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How much money does Canada’s health system really need?

Updated: Apr 11, 2023

Michael Wolfson is a former assistant chief statistician at Statistics Canada and an adjunct professor in the faculties of medicine and law at the University of Ottawa.

As is tradition, Canada’s premiers have grudgingly accepted the billions of dollars in health-care funding that the federal government has offered them – even as they complain that it’s billions of dollars less than what they need, and that there should be no strings attached, since health care is solely their jurisdiction.


That claim is incorrect; the federal government of course has a national role in health care. Indeed, if health care really was solely a provincial responsibility, the provinces would use their taxing powers so they didn’t have to demand massive and unconditional federal cash transfers in the first place. Nevertheless, the provinces continue to grumble about numbers and conditions.


One reason some premiers have cited is that health-care costs are increasing too rapidly. This is not a new argument. In 1977, Pierre Trudeau’s government enacted the infamous “tax point transfer”: Ottawa cut federal income taxes so as to give “tax room” for the provinces to raise theirs by equal amounts, leaving overall taxes for Canadians at the same level, while shifting billions of dollars of revenue from federal to provincial treasuries. The aim of the scheme was to allow provinces to fund more of their health care from revenues growing in line with the economy.


But the provinces conveniently tend to ignore this major reform and count only cash transfers as federal contributions – all while declining to raise their own taxes, and blaming Ottawa for being stingy.


The provinces have also argued that they need more money because health care is so expensive. But without meaningful accountability measures, Canadians do not know whether the provinces are spending on health care costs in an efficient way. Indeed, evidence suggests they are not: Internationally, Canada spends more per capita on health care than many other OECD countries, but performs very poorly.


There are also worries about the health-care needs of our aging population. But many OECD countries both spend less on health care per capita than Canada, and already have older populations.


So the real, sustainable solution is not to throw more unconditional federal money at the provinces. Rather, we must overcome decades’ worth of blockages that have long prevented meaningful health-care reforms to constrain costs and improve outcomes. That will require us to understand how we’re spending the money, and how much we really need.


Broadly speaking, there are four main areas of health care: hospitals, drugs, doctors and long-term care. Long-term care has been seriously underfunded for decades, so the recent federal proposal to increase pay for personal support workers is most welcome. But within that category, there is a huge imbalance between home care and nursing homes. Provinces seem keen to build new nursing homes, while continuing to starve home-care programs of funding. This is not what Canadians want or need, nor is it cost-effective.


But other than for long-term care, there is no need for health-care costs to rise dramatically over the coming decades – not if there are appropriate structural reforms and more integrated management.


To achieve that kind of change, we need information that allows us to measure one of the most important signals of system inefficiency: “postal code medicine,” the often large variations across regions in numbers of surgeries and other kinds of health care. We currently lack data to provide explanations for why C-section rates and stenting after heart attacks can vary as much as threefold across various health regions.


In the rare cases where we do have the data, they are usually in health-care areas where there is no obvious benefit in terms of people’s health outcomes. This may take the form of inappropriate diagnostic imaging, unnecessary lab tests, repetitive doctor visits, overly expensive prescription drugs, excessive invasive surgeries, and doctors providing services that can be more than adequately offered by less costly nurse practitioners on primary care teams.


These procedures persist because it is easy to be wowed by new drugs and diagnostic tools; investing in home care and collecting useful data around cost-effective care, on the other hand, is not nearly as “sexy.” But doing so would have much more meaningful outcomes.


Following the money may also explain their durability. Doctors and hospitals may see their revenues fall if funding were redirected to primary-care teams or long-term care, and the pharmaceutical industry would see declining profits if a national pharmacare program were implemented.


Before Canada spends more on health care, Canadians need to insist on seeing evidence that we are getting better value for the money we’re already spending, and demand that their leaders actually lead by implementing needed structural reforms.


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