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Who Should Pay for Canada’s Public Healthcare System?

December 21, 2010
Glen Hodgson
Senior Vice-President and Chief Economist
Forecasting and Analysis

Who should pay for the health care of Canadians? The users of the publicly funded health care system are also the ones who pay the necessary taxes, of course. But there is no consensus on the level of government at which those taxes should be levied. This question has been a hard political issue in the past – and it’s about to get a whole lot harder.

Under the British North America Act, which established the division of powers in Canada between the federal and provincial levels of government, the provision of day-to-day health care is clearly a provincial responsibility. However, the federal government can assume responsibility for matters that take on “national dimensions”. Over many decades of debate and compromise, the publicly funded health care system in Canada has evolved to the point where the federal government transfers considerable sums to the provinces, which then are expected to provide a national standard of health care.

Health care funding has been remarkably stable and peaceful since 2004 – a brief “golden age” with respect to health care funding. This stability was largely due to two increases in federal transfers for health care: first a 2003 federal-provincial agreement, providing a five-year, $16 billion transfer of funds; and second the 2004 Paul Martin accord with the provinces, a $41 billion deal with annual increases in health care transfers of six per cent until 2014. Of course, these increased transfers were possible because the federal government was bursting with cash at the time and generating fiscal surpluses during a period of strong and sustained economic growth.

The times have now changed. Canada’s governments are in collective deficit of about $100 billion, and all of our governments will need to implement detailed plans if they are to get back to a balanced budget and keep their public debt levels under control. Health care spending is the dominant budget line for all of the provinces, so financing of the publicly funded health care system will inevitably work its way toward the top of the federal-provincial agenda very soon. Cash-strapped provinces that are already beginning to raise taxes may have to consider federal financial intervention into health care in a very different light.

However, in recent budgets, the federal government has reduced its capacity to generate surplus revenue down the road, due to cuts to the GST rate and reductions to specific personal and business taxes. And the Martin accord runs out in 2014, with as yet no hint of the federal government’s intentions thereafter. The outcome of the debate about who will pay how much for future health care – and therefore, which level of government should levy what taxes – is not at all clear.

To further complicate the debate, aging demographics in Canada and internal cost drivers like salaries, drugs and new technology are placing chronic upward spending pressures on the publicly funded health care system. Something is going to have to give – by increasing available annual funding for health care, controlling the rate of spending growth, introducing some alternative approaches to delivery, or a combination of all three.

Can economic analysis help in resolving this debate? As economists – but also as care-givers, children of aging parents, parents ourselves, and taxpayers – we would like to think so. The economic literature likely has some guidance to offer, and focused research could identify the trade-offs and cost-benefit estimations in revenue generation, priority setting, expenditure management, delivery alternatives and accountability for the health care system.

To address these issues in detail, The Conference Board of Canada is launching a new research initiative, called the Canadian Alliance for Sustainable Health Care, or CASHC.

CASHC is intended to provide Canadian leaders and policy-makers with insightful, forward-looking, quantitative research and analysis of the sustainability of the Canadian health care system and all of its facets. CASHC is being launched with the ambition of using research and dialogue to help improve the operation of the Canadian health system as a whole, and the health care practices within firms and organizations. Ideally, the work of CASHC will help Canadians to better understand the conditions under which Canada’s health care system will be made sustainable.

So, who should pay for the health care of Canadians? Through CASHC and its research, we would like to help answer that question.

 

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