Federalism(Health Insurance)

Canada is a federal country in which power is distributed between the national government, and the 10 provinces and 3 northern territories. The division of power was spelled out in the British North America Act 1867 (renamed the Constitution Act in 1982). Section 92(7) lists as one of the "exclusive powers of provincial legislatures" "The Establishment, Maintenance, and Management of Hospitals, Asylums, Charities, and Eleemosynary Institutions in and for the Province, other than Marine Hospitals." [4] Although this language does not specifically give authority over 'health care,' subsequent court cases and interpretations have generally established the provinces have paramount authority in this area.
Over time, the mismatch between fiscal resources and fiscal capacity became increasingly problematic. If Canadians were to have similar levels of service, it would be necessary for the national government to somehow equalize the ability to pay for it. Yet attempts by the national government to implement programs directly encountered resistance from the provinces. This resulted in several legal battles. In a few cases, where there was agreement that the federal government should take the lead, adverse court decisions were handled by amending the constitution (e.g., in 1940, in response to a court decision that federal unemployment insurance was unconstitutional, the Constitution Act, 1867 was amended to give the national Parliament jurisdiction over unemployment insurance).[5] More commonly, however, other approaches have been used. Canadian health policy has accordingly been strongly related to Fiscal federalism and questions as to how best to address Fiscal imbalance. In consequence, Canada does not have - and arguably cannot have - a national health care system.
The Constitution Act does give potential powers over elements of health care to the federal government through various clauses (e.g., quarantine), but the role of the federal government has been highly debated. As summarized by a Senate Committee led by Michael Kirby,[6] the federal government has a number of roles to play, including assisting the provinces in paying for health services. Although this has not been tested in court, the federal government has assumed that it is entitled to use its spending powers to set national standards. However, the extent to which 'strings' can be (and are) attached to federal transfers has remained contentious, and most federal governments have been unwilling to antagonize the provinces.
Health insurance before the CHA
The development of Canadian health insurance has been well described by Malcolm Taylor, who participated in many of the negotiations in addition to studying it as an academic.[7] Unlike the UK, Canada never implemented a National Health Service; health care was and largely remains privately delivered. For many decades, it was also privately financed through a variety of programs. In consequence, as Taylor wrote, most Canadians "daily faced the potentially catastrophic physical and financial consequence of unpredictable illness, accident, and disability," and providers, unwilling to deny needed care, had growing bad debts. A number of efforts to establish social insurance systems in Canada had been unable to overcome provincial opposition to federal 'incursion' into their jurisdiction. These included the 1937 Rowell-Sirois Commission on Dominion-Provincial Relations, and the 1945 Green Book proposals of Prime Minister Mackenzie King as part of the post-World War II reconstruction. At the same time, Canada resembled other developed economies in its receptivity to a more expansive government role in improving social welfare, particularly given the widespread sacrifices during World War II and the still active memories of the Great Depression.
Accordingly, following the collapse of the conference proposals in 1946, in 1947, the social democratic premier of Saskatchewan, Tommy Douglas of the Co-operative Commonwealth Federation (CCF), decided to go it alone, and established Canada's first publicly-funded hospital insurance plan. Other provinces - including British Columbia, Alberta, and Ontario, introduced their own insurance plans, with varying degrees of coverage, and varying degrees of success. When Newfoundland joined Canada, it brought along its system of cottage hospitals. These policy initiatives increased pressure on the federal government to get involved, both to assist those provinces which had introduced programs, and to deal with the perceived inequity in those provinces whose citizens did not yet have coverage for hospital care.
The federal government had also acted by using its spending power; in 1948, it introduced a series of National Health Grants to directly provide funds to the provinces/territories for such purposes as hospital construction, professional training, and public health. This increased the number of hospital beds, but did not address the issue of how their operating costs would be covered. The result was that the Progressive Conservative government of John Diefenbaker, who also happened to represent Saskatchewan, introduced and passed (with all-party approval) the Hospital Insurance and Diagnostic Services Act of 1957. This shared the costs of covering hospital services. By the start date (July 1, 1958) five provinces—Newfoundland, Manitoba, Saskatchewan, Alberta, and British Columbia - had programs in place which could receive the federal funds. By January 1, 1961, when Quebec finally joined, all provinces had universal coverage for hospital care.
Saskatchewan decided to take the money released by the federal contributions to pioneer again, and following lengthy consultations with the provincial medical association, introduced a plan to insure physician costs (The Saskatchewan Medical Care Insurance Plan). By this time, Douglas had moved to national politics, as leader of the federal New Democratic Party (NDP), The provincial plan precipitated a strike by the province's physicians (1962). It was eventually settled, but the CCF lost the 1964 election to Liberal Ross Thatcher. The plan, however, remained popular, and encouraged other provinces to examine similar programs. A policy debate ensued, with some arguing for universal coverage, and others (particularly the Canadian Medical Association) arguing for an emphasis on voluntary coverage, with the government assisting only those who could not afford the premiums. Three provinces - BC, Alberta, and Ontario - introduced such programs.
The federal reaction was to appoint a Royal Commission on Health Services. First announced by Prime Minister Diefenbaker in December 1960, it was activated in the following June. Its chair was Justice Emmett Hall, the chief justice of Saskatchewan, and a life-long friend of Mr. Diefenbaker. Three years later, following extensive hearings and deliberations, it released an influential report, which recommended that Canada establish agreements with all provinces to assist them in setting up comprehensive, universal programs for insuring medical services, on the Saskatchewan model, but also recommended adding coverage for prescription drugs, prosthetic services, home care services, as well as optical and dental services for children and those on public assistance. (None of these have yet been added to the formal national conditions, although most provinces do have some sort of coverage for these services.)
By this time, the Liberals, under Lester B. Pearson were in power. Following intense debate, the Pearson government introduced the Medical Care Act which was passed in 1966 by a vote of 177 to two. These two Acts established a formula whereby the federal government paid approximately 50% of approved expenditures for hospital and physician services. (The actual formula was a complex one, based on a combination of average national expenditures and spending by each province. In practice, this meant that higher-spending provinces received more federal money, but that it represented a lower proportion of their expenditures, and vice versa for lower-spending provinces.) By 1972, all provinces and territories had complying plans. However, the fiscal arrangements were seen as both cumbersome and inflexible. By 1977, a new fiscal regimen was in place.
Change in fiscal arrangements: the 1977 act
In 1977, HIDS, the Medical Care Act, and federal funds for post-secondary education (also under provincial jurisdiction) were combined into a new Federal-Provincial Fiscal Arrangements and Established Programs Financing Act of 1977 (known as EPF). This legislation de-coupled the legislation governing the amount of the federal transfer from the legislation establishing the terms and conditions to be met to receive it.
Under this new arrangement, cost sharing was no more. Provinces/territories now had more flexibility, as long as the federal terms and conditions continued to be met. The federal government had more predictability. Rather than an open-ended commitment, EPF established a per capita entitlement (not adjusted for age-sex or other demographic factors) which would be indexed to inflation. This money would go into provincial general revenues. To simplify a complex formula, the EPF entitlement could be seen as consisting of two components. Part of the funds were in the form of "tax transfers" whereby "the federal government agreed with provincial and territorial governments to reduce its personal and corporate income tax rates, thus allowing them to raise their tax rates by the same amount. As a result, revenue that would have flowed to the federal government began to flow directly to provincial and territorial governments."[8] This transfer could not be reversed by subsequent governments, meaning that the federal government had no fiscal leverage over this component of the transfer. (Indeed, there has been an ongoing controversy as to whether this component should even be considered part of the federal contribution.[9]) The remainder of the entitlement was in the form of cash grants. Although the per capita amount was intended to be escalated to inflation, subsequently, the federal government tried to deal with its fiscal position by unilaterally first reducing and then freezing the inflation escalator. As the cash portion threatened to disappear, in 1996, the federal government combined the EPF transfers with another cost-shared program, the Canada Assistance Plan (CAP), to form the Canada Health and Social Transfer (CHST). This enabled the federal government to both cut the total transfers (by approximately the amount in the CAP) while retaining a 'cash floor' on the total amount. In 2004, these transfers were split into the Canada Health Transfer (CHT) and the Canada Social Transfer. The federal Department of Finance publishes brief guides to these programs.[10] Nonetheless, many argue that there has been no explicit federal transfer for health care since 1977, since these programs are no longer tied to specific spending.
The second component of the federal plan, specification of the terms and conditions which provincial/territorial insurance plans must meet, continued to be those established in HIDS and the Medical Care Act. (Note that there were almost no conditions attached to the CAP or post-secondary education components of the transfers.) The genesis of the CHA was recognition of the extent to which the federal ability to control provincial behaviour had been reduced. One particular problem was the absence of any provision for graduated withholding of the federal contribution. Because there was little desire to withhold the full contribution for minor violations of terms and conditions, provinces increasingly were permitting extra billing for insured services. In response to the resulting political uproar, the federal government again turned to Justice Emmett Hall and asked him to report on the future of medicare. His 1979 report, 'Canada's National-Provincial Health Program for the 1980s' noted some of the areas recommended in his earlier report which had not yet been acted on, and warned that accessibility to health care was being threatened through rising user fees. The federal response was to pass the 1984 Canada Health Act which replaced both HIDS and the Medical Care Act and clarified the federal conditions.
The 1984 act
On December 12, 1983 the Canada Health Act was introduced by the Liberal Trudeau government, spearheaded by then Minister of Health Monique Bégin. As she noted, the government decided not to expand coverage (e.g., to mental health and public health), but instead to incorporate much of the language from the HIDS and Medical Care Acts.[11] The Canada Health Act was passed unanimously by Parliament in 1984, and received Royal Assent on 1 April. Following election of a Conservative government under Brian Mulroney in September 1984, in June 1985, after consultation with the provinces, new federal Health Minister Jake Epp wrote a letter to his provincial counterparts that clarified and interpreted the criteria points and other parts of the new act.