Canada's Medicare Bubble:

Is government heath spending sustainable without user-based funding?

Released by The Fraser Institute

clip_image002ith six out of 10 provinces on pace to spend half of all  available revenues on health care within six years, the current method of funding Canada’s health care system is not sustainable, says a new report from the Fraser Institute, Canada’s leading public policy think-tank.

Canada’s Medicare Bubble

The report, Canada’s Medicare Bubble: Is Government Health Spending Sustainable without User-Based Funding?, found that government health spending in Canada’s two largest provinces—Ontario and Quebeccurrently consumes more than half of total provincial revenues, and Saskatchewan, Alberta, British Columbia, and New Brunswick will face the same funding crunch by 2017. Manitoba and Prince Edward Island are on track to spend half of all revenues on health care by 2028.

The report recommends temporarily suspending enforcement of the provisions of the Canada Health Act that prohibit consumer cost-sharing and private insurance, to allow provinces to experiment with new ways of financing medical goods and services, while still maintaining universal access and portability.

“The Canada Health Act forbids many of the successful policies that are commonly used in other developed countries that also have universal access health care systems,” said Mark Rovere, Fraser Institute associate director of health policy research and co-author of the study.

“We’ve been tracking provincial health spending since 2004 and it’s readily apparent that unless provincial governments gain the freedom to innovate and devise a better way to finance health care, Canadians will face higher taxes, expanded rationing of medical goods and services, or extensive cutbacks in other government programs.”

Annual percentage growth rates

Ten-year average annual percentage growth rates for government health

expenditures (GHEX) and total available revenue (TAREV), and gross domestic product (GDP), ­by province

The report notes that total provincial health spending has grown at an average annual rate of 7.5 per cent over the past 10 years, compared to only 5.7 per cent for total available provincial revenue (including federal transfers), and only 5.2 per cent for GDP. Long-term trends are similar: government health spending has grown faster, on average, than GDP since 1975.

Meanwhile, Canadians endured an average total wait of 18.2 weeks in 2010 between an appointment with a family doctor and receiving treatment from a specialist, up from 9.3 weeks in 1993. Provincial drug plans also increasingly refuse to pay for most of the drugs that are certified by Health Canada as safe and effective. Averaged across all provincial public drug programs, only 20.3 per cent of all drugs certified by Health Canada in 2008 had actually been approved for reimbursement by the provinces as of December 31, 2009.

Health expenditures consume 50 %

Number of years until government health expenditures (GHEX) consume

50 % of total available revenue (TAREV), 2010 forward, by province, based on the

most recent 10 year trends in GHEX and TAREV


Excluding federal transfers, health spending currently consumes 87.7% of total available provincial own-source revenue in Nova Scotia, 74.2% in New Brunswick, 71.9% in Quebec, 65.5% in Prince Edward Island, 63.1% in Ontario, 62.8% in Manitoba, 60.3% in Newfoundland & Labrador, 55.2% in Saskatchewan, 54.6% in British Columbia, and 48.0% in Alberta.

The provinces are bankrupting themselves to pay for a health care system that is fundamentally broken and doesn’t offer Canadians timely access to medical services. Health spending has outpaced revenues despite government efforts to control costs through rationing,” Rovere said.

C’est pour cela qu’il faut faire attention, quand le gouvernement fédéral se félicite quand il réduit rapidement son déficit, puisque le coût de la santé est la plus importante dépense de tous les pays modernes, il transfère le problème sur le dos des provinces qui entre temps se tape des déficits structurels.

In order to maintain universal access to health care without raising taxes or further rationing medical services, the report makes five additional recommendations:

  • Require patients to make percentage-based, co-insurance payments for all publicly funded medical goods and services they use;
  • Legalize private payment and private insurance options for all types of medical goods and services, including hospitals and physician services, as is currently allowed for prescription drugs;
  • Allow health providers to receive reimbursement for their services from any insurer or payer, whether government or private;
  • Shift the burden of medical price inflation onto the private sector by allowing providers to charge patients fees in addition to the government health insurance reimbursement level; and
  • Create economic incentives for cost and quality improvements by permitting both for-profit and non-profit health providers to compete for the delivery of publicly insured health services.

“Our health care system can’t be made sustainable through more redistributive financing. The federal government already transfers billions in funding to the provinces, which has just encouraged provinces to avoid making necessary reforms. And higher taxes will damage the economy,” said Brett J. Skinner, study co-author and Fraser Institute president and director of health policy research.

“This is a genuine financial crisis. Eventually, governments will have to shift a small percentage of public health care costs directly onto users, and allow people the choice of buying private insurance if they wish—something that is already done in other countries with universal-access health care systems. Such changes would make public health spending more sustainable, and provide additional resources to improve access and choice for Canadian patients without bankrupting the provinces or harming the economy.”



·    Provincial governments have increased taxes to fund health care. In 2004, Ontario introduced an income surtax, which the province mislabelled a “health premium.” In 2010, the province of Quebec introduced a new health tax called the “health contribution.”


·    Like Ontario’s “health premium,” Quebec’s “health contribution” is not linked to individual consumption of medical goods and services; it is in fact an income surtax and will therefore have no impact on costs because there is no incentive effect on the consumption choices of health care users.


·    Federal transfers have been generous over the period. Between 1997/98 and 2006/07, the federal government provided the provinces with an estimated $115.7 billion in cash transfers for health care—$36.0 billion more than needed to keep up with population growth and inflation over the same period.