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The demise of the American Health Care Act (AHCA) was ultimately precipitated by factional opposition to different provisions of the bill. Moderate and conservative members of the Republican conference did not agree on much, except they shared an animus towards the ill-fated legislation. 

The future of health-care reform is now highly uncertain. Forging a legislative consensus will continue to be a challenge due to the inherent trade-offs between broad-based coverage and personal freedom, to say nothing of competing views about the respective roles of the market and the state (including different levels of government). 

One might not think that Canada would have much to contribute to this ongoing debate about reforming U.S. health care. Our single-payer model — marked by a lack of competition, market-based pricing, and patient choice — has contributed to one of the most expensive and least effective health-care systems in the industrialized world. Therefore, one might see Canada as a source of ideas or inspiration for health care only in negative terms.

And that is mostly true, except on the matter of Medicaid reform as well as the benefits of clear, predictable, and flexible federal transfer payments for state-run health care. Here Canada’s experience offers a positive example.

From a Canadian perspective, it is frankly surprising that the AHCA’s proposed reforms to Medicaid encountered such political opposition including from within the Republican Party. That the federal government would adopt block funding with a total cap on intergovernmental transfers in exchange for greater room for state-level experimentation seems like a peculiar source of controversy, particularly among conservatives.  

Canada made similar reforms to its federal transfers for provincial-run health care nearly 40 years ago. The country is better off for it — and it has been the subject of a political consensus ever since. There is certainly scope for greater reform in Canada, including granting further room for provincial-driven reforms. But, generally speaking, we do not get what all the fuss is about in Washington when it comes to this proposal.   

As for Medicaid, the reform envisioned by the AHCA is driven by three considerations: unsustainable federal spending, inflationary effects of open-ended funding commitments, and the anti-federalism bias of top-down, centralized decision-making. These are the same considerations that led to reforms in Canada.    

Our first foray into provincial-run health care was in 1957. At that time, the federal government began cost-sharing up to one-half of provincial costs for certain hospital and diagnostic services in exchange for significant conditionality with regards to federal standards and priorities. The regime was expanded to include all medical services outside of hospitals in 1966. This is the genesis of Canada’s much-vaunted Medicare system of universal, publicly funded health care.  

Eventually, it became clear that this fiscal arrangement was highly inflationary and ultimately unsustainable. Before too long, rapidly escalating costs and large-scale budgetary deficits forced the federal government to revisit the intergovernmental funding model. Something had to change. 

Thus, in 1977, Prime Minister Pierre Trudeau’s government — the most left-wing government in Canada’s political history — passed legislation reforming federal payments to the provinces for health care. Block funding replaced cost-sharing, and federal conditions on provincial policy and delivery choices were diminished, in turn. The federal government got more predictability and the provinces received more flexibility. This is not so different from what Paul Ryan proposed in his controversial bill.

The fiscal federalism of Canadian health care has evolved in the intervening four decades. There have been periods of cash payments and tax points compared to today’s cash transfers; new federal conditions, enacted by the Canada Health Act; intermittent side deals between federal and provincial governments on specific health-care issues; and different growth rates for federal transfer payments over this period. But the basic foundation of block funding with minimal conditionality has remained unchanged and unchallenged. Nearly everyone across the political spectrum agrees there should be no more open-ended commitments or centralized decision-making. 

Beginning this year, Canada’s federal transfer payment for health care will grow at a three-year rolling average of nominal GDP with a floor of 3 percent. It is allocated to the provinces on a per-capita basis with no adjustments to account for provincial income, spending growth, or demographics. Funding goes directly into a province’s general revenues and can be used for any purposes — so long as its health-care system complies with federal expectations around public administration, comprehensiveness, universality, portability, and accessibility.

Our intergovernmental fiscal regime is far from perfect. Federal conditionality is still too restrictive. For instance, prohibitions on patient cost-sharing (such as co-insurance, co-payments, or the use of deductibles) for hospital and doctor services should be repealed to enable greater provincial experimentation and better control costs. And, of course, there are also many other aspects of Canada’s health-care system that U.S. lawmakers should ignore — such as its restrictions on private medicine and lack of a pricing mechanism in the hospital system — except, perhaps, as an example of what not to emulate.  

Nevertheless, the type of federal block funding envisioned and ultimately rejected as part of the AHCA was enacted in Canada nearly 40 years ago for precisely the same reasons as those articulated by Speaker Ryan. It has since been a policy success and now enjoys support across Canada’s political spectrum.

There are plenty of outstanding issues about the future of health-care reform in the United States that deserve further debate. Converting federal funding for Medicaid into block grants in exchange for greater state-level flexibility and local decision-making should not be among them. Canada’s experience shows that this proposal should not only unify Republicans, but also gain bipartisan support. Both arithmetic and experience are on the side of the reformers.

Sean Speer is a Munk Senior Fellow at the Macdonald-Laurier Institute, a non-partisan public policy think-tank in Ottawa, Canada.

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