Chapter 2 Textbook Notes
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HLTB03 Midterm Notes: Health, Illness, and Health Care in Canada
Chapter 2: Health Care and Health Reforms: Trends and Issues
¾ Canadians have access to a wide range of physician and hospital services any direct out-of-pocket costs.
¾ This system of universal, accessible, comprehensive and portable medical and hospital care insurance, publicly
administered on non-profit bases is called medicare.
programs, and it is a source of great national pride. Yet, at the same time, it is a source of perpetual public concern.
¾ As taxpayers, however, we worry about the cost of medicare and whether it is financially sustainable.
¾ We also worry about whether it is draining public resources away from other areas of public policy, such as post-
secondary education, social services, national defence and security, etc.
¾ Numerous cost containment and various cost transfer measures have been implemented as possible solutions to the
crisis. Paradoxically, in many cases, these cost containment and cost transfer measures are seen as part of the
problem, rather than part of the solution.
¾ Cost transfer initiatives are of two main types. The first involves directly transferring costs from the public sector to
the private sector. This can be referred to as marketization.
¾ The second, indirect cost transfer strategy, involves having family, friends, and community organizations providing
uncompensated care to individuals in need. This is often referred to as downloading.
¾ The other main dimension of the perpetual crisis in health care involves concerns about whether medicare has the
capacity to satisfy the existing and emerging health care need of Canadians in a timely and effective fashion.
¾ The changing pattern of illness is related to several factors, including the aging of the population (the so-called
demographic transition), changing lifestyles, climate change, and the changing types and patterns of illness
associated with these developments.
¾ The other main dimension of the health care crisis is the lack of transparency and accountability of health care policy-
makers, system managers, and service providers. In recent years, there have been several reforms introduced that
are intended to increase transparency and accountability in health care.
Medicare: Origins and Contradictions
¾ By the 1940s, failure of the market to ensure adequate access to necessary medical and hospital care, combined with
limitations of various locally developed collectivist solutions, had generated renewed interest in a system of public
¾ This was given added impetus because wartime military and industrial recruitment efforts revealed that an alarmingly
high proportion of recruits were too sickly for military or industrial service.
¾ As a result, and faced with other evidence of the poor health of the Canadian population, health insurance was firmly
established as a key component in government 0lans for the reconstruction of Canadian society following the Second
¾ Thus, in 1945, the federal government put forward a plan for itself and provincial governments to share the costs of a
universal medical care and hospital services insurance program.
¾ It is believed that improving access to medical and hospital services by removing financial barriers would result in
improved population health status.
¾ Thus, by the end of the Second World War, there was a political consensus that health care could not be left entirely
to the market. Beyond that, however, there was little agreement.
¾ The medical profession for example, favoured a hospital and medical care insurance system that was based on
voluntary participation in physician-sponsored or for-profit insurance plans where government was limited to means-
testing patients and covering the costs of care for those who could not pay for it themselves.
¾ The private insurance industry was in favour of a similar arrangement. Business organizations in general, as well as
several provincial governments, also favoured such an arrangement because of concerns about creeping socialism.
¾ Despite these differing views, in 1945, the federal government introduced draft legislation for a universal,
comprehensive, publicly financed and administered hospital and doctor services plan.
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HLTB03 Midterm Notes: Health, Illness, and Health Care in Canada
¾ Key features of that legislation were the establishment of health regions, patient registration with physicians, a
capitation mode of payment, financial incentives for physicians to adopt preventative approaches, and the
administration of the system by commissions of physicians and consumers.
¾ The proposed legislation was not enacted because the federal and provincial governments could not agree on
taxation issues relative to the plan and because of provincial government concerns about federal incursion into areas
of provincial jurisdiction.
¾ As federal-provincial discussions bogged down, and the prospects of implementation receded into the future, a new
consensus emerged around the adoption of an incremental approach to the introduction of government financed
medical care and hospital service insurance.
¾ In 1946, the province of Saskatchewan took the lead by introducing the first province-wide publicly financed and
administered hospitalization insurance program.
¾ In 1962, the Saskatchewan government again pioneered the development of medicare when it introduced the
¾ The first step taken by the federal government occurred in 1948 with the introduction of the Hospital Construction
grants program. This program provided provinces with money to build acute care hospitals.
¾ In 1958, the federal government introduced the Hospitalization Insurance and Diagnostic Services Act and thereby
took a second giant step toward medicare.
¾ Under this Act, the federal and provincial and territorial governments shared the costs of a national system of
¾ The next step was passage of the 1966 Medical Care Services Act. This Act enabled the federal and provincial and
territorial governments to share the costs of all medically necessary physician services.
¾ By 1972, all the provinces had signed on and medicare was a reality.
¾ It must be noted, however, that there really is NOT a single Canadian health care insurance system.
¾ The main contradictions of medicare were related to the cost sharing formula. Under the terms of the 1966
arrangement, federal government contributions were directly tied to, and determined by, provincial expenditures on
hospital and medical care services.
¾ As a result, the federal government had NO control over its health care expenditures. Naturally, from the federal
government perspective, that was an undesirable position.
¾ Provincial governments also came to be dissatisfied with that arrangement because it discouraged innovation and
experimentation with alternative forms of non-physician and non-hospital community-based health care because
community-based forms of health care and treatment were ineligible for federal funds.
¾ The original cost-sharing agreement also discouraged provincial governments from attempting to improve the
efficiency of hospitals and medical care services because every dollar saved by the provinces resulted in a
corresponding decrease in the amount of money transferred to them by the federal government. Thus, the federal
and provincial and territorial governments were interested in changing the terms and conditions of the original cost
¾ The 1977 Federal-Provincial Arrangements and Established Programs Financing Act (EPF) was the first substantial
revision of health insurance cost sharing arrangements. The EPF had a number of effects:
o It uncoupled federal costs from provincial expenditures.
o It limited the growth in direct federal government increases to the rate of growth of the gross national
o It provided a $20 per capita incentive for provinces to put more resources into community care.
¾ The transfer of tax points from the federal to the provincial and territorial governments made this financially
attractive because it enabled them to increase their levels of income taxation to make up for reduced federal cash
¾ Revisions to the cost sharing arrangements at that time limited federal transfers to the provinces to an annual rate of
growth that was two percentage points below the rate of increase in the GNP.
¾ Following that, the federal government further reduced the level of transfer payments to the provinces by freezing
them for two years at the 1989-90 levels.
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