Premiers Want Money...Not Accountability

Six weeks ago, on this page, I lamented Roy Romanow’s failure to propose creative reforms to our country’s health care system. He simply demanded $15 billion more federal transfers to provinces, while expanding government monopoly into national homecare and a program to cover catastrophic pharmaceutical expenses. It’s not clear how he came up with the figure. Perhaps he just multiplied the $15 million cost of his Commission by one thousand?

Although most provinces rejected Mr. Romanow’s recommendation for more centralized control over spending, they’d already jumped on the Big Spender Band Wagon. Last September they collectively launched an ad campaign that focused on the (exaggerated) claim that, once upon a time, the federal government used to shoulder half of health care costs, but only 14 percent today.

According to Brian Laghi of the Globe and Mail, the Premiers held a teleconference on January 8, where they agreed to gang up on the Prime Minister for more money at their meeting later this month: $24.7 billion over four years. These gentlemen have out-Romanowed Romanow himself!

In fact, we don’t really know how much provincial health spending comes from federal transfers, because the funds are delivered through the Canada Health and Social Transfer (CHST), which provinces spend on post-secondary education and social services as well as health. Nevertheless, colleagues at the Fraser Institute estimate that about 22 percent of provinces’ health spending comes from the CHST, a reduction of about 10 percentage points from twenty years ago. So, the “problem” is not as big as the Premiers make it out to be, and it’s a red herring anyway.

Imagine standing in the store and arguing with yourself whether to pay for your licorice with money from your left pocket or your right pocket. Well, the government in Winnipeg picks your left pocket and the one in Ottawa picks your right, so worrying about who is “funding” government run health care is silly. The only difference is that the government in Ottawa is even more remote from Manitobans than the one in Winnipeg is, so we should hardly expect federal standards to address Manitobans’ health needs better than provincial policies can.

All provincial governments except Saskatchewan’s appear to want the money with no strings attached. How realistic is that? Surely, no Premier really expects Ottawa to just hand over the cash without accountability, given the Romanow report. This isn’t the gun registry, you know.

What can explain Ralph Klein, who received the pro-patient choice Mazankowski report favourably, signing on to the collective appeal for more federal money for an unreformed health care system?

Although running a big surplus, the federal government offers little hope for a tax cut, so perhaps even sensible Premiers like Mr. Klein figure that if they don’t grab the cash as quick as they can, the federal government will spend it in areas abhorrent to them – like the unsinkable gun registry. That’s seems understandable, as far as political tactics go, but it’s not real health reform.

For example, empirical research on health insurance indicates that levying a 25 percent co-payment from non-poor residents reduces health spending by 19 percent, without negative health consequences. This is because the co-payment puts the patient in charge of what services he uses, and he has an incentive not to use unnecessary ones. Governments can return the savings to residents through tax reductions, or spend it on other public investment.

Recall that figure of 22 percent for the share of federal transfers in provincial health spending and compare it with 19 percent savings from implementing a co-payment. Provinces are pretty close to being able to opt out of the Canada Health Act, (which is generally interpreted to forbid co-payments), and coming out ahead fiscally, despite losing their CHST. Indeed, another calculation done at the Fraser Institute indicated that Alberta and Ontario could have done this in 1998.

Another benefit of provincial autonomy is that we can see the consequences of different reforms. Provinces have complete autonomy in Pharmacare. In the mid 1990s, provinces embarked on significant reforms. Manitoba introduced an income-based means test for Pharmacare benefits. British Columbia maintained universality but restricted payment for newer medicines through so-called “reference pricing” while fully subsidizing older, less expensive ones. From 1996 through 2001, real, per capita, prescription spending went up only 35 percent in Manitoba but 60 percent in BC, with both Pharmacare and private pharmaceutical spending in BC significantly outpacing Manitoba’s.

The lesson learned is that, if the state subsidises drug costs, it will be more successful if it allocates assistance according to financial need rather than trying to figure out which drugs are better than others. If we had had a National Drug Agency, as Mr. Romanow recommends, we would never have learned this valuable lesson, because we would not have been able to observe the alternatives.

The Premiers should demand that the Prime Minister return the federal surplus to Canadians through tax relief. If they want to grab the money for their own, unreformed health systems, let them raise their own taxes to do it. Their voters will let them know what they think of that.