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What we need more than a new Health Accord: A revenue-sharing accord

Åke Blomqvist is adjunct research professor at Carleton University and Health Policy Scholar at the C.D. Howe Institute.

Last week, Canada's federal and provincial health ministers were engaged in negotiations about the future federal transfers to the provinces for health. The negotiations appear to have ended in a standoff, with provincial governments insisting that there have to be bigger transfers in order for them to offer even current levels of care, and the federal government refusing to increase the transfers significantly unless the provinces agree to a set of conditions in a new Health Accord.

The best outcome would be to leave matters as they are: There should be no new transfers beyond those already scheduled, with or without conditions.

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Jane Philpott, the federal Health Minister, should be commended for her explicit recognition that the performance of our health-care system has been slipping in comparison with those of other countries. Reforms are indeed needed urgently, and should include not just initiatives to strengthen coverage of pharmaceuticals and continuing care, but also new methods to pay for physician and hospital services.

But increased federal transfers, even with conditions, are not the right tools for making this happen.

The reason provincial health reform has been slow and fitful is not that provincial politicians lack incentives to undertake them: Like federal politicians, they want to be seen as responding to Canadians' demand for good care, and they don't want to be blamed for high taxes if health-care costs get out of hand. Instead, the main obstacle that undermines the reform process is the opposition of various interest groups.

As health economists are fond of pointing out, every dollar of health-care costs is someone's income, and efficiency-enhancing health-system reforms that reduce costs are typically perceived by providers and others in the sector as threats to their jobs and incomes.

Provider interest groups, such as provincial medical associations or unions representing hospital employees, are much better organized and powerful today than they were when medicare was created some 50 years ago. For provincial politicians, taking them on is difficult and costly.

A strategy of asking for more money from the federal government is a lot less controversial. In doing this, they will have the enthusiastic support of these same interest groups.

With advancing medical technology and an aging population, health-care costs will rise no matter how we manipulate the way we pay for them. Unless we make the system more efficient, rising health-care costs will mean higher taxes or crowding out of other public expenditure.

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In Canada, it should be the responsibility of provincial politicians to explain to the public the difficult compromises that this will force us to make. They are less likely to do so if they spend most of their energies on efforts to get more money from the federal government.

In the Canadian federation, federal-provincial revenue sharing is essential. Provincial governments are responsible for some of the costliest public-sector functions (education, health care), while the federal government collects a large share of total tax revenue. But it is a mistake to earmark any of these transfers as being for health or any other specific provincial expenditure item, and making them conditional on various provincial policies.

Effective management of health care requires a delicate balancing of the diverging interests of patients, providers and taxpayers. This balancing will only be properly done if the elected politicians that make the spending decisions also are the ones that are responsible for raising the tax revenue to pay for them. In our current system, this responsibility is diluted by the expectation that federal transfers for health will be adjusted when provincial health-care costs increase. As a result, the incentive of provincial politicians to take on the opposition and implement effective reforms will be weakened.

What Canada needs more urgently than a new Health Accord is a new accord on revenue sharing. In such an accord, the Canada Health Transfer would be combined with equalization payments and the Canada Social Transfer into a single annual amount, and precise rules should determine what each province's transfer would be in future years.

With greater certainty about future transfer payments, politicians at both levels of government could focus on managing the programs for which they are constitutionally responsible, and on making the trade-offs between expenditure control and taxation that should be at the centre of not only our health-care system, but our system of public finance more generally.

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