Canada

Robert G. Evans
University of British Columbia

The Canadian health care system took its modern form between 1968
and 1971, and its fundamental principles and basic structural features of
organization and finance have remained the same since then. The system
has evolved over the past three decades and has adapted more or less
successfully both to significant changes in the external environment and
to the changing needs and possibilities of health care services them-
selves. But it remains easily recognizable as the same system that was
established more than thirty years ago.

How the System Works: A Summary

Broadly speaking, health care in Canada is provided by private practition-
ers—physicians, dentists, pharmacists, members of a number of other,
much less populated professions, and by not-for-profit hospitals, each over-
seen by a Board of Trustees. Practitioners are paid on a fee-for-service basis
and are predominantly self-employed in their own private practices (solo or
small group partnerships), though some are employed full- or part-time in
practices owned by other professionals. Hospitals, by contrast, receive an
annual global budget from the Ministry of Health of the province in which
they are located. Institutional care outside hospitals is provided by facili-
ties reimbursed on a per-diem basis. Some are for-profit, owned by individ-
uals or coiporations; others are run by community groups.

Journal of Health Politics: Policy iiiul Uiw, Vol. 25, No. 5, October 2000. Copyiigh! © 2(tOO by
Duke Universiiy Press.
 890 Journal of Health Politics, Policy and Law

The principal form of public insurance covers the services of physicians

and acute and extended care hospitals. All Canadian residents are fully
covered for all "medically necessary" hospital and medical care, without
deductibles or coinsurance.' (Certain forms of elective cosmetic service
are excluded.} Thus, a person who feels a need for care will seek out a
physician of his or her choice, and if accepted as a patient, will be cared
for without any financial implications. The services provided are paid for
by the government of the person's province of residence, according to a
uniform fee schedule negotiated between that government and the provin-
cial medical association. (If a patient is cared for in another province,
reimbursement will be at the fees in effect in the province of service.)
Diagnostic tests ordered by the physician are also paid for according
to the negotiated fee schedule, as are referrals to specialists. Roughly half
of all physicians in Canada are generalists or family practitioners, so the
normal pattern of care-seeking is for the patient to go to the family doc-
tor and, if necessary, be referred from there. Patients may self-refer to
specialists, but this is discouraged. The specialist receives a larger fee for
a formal referral; but, perhaps more fundamentally, the (deliberately)
limited number of specialists permits them to concentrate on truly spe-
cialized work, rather than competing with generalists for patients. If hos-
pitalization is indicated, the physician arranges to have the patient admit-
ted. With a few exceptions, physicians are not employed by specific
hospitals; rather, they have admitting privileges at one or more facilities.
Patients have "free choice" of general practitioner; they are not restricted
to a particular source of care. (The physician also has a choice as to
whether to accept the patient.) If referral is indicated, they can request
referral to a particular specialist. A patient wishing to be admitted to a
particular hospital might select a physician on the basis of his admitting
privileges. In practice, however, when the patient selects a general prac-
titioner, he has also implicitly selected the set of specialists with whom
that physician has ongoing referral relations, as well as the hospital
where he or those to whom he refers have admitting privileges. In any
case, financial considerations play no part because all hospitals, like all
physicians, are included in the pubhc insurance program.
This universal public coverage applies, however, to less than half of
total health care expenditures (Canadian Institute for Health Information
1999). Hospitals and physicians received, on current estimates, 31.6
percent and 13.9 percent, respectively, of a total of $86.0 billion (Cana-
1. Extended care hospital patients pay a per-diem charge that is based tiot on actual cost but
on the prevailing rates of income assistance for the low-income eiderly. The intent is io "claw
back" this payment, less a "comfort allowance." so as not to subsidize basic living costs twice.
 Evans • Canada 891

dian dollars. 9.2 percent of GDP) spent on health care in 1999. Another
37.7 percent was spent on drugs (principally prescription drugs), services
of other professionals (principally dentistry), and institutional care out-
side hospitals.2 Patterns of public coverage for these components are
much less uniform—varying from one province to another—and less
complete, ranging from about 70 percent for institutional care to 40 per-
cent for prescription drugs, to about 6 percent for dentistry and zero for
nonprescription drugs. Overall, public sources covered 69.6 percent of
total health spending in 1999, one of the lowest ratios among developed
countries. Canada thus provides more comprehensive public coverage
than most countries for hospital and physician services, but less for other
forms of health care.-*
Despite the already relatively high proportion of private payment for
health care, the comprehensiveness of public coverage for hospitals and
physicians has always been attacked by advocates of a separate "pri vate"
system of care, paid for by users. Yet the delivery of heahh care in
Canada is already "private." The public plans pay for care provided by
private practitioners and hospitals that are not government agencies,
without restrictions on choice. The Canadian form of Medicare is not
"socialized medicine" but rather "socialized insurance."
There is very little (effectively, no) demand for a truly private, paral-
lel system of care, self-financing and independent of the public system.
What provider advocates of a "two-tier" system really want is not private
delivery but private payment—the right to charge patients fees in addi-
tion to the negotiated fee schedules in return for actual or perceived pre-
ferred access to care, while remaining fully eligible to bill the public sys-
tem. Practicing both in and outside the public program, they would then
be able to manipulate access to public facilities and services in various
ways so as to induce or compel patients to pay these extra "private" fees.
Extra-billing has always been a contentious issue in Medicare; prior to
the passage of the federal Canada Health Act in 1984, it was permitted in
most provinces on varying conditions. But that law, while it did not forbid
either extra-billing or other forms of user fees (the federal government has
no constitutional power to do so), provided tinancial penalties for provinces
that permitted or imposed them. Provincial governments subsequently
moved in various ways to remove or suppress such charges.

2. The remainder Is public heallh, research, capital invcstinent. insurance administration,

and "other."
3. Private iiiburanco covers ju.st over one-third of the private expenditure, and Canada, like
the Uniied States, supports this privaic insurance with a public "tax expenditure subsidy" Ihat
offsets about a third of its cost.
892 Journal of Healtb Politics, Policy and Law

Implications of the Relationship between

the Federal and Provincial Governments
This brief outline of the system from the patient's point of view has not
changed since the late 1960s, although the services offered have, of
course, changed dramatically as medical technology has developed. Major
changes have, however, taken place in the relationship between the fed-
eral and provincial governments, particularly with respect to the fiscal
transfers to the provinces that underpin the plan (Evans 1997a; Naylor
1999). The details of federal-provincial fiscal arrangements are arcane
and highly specialized and impinge little or not at all on either the indi-
vidual patient or the individual provider in day-to-day practice. Over the
long run, however, the survival or dissolution of the present system
depends critically on decisions made at this level.
For fundamental constitutional reasons, as well as good practical ones,
the governments of the Canadian provinces have virtually all responsi-
bility for both regulating and funding health care within their borders.
They can set up health care insurance programs any way they choose (or
not at all). The federal government, however, sets the standards for "con-
forming" provincial programs and provides both cash payments and
access to part of the income-tax base for provinces operating such con-
forming plans. Effectively, then, the federal government can determine
some of the fundamental principles governing provincial plans, so long
as it also contributes significantly to their costs.
The principles of universal coverage, universal access "on equal
terms and conditions." comprehensiveness and portability of benefits
across provinces, and public administration are fundamental to all
provincial programs. In particular, the access provision has been inter-
preted by the federal government as ruling out any form of direct
charges to covered users of insured services; hence the provision in the
Canada Health Act, that the federal grant to a provincial government
will be reduced, dollar for dollar, by the amount of all such payments
made by its residents.
Over time, both the nature of the federal contribution and its relative
size have changed greatly. In the beginning the federal government
shared a proportion (roughly half) of actual program costs; this was
changed in 1977 to block grants independent of actual costs. But this
grant consisted of both a cash payment, and the transfer of "tax room"—
the federal government lowered its rates of income tax to permit the
 Evans • Canada 893

provinces to increase theirs by a corresponding amount. In the 1980s and

early 1990s, the federal cash contribution was on a steady downward
trend. If this cash contribution were to become so small that the federal
government could no longer withhold significant amounts from noncon-
forming provinces, then it is a virtual certainty that the present system
would immediately begin to crumble.
Indeed, some of the more right-wing provincial governments have
made their intentions clear: they would move swiftly to introduce user
fees, erode both comprehensiveness and universality of coverage, and
permit the development of a private "second tier" of services. Fiscally
strained or ideologically hostile provincial governments face a powerful
temptation to transfer budgetary costs to the private sector In doing so,
they would have enthusiastic support from strong elements within the
medical profession and from private insurers and "care managers" in and
outside Canada. The latter are at present largely shut out of a market that
could otherwise be as lucrative (for its scale) as that in the United States.
The road to an American-style system—expensive, inefficient, inequitable,
and highly profitable^—would be wide open.

Where Next? Old Tensions, New Pressures

Canadians remain firmly committed to the basic principles and structure
of what they (we) know as Medicare. It remains by a wide margin the
most popular and successful public program in the country. Nonetheless,
at the turn of the millennium that system appears more vulnerable than
perhaps ever before to undermining by slow erosion and political stealth.'^
A combination of factors has led to the development of a very widespread
public sense of crisis and a weakening of confidence in the system.
The rhetoric of "underfunding," "crisis," "bankruptcy," and imminent
collapse, typically with little or no factual basis, has been a continuing
feature of the Canadian health care debate throughout the history of
Medicare. But this rhetoric has reached a new pitch of intensity and of
penetration in the late 1990s. And while a substantial majority of Canadi-
ans want to see the system preserved and strengthened, there are power-
ful interest groups, narrowly based but strategically placed, that would

4. Anything could happen, of course, in fhe evenl of a breakup ol' the Canadian federation.
But that now seems less likely than it did a few years ago.
894 Journal of Health Politics, Policy and Law

profit substantially from its overthrow.^ To succeed, they must break what
is in effect a "consumers' cooperative" whereby Canadians use their gov-
ernments not only to spread the costs of care, but to contain them by col-
lectively confronting the otherwise superior power of providers.
The root of the "crisis" is, as always, money. The introduction of
Medicare in Canada brought about a stabilization of the previous upward
trend in health care costs as a share of national income, in marked con-
trast with the continuing escalation in the adjacent United States. But two
major recessions in the 1980s sharply reduced the growth rate of national
income, bringing about increasingly severe fiscal problems and balloon-
ing public deficits. Health care spending continued to escalate, reaching
10.2 percent of GDP in 1992. At that point both federal and provincial
governments introduced the drastic spending cuts that have by now gen-
erated substantial public surpluses.
Public spending on health care was held virtually constant, in per-
capita terms, for five years, and total health spending as a share of GDP
fell by a full percentage point. But the cuts were unbalanced, coming vir-
tually entirely from hospital budgets. Drug costs on the other hand, being
financed from a mixture of public and private insurance and out-of-pocket
payment, have continued to escalate rapidly. The result was a dramatic
increase in the private share of total health care spending, from 25.8 per-
cent in 1992 to 30.6 percent in 1997, not through a transfer of costs from
public to private budgets, but simply because the publicly funded sectors
were constrained and the privately funded were not.
But the cuts in the hospital sector have had severe effects on public
confidence in the system, in considerable part because they drove the
hospitals and their workers, always among the strongest supporters of
Medicare, into an inadvertent alliance with its traditional enemies. Spokes-
men for hospitals and hospital unions, and especially nurses, have joined
those enemies in clamoring that the system is falling apart and cannot be
relied upon; their claims carry more credibility. (Canada's newspapers.

5. "Disinformation" campaign.s became much more intense in the early iy90s, as a side effect
of thi; abortive effort to achieve health care reform in the United Siaie.s. Advocates of refortn
pointed to the superiority of Ihe Canadian approach, in virtually all respects, over American
airangements for organizing and particularly for financing health care. Opponents, especially pri-
vate insurers and physicians, then launched [missive attacks on wha! they claitiied to be nega-
tive feaiures of Canadian health care. These American publicity campaigns, though designed for
internal consumption and with tninima! relation to actual experience, inevitably spill over into the
inlernational, and particularly the Canadian, communications media. They were scaled down but
die! not entirely end with the failure of reform in the United States; and they provided a basis of
"conventional wisdom" for the homegrown campaigns of the later 1990s. (In early 2000, the
American pharmaceutical industry launched another such disinformation campaign in response
to congre.ssional price control proposals).
 Evans • Canada 895

most now controlled by a single individual ideologically far to the right,

have joined in promoting the senseof crisis.) What the hospitals are call-
ing for is more public money rather than the introduction of private care,
but the general loss of public confidence plus the sheer size of the
amounts claimed to be needed are creating new opportunities for the
advocates of the latter. (We might get both!)
Those who have actually used the health care system recently tend
still to be quite satisfied, and there is no evidence of declines in patient
outcomes. Hospital throughput has actually risen while bed use has
declined—as in the United States. There is a remarkable disconnect
between public perception and system performance data (Roos 2000).
There has also been a series of public investigative commissions over
the past fifteen years, the latest being the prime minister's National
Forum on Health, which reported in February 1997 (Canadian National
Forum on Health 1997). All have reached similar conclusions and have
reaffirmed the principles on which Medicaid are built. The current sys-
tem is fundamentally sound and adequately funded if resources are
properly used. There are ways that current care practices could be
changed to yield "more bang for the buck"—more effective care pro-
duced more efficiently for same resources. Although the "status quo is
not an option," the necessary reforms can be achieved within the exist-
ing structure.
The role of the federal government is now critical to the future of tbe
system, yet its policy has been surprisingly ambiguous. In respon.se to
the recommendations of every investigative commission., as well as to
the very strong public support for the present system, the current fed-
eral govemment has made a very strong rhetorical commitment to the
principles of Medicare. And it has provided some fiscal support as well,
increasing the size of the cash transfer that is its only lever to influence
provincial behavior, particularly with respect to user fees. (The previ-
ous Progressive Conservative government appears to have been delib-
erately running that transfer to zero, so as to destroy Medicare indi-
rectly.)
But the federal government has not been diligent in discharging its
legal responsibilities, under the Canada Health Act, to identify and penal-
ize the transfer of costs to individual patients. There are, and probably
always will be, a small number of physicians looking for ways to extra-
bill patients that will not be noticed or can somehow be represented as
other than for insured services. More recently, however, private chnics
have begun not only to exploit their professional relationship by market-
ing uninsured services of questionable value at substantial profit, but also
896 Journal of Health Politics, Policy and Law

tying access to insured services to willingness to pay for the uninsured.

Such practices are facilitated by technological changes that are shifting
an increasing proportion of health care out of the hospital into free-
standing clinics that may be owned by physicians or private, for-profit
corporations. And in at least one province it seems now to be deliberate
government policy to try to expand the opportunities for these private
billings (Evans et al. 2000). (The strategy seems to be to use the distinc-
tion between insured and uninsured services "creatively" to stay within
the letter of the federal legislation while driving a truck through its prin-
ciples.) But no provincial government appears actively engaged in
attempting to suppress these new forms of extra-billing, despite the grave
risks they pose to the longer-run integrity of Medicare. How committed
is the federal government? At time of this writing (July 2000) the situa-
tion is very much in flux. Will the center hold (Contandriopoulos 2000)?
What is clear, however, is that in Canada at least, no one outside the
economic "lunatic fringe" has any interest in the creation of private,
competitive markets for health care or health insurance as a way of
improving "allocative efficiency," however that might be defined. Attempts
to expand private payment are being driven strictly by struggles over
income shares (Evans 1997b). Providers of care are quite explicitly
attempting to open up private payment channels so as to get around pub-
lic restrictions on prices and on servicing patterns, and increase their
incomes (physicians) or expand their markets (private insurers and cor-
porate providers). Higher-income Canadians are interested in shifting
costs from public to private budgets—higher private charges but lower
taxes—because the former are related to income but the latter are not. In
a private system, those with ample means can assure themselves a higher
standard of care without having to contribute to a similar standard for
everyone else. Better care at lower cost—for those with means. Behind
the crisis rhetoric, the economic interests are clear enough. Discussions
of the pros and cons of "competitive markets" and "the public/private
split" that miss the central role of distributional struggles are not merely
beside the point, but are actively misleading.

References

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Public Works and Government Services.
 Evans • Canada 897

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