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The early 2000s were a fertile period for health care reform. The deficit reduction battles of the previous decade had left their mark.

Federal transfers to the provinces had fallen to just over 2 per cent of GDP, half what they were at their peak. Provinces had in turn been forced to curb spending across the board, even for health care: public spending on health care had fallen to 6 per cent of GDP by the end of the 1990s, from 7 per cent at the start. Wait times had lengthened accordingly, to a median of 18 weeks from referral to treatment, twice what they were a decade before. Yet even as spending on health care was restored to previous levels, wait times remained at record highs.

Clearly, something had to give. A series of federal and provincial reports landed, each offering its own sweeping recommendations for change. The year 2002 alone saw the report of the federal Commission on the Future of Health Care in Canada, headed by former Saskatchewan premier Roy Romanow; the report of the Senate Committee on Social Affairs, Science and Technology, chaired by Senator Michael Kirby; and the report of the Alberta Premier’s Advisory Council on Health, chaired by former federal finance minister Don Mazankowski.

The latter two, in particular, were full of interesting proposals that would have preserved medicare as a universal, publicly funded program, while improving incentives for efficiency within the system. It seemed like reform’s time was at last at hand.

And then … nothing. Twenty years later, the system remains largely unreformed. Some provinces have changed some things in some respects – a pilot project for primary care reform here, a proposal for changing how hospitals are funded there – but on the whole very little progress has been made.

What happened? What took the steam out of reform? Why did the provinces give up on trying to fix the system? Very simple: the federal government came to their rescue. In late 2004 the Liberal government of Paul Martin, reduced to a minority in the election earlier that year and under pressure to Do Something about health care, unveiled what it grandly called the “fix for a generation” – notably, a 6-per-cent annual increase in federal transfers to the provinces, for 10 years.

Supposedly the funds were to be used, in the phrase popularized by the Romanow report, to “buy change.” In reality what they bought was stasis. When money was relatively scarce, the provinces had been forced to at least consider fundamental reform. Once the money started flowing again, everybody went back to sleep. For the most part, provincial governments used the increased federal transfers to “buy peace” with health care providers, whose compensation soared. The last thing they wanted to do was to disrupt that fragile truce with something “courageous” (in the Yes, Minister sense) like reform. If you want to know why Canada’s health care is in the state it is today, the Martin “fix” is a big part of it.

Yet if anything the system is in worse shape than ever. Some of that, to be sure, reflects the increased strain on the system from the pandemic. But even before the pandemic wait times had grown to 21 weeks; they are currently more than 26 weeks. Only now this cannot be put down to cuts in spending: At roughly $240-billion – about 9 per cent of GDP, or more than $6,000 per person – public spending on health care is not only higher than it has ever been (but for the pandemic peak), but is higher than in many other developed countries.

Neither can it be ascribed to any deficiency in federal assistance, much provincial rhetoric to the contrary. Total federal transfers in fiscal 2020, the last year before the pandemic, had tripled since 2002; at $79-billion, they accounted for 18 per cent of provincial program spending, up from 14 per cent in 2002. Even if we look only at the portion of federal transfers formally labelled as being “for health care” – a fiction, since the provinces can spend any money they received on anything they want – the picture is the same: At $42-billion, the Canada Health Transfer accounted for 24 per cent of provincial health spending in fiscal 2020, versus 22 per cent in 2002. And this is without getting into any theological debates about the value of federal tax points transferred in 1977.

So: we are spending more than we ever have – 50 per cent more, per capita, after inflation, than we did 20 years ago – yet wait times are nearly 50 per cent worse. The provinces have snoozed away the past two decades while the system was falling apart, narcotized as they were by regular infusions of federal cash. And what is it that is now proposed to fix the system again? More federal money.

The Prime Minister will meet with the premiers early next month. Expectations that they will announce a deal there and then have been played down. But all of the noise over the past few weeks has been to the effect that the two sides are edging closer to an agreement: a sizable increase in federal transfers, in return for provincial acceptance of a handful of federal conditions, including – gasp – that they should publish comparable data on the state of their respective health care systems. No doubt that would be a useful measure, allowing the public and experts to track the provinces’ progress against each other. It might even be worth a federal bribe of some size.

But another great dollop of federal cash, on top of the increases the provinces have already received, is not only unhelpful: it is a disaster. It would be a disaster even if Ottawa had the money, which it doesn’t. It will probably be less of a disaster than it might have been, depending on how restrictive the rest of the federal conditions prove to be. It may even shorten wait times in the short run, just as the Martin “fix” did. But it will only make things worse in the long run.

By now it should be clear that the problem in health care is not a lack of spending, federal or provincial. The problem is rather that we are not spending existing dollars efficiently, or even inefficiently: We are spending them more or less blindly, because nobody within the system knows what anything costs. Until we face up to this fundamental dilemma, any increase in funds will be wasted. And so long as the funds keep increasing, we are unlikely to face up to it.

With the benefit of hindsight we can see how misconceived the “buy change” thesis was. Politicians, like most people, are fundamentally risk-averse: they would rather avoid pain than receive an equivalent dose of pleasure. The political returns from reforming health care, if any, are far off in the future; elections have to be won in the here-and-now. It is always easier to put it off to another time, if not another government, rather than kick the hornet’s nest of angry interest groups and fearful citizens – especially if Ottawa is, in effect, paying you to do so.

It isn’t only that federal transfers take the pressure off the provinces to grasp the nettle of reform. They also blur the lines of accountability. When one level of government is raising the money, while another spends it, it makes it hard for the public to know who to hold to account for any of the system’s ills. That, too, dulls any lingering incentive for reform. Instead of fixing what is wrong, the provinces can always complain that Ottawa is “underfunding” health care, a complaint that only grows louder the more money the feds provide.

If the federal government really wants to help, in other words, it should do the opposite of what it is now contemplating. Far from increasing transfers to the province, it should cut them to zero. Or if that it is too harsh, it should convert the cash portion of the transfer to tax points, completing the process begun in 1977. (For those unfamiliar: a transfer of tax points means that Ottawa cuts its taxes, while the provinces raise theirs an equivalent amount. The total tax burden remains the same, but is distributed differently between the two levels of government.)

This is a point made forcefully in a striking new paper published by the Johnson-Shoyama Graduate School of Public Policy at the University of Saskatchewan. It is striking both because of the quality of the argument, and because of who is making it: Peter Nicholson, former policy guru to, of all people, Paul Martin. (There seem to be a lot of them about these days.)

In Repairing Health Care in Canada: Time to Take the First Step, Mr. Nicholson argues the “first step” should be to replace the CHT with a transfer of tax points, supplemented by an increase in equalization payments to poorer provinces, for whom each percentage point of tax is worth less.

“By muddying the assignment of responsibility,” he writes, “the CHT has reduced the pressure on the provinces to undertake the politically difficult task of health care reform.” Once cash transfers had been replaced with increased tax room, “it would finally be clear to the public that health care policy and delivery is essentially the sole responsibility of provincial governments. And without Ottawa to share the blame for underperformance, provincial governments would have a stronger incentive to organize the delivery of health care so as to achieve greater quality and public satisfaction per dollar spent.”

As a bonus, the value of a tax point will increase over time, in line with economic growth. Good: the provinces will probably need more money in the long run, to deal with the increased costs of looking after the growing numbers of the elderly. But more than that, they need to be accountable for how the money is spent – accountable to their own taxpayers, not to Ottawa.

More reform, less finger-pointing: If sense prevailed, the federal government would get out of the cash transfer game altogether. Instead, it is about to go all in.

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