The growth of government spending on health in Canada is financially unsustainable through public means alone.

In six out of ten provinces, government expenditures on health are projected to consume 50 percent of total available provincial revenues by 2034 (Skinner and Rovere, 2009). When federal transfers are removed, 6 provinces are already spending over 50 percent of provincial own-source revenues (Skinner and Rovere, 2009). In fact, in 2009 public health spending consumed over 70 percent of New Brunswick and Nova Scotia’s provincially sourced revenues.

Faced with this economic reality, provincial governments are under pressure to either raise taxes or reduce the scope of publicly insured benefits under medicare, as they have done in the past. But, tax increases are bad for the economy and rationing is bad for patient health.

If health spending is to become sustainable without damaging the economy or jeopardizing patient health, governments must allow a greater scope for private financing of health care, and health care consumers must be directly responsible for a greater portion of the cost of the medical goods and services they use. These reforms would introduce economic incentives that would discourage unnecessary use of the health care system, encourage cost-efficient substitution choices between medical treatment options, and promote the efficient allocation of medical resources.

Yet, the Canada Health Act (CHA) is an obstacle to private financing in health care. The act financial penalizes provinces that allow user fees, extra billing and other forms of private payment for hospital and physician services, by reducing federal transfers that support health spending in the provinces (Canada Health Act, 1985).

In an international context, the anti-private financing policy of the CHA is an anomaly. Canada is one of only four countries in the OECD that does not require some form of patient cost sharing for medically necessary health care services. Canada is the only OECD country that bans parallel private health insurance (OECD, 2010).

The primary resistance to cost sharing for medically necessary services in Canada is the belief that low-income individuals would be deterred from using health care services to the detriment of their health. The underlying assumption is that the rich would have access to high quality health care while the poor would not, and the health of low income families would suffer as a result. However, the results from the RAND study indicate that such criticisms are mostly groundless. The RAND Health Insurance Experiment is the seminal study on the effects of cost sharing for medical services on health care utilization and health outcomes. RAND found that while cost sharing reduced overall utilization, it did not generally increase unfavourable clinical outcomes except among small populations of patients with chronic conditions that could be more efficiently insured with a targeted subsidy, rather a universal 100 percent subsidy for the whole population (Newhouse et al., 1993).

In addition, OECD countries that require patient cost-sharing, exempt low income individuals from paying user fees. Provinces could introduce similar policies and exempt patients with chronic conditions and low-income families based on a means-test.

While Quebec flirted with the idea of introducing a health care deductible (in the form of a retroactive user fee) earlier this year due to unsustainable growth in provincial health care spending, the province capitulated because of political pressures. All of the provinces are facing unsustainable growth rates in government health care spending and will therefore be forced to make unavoidable tough choices on how to finance provincial health care services going forward. Instead of cutting services and/or raising taxes, provincial governments should look to their international counterparts for alternative ways of financing medically necessary services.

The only way this can be achieved is if the federal government temporarily suspends enforcement of the CHA. The provinces should be free to engage in five-year, population-wide comprehensive trials of the policies that are currently banned by the CHA. This would allow each province to determine empirically whether the health insurance system would improve if policies similar to those currently being used throughout the OECD were permanently adopted.

Mark Rovere is Associate Director of Health Policy Research at the Fraser Institute.

References:
Canada Health Act [CHA] (R.S., 1985, c. C-6). Act current to October 3, 2010.
Newhouse, J. P., and The Insurance Experiment Group (1993). Free for All? Lessons from the RAND Health Insurance Experiment. Harvard University Press.
Organisation for Economic Co-operation and Development [OECD] (2010). OECD Health Data 2010. Statistics and Indicators for 32 Countries.
Skinner, Brett, and Mark Rovere (2009). Paying More, Getting Less: 2009 Report. Fraser Institute.