The Ultimate Health Care Reform

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Martin Zelder

When a health care reform is proposed, it is often subjected to a test of purported purity: does it violate the Canada Health Act (CHA)? Violation, actual or putative, is then invoked to deny legitimacy to the proposed reform. Recent illustration of this phenomenon appeared in federal Health Minister Allan Rock's proclamation regarding Alberta premier Ralph Klein's proposal to contract for surgical services with private hospitals: "We're going to defend the Canada Health Act in both its letter and in its spirit. We will be very concerned about any proposal that would erode public medicare either directly or by stealth."1

Violating the CHA is treated as a mortal sin within the Canadian political papacy, ensuring eternal legal, financial, electoral, and moral damnation. In actuality, violation is more on the order of a venial sin, according to the sacred text itself:

Where ... the health care insurance plan of a province does not or has ceased to satisfy any one of the criteria described in sections 8 to 12 [public administration, comprehensiveness, universality, portability, accessibility] ... the Governor in Council [i.e., Prime Minister] may ... direct that the whole of any cash contribution to that province for a fiscal year be withheld."2

The cash contribution which may be withheld is the Canada Health and Social Transfer (CHST), a block grant which encapsulates federal transfers for education, welfare, and health. Because the CHST is a block grant, the portion of it to be spent on health is not specified. Thus, violation of the CHA implies that the entire CHST grant may be withheld.

So, the question is: were a province to become a venial sinner and violate the CHA, what would be the price paid for absolution? A province's penance would be the forfeiture of its CHST cash grant for that year. What would these wages of sin amount to for each province for the fiscal year 1998-99? Consider the first row of table 1, which enumerates the CHST cash transfer for that year, in millions of dollars.

Certainly the penalties are significant; for example, British Columbia's CHST cash transfer is $1.6 billion out of its total public health spending of $8.2 billion (19.7 percent), while Quebec's transfer of $3.8 billion constitutes 31 percent of its public health spending. But there are also significant rewards available to provinces willing to violate the CHA in a particular way.

Suppose a province decided to violate the "accessibility" criterion by charging a 25 percent coinsurance payment for each use of provincially-insured services, up to some expenditure limit. If it did so, the best available evidence, from the RAND Health Insurance Experiment (see "Canadian Health Reformers Should Understand RAND," in this issue), implies that the province would reduce its public health spending by 19 percent without impairing health outcomes for the vast majority of its citizens.

How much would each province save if it instituted this type of reform? The second row of table 1, labeled "Savings from reform," provides the answer (in millions of dollars). Just as the CHST transfer is substantial, so too are the potential savings.3

If money were the only determinant of a province's decisionmaking, under what circumstances would it choose to reform? It would choose to reform if its savings from reform exceeded its CHST transfer. This is not merely an abstract calculation. At present, Alberta and Ontario would gain financially by opting out and instituting 25 percent coinsurance rates. Furthermore, both British Columbia and Saskatchewan are close to gaining an advantage by opting out: per year, BC would lose $55 million, and Saskatchewan $19 million by opting out.

Why, then, don't Alberta and Ontario opt out? The obstacle, presumably, is that there are political costs to doing so. Were they to opt out, the electoral fortunes of the governing parties might be jeopardized. But, as a matter of logic, as the gain to opting out grows larger, it is more and more likely that it will eventually outweigh the potential cost of electoral reprisal.

As a matter of fact, it is likely that the gain from opting out will continue to grow, given the decline over time in total CHST transfers. They have declined from $14.8 billion in 1996-97 to $12.6 billion in 1997-98 to $11.7 billion in 1998-99.

Hence, a province intent on reforming its health care system can do so, if it is willing to pay the price in forgone CHST transfers, and potential political opprobrium. Some may call that sin, but in a time when the current health system forsakes so many who are suffering, it might instead prove the most saintly compassion.

Notes

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Last Modified: Wednesday June 9, 1999.