are be-        be seen in a broader and more holistic way, and
ing delivered in the community rather than a hos-          more emphasis should be placed on preventing ill-
pital. In Manitoba, for example, a “virtual ward”          ness rather than merely treating disease. Improv-
comprised of a team of health care professionals           ing people’s health means focusing more on health

12    Health Care Reform From the Cradle of Medicare
The Report recommended various ways to move
                                                        away from the traditional fee for service model
      More emphasis should be                           where doctors act as gatekeepers of the health
                                                        care system. In some cases, it was recommended
    placed on preventing rather                         that other health professionals like nurse practi-
    than merely treating illness.                       tioners or paramedics could deal with less acute
                                                        medical problems or provide emergency services
                                                        in rural and remote areas. The report stressed the
                                                        merits of promoting a primary health care model
promotion, disease prevention, and investing in         where a team of medical professionals provide an
programs that reduce poverty. Consider the exam-        integrated, patient focused, and less expensive
ple of obesity. A study done for Statistics Canada      way to deliver health care (Council of the Federa-
in 2010 finds that “[c]hildren are taller, heavier,     tion 2012, 14-17).
fatter and weaker than in 1981” (Tremblay et al.
                                                        The Report also made some initial recommenda-
2010, 11). Obesity is a “silent epidemic” that will
                                                        tions to deal with one of the main cost drivers
result in increases in many diseases and will cost
                                                        in health care – services provided by physicians
an estimated $4.6 billion (Hodgson 2012). Tack-
                                                        and other health care professionals and work-
ling obesity, by such simple measures as increas-       ers. Health care unions and professional asso-
ing physical activity and education about diet at       ciations have been very astute at bargaining with
schools, can reduce health care costs and enhance       governments to ensure that their members get a
population health.19                                    healthy share of the spending pie. So, when fed-
                                                        eral transfers increased by 6 percent, much of that
                                                        new money went to compensation paid to health
                                                        care providers. Between 1998 and 2008, the cost
Cost saving and                                         of physician services increased by 6.8 percent a
                                                        year (in 2009 they rose by 9.6 percent), with more
interprovincial                                         than half of the increase coming from higher fee
                                                        schedules. Also, the salaries of nurses and others

co-operation                                            in health care grew faster than inflation or compa-
                                                        rable public or private sector wage rates (Simpson
                                                        2012b, 314-15; Simpson 2012a; CIHI 2011).

T
        wo other major costs for the health care
		      system – doctors and prescription drugs –
		 could be reduced by interprovincial co-
operation. The federal-provincial dynamic was                   A team of medical
changed in December 2011, when the federal gov-             professionals can provide
ernment announced that starting in 2016 it would         integrated, patient focused, less
reduce health transfers to the rate of economic
growth and recognized the provinces’ jurisdiction             expensive health care.
to reform the system. For the provinces, there is no
reason to badger the federal government for more
funding, and there could be benefits from work-         The significant increase in doctor salaries is not
ing together to reduce costs. Hence, in January         driven by international competitive pressures:
2012 the premiers established a Working Group           Canadian doctors are among the highest paid in
to study health care and its first Report six months    the world (Simpson 2012b, 313), and they have
later states that “[t]his is the first time there has   reaped other benefits from their participation in
been this level of engagement and commitment            medicare, including a “high level of clinical au-
to a provincial-territorial cause from the Premiers”    tonomy [and] relatively low transaction costs”
(Council of the Federation 2012, 7).                    (Tuohy 2004, 88). The competition that does exist

                                                                    Janice MacKinnon – January 2013   13
is among the provinces; as one province increas-       In theory, there is a good case that the federal gov-
es the salaries of health care professionals, other    ernment should assume responsibility for drugs
provinces follow suit. The federal government has      by establishing a national drug plan. It would pro-
no policy levers that it can readily use to contain    vide better drug coverage for all Canadians, end
the interprovincial competition for health care        the patchwork of provincial programs, and allow
professionals.                                         the federal government to establish one national
                                                       formulary and use its buying power to reap signifi-
However, the provinces have the capacity to work       cant savings in drug costs. It is not surprising that
together to constrain the acceleration in health       in 2004 the Premiers agreed to support a national
care compensation rates, and with approximately        drug plan run by the federal government.
70 percent of health care costs attributed to hu-
man resources, they have a powerful incentive to       But the question is, why would the federal govern-
do so (CIHI 2011, 18). The Report recommends           ment assume responsibility for one of the most ex-
“reducing competition among jurisdictions for re-      pensive and rapidly growing areas of health care,
sources” and “innovative approaches to managing        especially when it has a sizeable deficit, which it
labour costs and reducing competition” (Council        hopes to eliminate in the medium term? It might
of the Federation 2012, 4, 6). As well as limiting     be argued that in exchange the federal govern-
competition with each other, the provinces com-        ment could reduce or eliminate its transfers to the
mitted to more co-operation in planning for and        provinces. But why would the federal government
training health professionals to avoid shortages       change the way it contributes to health care from
that also can drive up costs.                          transfers, whose cost is known and can be unilat-
                                                       erally decided by the federal government, for a na-
Action to limit the compensation of doctors has
                                                       tional drug plan whose future costs are unknown
been taken by provinces, notably Ontario. After in-
                                                       and uncontrollable? Moreover, governments re-
creasing doctor salaries by almost 75 percent since
                                                       sponsible for drug plans have to make difficult de-
2003, in November 2012 the government signed
                                                       cisions about which drugs are covered and face in-
an agreement with its doctors that would effec-
                                                       tense political pressure when coverage is denied.
tively freeze the cost of physician services for two
                                                       Why would any government willingly take on such
years. Other provinces have followed suit in lim-
                                                       a difficult and expensive responsibility?
iting health care compensation (Wingrove 2012).
Moreover, the Ontario Medical Association and the      If not a national drug plan, some argue the federal
Ministry of Health committed to work together to       government should at least establish a national
implement evidence-based savings (Benzie 2012),        formulary for drugs to reap the savings from bulk
which is an important step in making physicians        buying. In reality the federal government has no
assume some responsibility for the cost-effective-     levers, beyond spending money – cost sharing,
ness of the health care system.                        transfers, the transfer of tax room to the provinc-
                                                       es – to compel provinces to join a national health
Considering the magnitude of previous cost in-
creases for health care provider compensation,         care program and to abide by its terms and condi-
collaborative interprovincial action to reduce com-    tions. In fact, the outcomes of the 2004 Health Ac-
petition could bring significant savings.              cord, in which the federal government committed
                                                       to spend more than $40 billion on health care over
Provincial and territorial collaboration can also      10 years, show that even when the federal govern-
produce savings on prescription drugs, which rep-      ment does provide funding, it cannot control how
resent a major and rapidly growing expense for         it is spent by the provinces. It was never part of the
governments and Canadians. The decision in the         2004 federal plan to have a significant amount of
1960s to limit medicare’s coverage to doctors and      the new funding go to compensation increases for
hospitals and exclude national coverage for pre-       health care professionals, yet that is exactly what
scription drugs has meant very poor coverage for       happened. So, what levers would the federal gov-
drugs for most Canadians and a patchwork of cov-       ernment have to corral the provinces to accept a
erage from province to province.                       common national formulary for drugs?

14    Health Care Reform From the Cradle of Medicare
The provinces, on the other hand, have the power        – moving services out of hospitals to private clinics
to work toward a national approach to purchas-          or other less expensive facilities – and more focus
ing drugs. The significant cost savings that can be     on primary health care models in which physicians
captured provide a powerful incentive for them          are salaried and no longer the system’s gatekeep-
                                                        ers can produce savings and a more integrated
                                                        system. At the same time, interprovincial co-op-
   The provinces, not the federal                       eration can help constrain the escalating costs of
                                                        health care provider services and of prescription
  government, have the power to                         drugs. If the Canadian health care system was as
     consolidate procurement                            efficient as the best in the OECD, it has been esti-
                                                        mated that spending would decline by 2.5 percent
             of drugs.                                  (Simpson 2012b, 196-96).

                                                        However, none of these reforms address the other
to work together, and they have already taken           main structural problem with medicare: the lack
some steps in that direction. In August 2010 the        of connection between users of the system and its
premiers agreed to create a “provincial-territorial     costs, a problem that leads to open-ended demand
purchasing alliance to consolidate public sector        for services, which in turn is a factor in driving up
procurement of common drugs, medical supplies,          the costs of health care.
and equipment” (Council of the Federation 2012,
20). The goal was to “capitalize on the combined
purchasing power of public drug plans” to pro-
duce lower costs not just for governments, but
also for employer sponsored drug plans and in-
                                                        Changing the way
dividual Canadians. Another goal was to achieve
“greater consistency of listing decisions across par-
                                                        medicare is funded
                                                        T
ticipating jurisdictions” (Council of the Federation
                                                                he main fiscal problem with health care
2012, 20).
                                                        		      is that its costs are rising faster than the rev-
At its July 2012 meeting the Premiers agreed to         		      enue of any government in Canada (Dodge
extend their co-operation on brand name drugs           and Dion 2011). Consider Ontario, where be-
to include generic drugs (Council of the Federa-        tween 1997-98 and 2002-03 government spend-
tion 2012, 20). Six months later it was announced       ing on health care increased by 42 percent while
that the provinces (with the exception of Quebec,       government revenue only went up by 31 percent.
which has its own drug plan) and the territories        Because health spending is growing at a faster
had agreed to buy in bulk six generic drugs (rep-       rate than government revenue, it is consuming a
resenting about 20 percent of the publicly funded       larger and larger share of the public spending pie.
spending on generic drugs) at 18 percent of the         Prior to 1994-95, the Ontario government spent
equivalent brand name drug price. Premier Brad          about 32 percent of its budget on health care. By
Wall, one of the co-chairs of the premier’s working     2003-04, health care accounted for 39 percent of
group on health care, declared that the announce-       the budget (Ontario Ministry of Finance 2003a, 8;
ment represented “a good day for Canadians” and         Ontario Ministry of Finance 2003b, 5). Currently,
vowed that this was only the beginning of inter-        46 percent of Ontario’s budget is spent on health
provincial co-operation to trim health care costs       care, and without major changes it is estimated
(quoted in Couture 2013).                               that by 2030 it will consume a whopping 80 per-
                                                        cent of the budget (Drummond 2010).
Thus, significant savings can be achieved by ad-
dressing two of the original structural problems        This is a problem because health care is squeezing
with medicare: the focus on hospital and fee for        out funding for other important programs, such
service doctor services and the dominance of the        as education, poverty reduction, and the environ-
federal-provincial relationship. De-hospitalization     ment; areas that also impact health outcomes. Pay-

                                                                     Janice MacKinnon – January 2013        15
ring significant debt. Indeed, a major global prob-
                                                       lem is the limited opportunities for young people
     Health care costs are rising                      who face the prospect of seeing their standard of
                                                       living decline relative to their parents. Consider
      faster than government                           the situation of 18 to 24 year olds in Canada. Their
              revenue.                                 unemployment rate (including discouraged job
                                                       seekers and involuntary part-timers) is 19.6 per-
                                                       cent, while 28.6 percent are in temporary jobs, and
                                                       their average household debt is $74,100 (Grant
ing for health care by crowding out funding for        and McFarland 2010). Is it equitable to expect this
areas like these does not lead to a healthier popu-    generation of future taxpayers to pay a big part of
lation. It has been estimated that only 25 percent     the baby boomers’ health care costs?
of a person’s health status depends on the health
care system, while 50 percent is related to ‘living    Beyond equity, is it realistic to expect the future
                                                       costs of health care to be paid exclusively from
conditions’, which includes factors like lifestyle,
                                                       general revenues? A recent study projected the tax
diet, income level, education, or the environment
                                                       levels required to continue to provide a publicly
(Conference Board of Canada 2004, 15; Brown
2012). In other words, the areas that are being
squeezed out to fund Canada’s health care system
are twice as important to the overall health of the
population.
                                                           A portion of the costs of
                                                        health care should be borne by
The crowding out problem can be alleviated by
using alternative ways to fund health care, raising             those using it.
new revenue as demand increases with the aging
of the baby boomers, and technological advances.
Raising new revenue to fund increasing demand is       funded health care system with similar levels of
an option for the provinces, since the federal gov-    services (Emery, Still and Cottrell 2012). The study
ernment’s reduction of the GST from 7 to 5 per-        projected the average lifetime taxes paid for health
cent left ‘tax room’ that they could occupy.           care by individuals in each age cohort relative to
A major consideration is the kind of tax measures      the lifetime health care services used. It showed
                                                       that Canadians born between 1958 and 1967 will
that should be used. If medicare continues to be
                                                       consume over $4000 more in health care services
funded exclusively from general tax revenues by,
                                                       than they will pay in taxes for health care; those
for example, increasing sales taxes, some of the       born between 1998 and 2007 will pay over $18,000
main structural problems with the system will per-     more in taxes for health care than they cost the
sist: open-ended demand will continue since there      health care system; for those born between 2008
will be no link between the costs of the system and    and 2017, their tax contributions will exceed their
those who use it and the “squeezing out” problem       health care costs by over $27,000 (Emery, Still and
will continue since health care will absorb a dis-     Cottrell 2012, 8, 10). Especially noteworthy is the
proportionate amount of the new revenue.               authors’ conclusion that “peak taxes for Canadi-
                                                       ans born after 1988 will end up twice as high as
Another factor is the intergenerational implication
                                                       the peak taxes that the oldest baby boomers paid”
of raising taxes like the sales tax to fund health     (Emery, Still and Cottrell 2012, 1). It is simply not
care. If medicare is funded exclusively from gen-      realistic to believe that governments will be able to
eral tax revenues, a significant share of the health   significantly increase the tax load on a smaller base
care costs of baby boomers will be paid for by their   of taxpayers and maintain a competitive economy.
children and grandchildren. These are the same
young people who are paying taxes for interest on      Rather than relying exclusively on general tax rev-
the public debt, most of which was accumulated         enues to fund medicare, a portion of the costs of
before they were born, and who have shouldered         the system should be borne by those using it. In
an increasing share of education costs, often incur-   the past, the idea of linking people’s use of the

16    Health Care Reform From the Cradle of Medicare
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