October 28, 2011 - Today, the Financial Post published an op-ed by MLI director of research Jason Clemens on healthcare reform.

Welfare and Health

Make health spending more effective by employing the same approach used for welfare

By Jason Clemens, Financial Post, October 28, 2011

The First Ministers will meet later this fall to begin the negotiations for renewal of the Canada Health Accord (CHA). The negotiations, which govern federal transfers to the provinces (and territories) in support of health care, are an opportunity for the federal government to begin the process of meaningful health-care reform.

The health-care crisis facing Canada today (along with its accordant costs) in many ways parallels the challenges facing Canada in the early 1990s regarding welfare dependency. The successful welfare reforms that gave the provinces the autonomy to innovate provide a model for reforming Canada's health care.

The problems in Canada's health-care system are well documented: Put simply, we spend a lot but don't get a lot. In terms of the total amount of resources devoted to health care, Canada allocated 11.4% of GDP to health care in 2009. This places us sixth, along with Switzerland, among the 34 OECD countries. Federal spending on health transfers is increasing at almost twice the rate of all other federal program spending, which means health-care spending is crowding out other spending.

Little of the health-care performance data indicates a comparable level of services given the resources devoted to health care. The following data rank Canada among the 34 OECD countries across a wide range of health-care indicators:

- 26th in access to physicians, and this is likely an overestimate.
- 16th in access to nurses.
- 24th in hospital beds.
- 16th out of 27 reporting countries for access to both MRIs and CT scanners.
- 11th of 25 reporting countries for access to mammograms.

A major study by the Commonwealth Fund examined Canada's wait times along with six other industrialized countries such as the U.K. and Germany. Canada performed the worst among the seven countries.

History has lessons to teach us. In the early 1990s, Canada faced serious challenges regarding welfare dependency. Welfare programs were crowding out other spending, similar to the current health care crisis. Welfare dependency reached an almost unimaginable 10.7% of the population in 1994, representing 3.1 million Canadians.

The 1995 federal budget restructured (and reduced) federal transfers to the provinces for social programs and introduced the Canada Health and Social Transfer (CHST).

The CHST afforded the provinces much greater latitude to experiment and innovate in the design and delivery of welfare and related services. There were a number of common reforms implemented by most of the provinces. One common feature of reform was a reduction in benefit levels, particularly for single employable people, based on an increasing understanding that when benefits surpass comparable income available from low-paid work, incentives were created to enter or remain on welfare.

There was also, however, a diverse set of innovations implemented by the provinces. British Columbia, for example, was the first and only province to limit access to welfare by imposing a 24-month limit to welfare use in any cumulative 60-month period for employable individuals. Alberta focused on reforming the culture of the ministry responsible for social assistance from simply processing payments and paperwork to focusing on diverting potential welfare recipients to alternatives such as employment. Manitoba introduced transitional programs to aid people moving from welfare to work.

Ontario became the only province with a broad "workfare" program. Ontario also transferred funding responsibilities, new cost-sharing agreements, and responsibilities for provincial programs to localities, resulting in a large-scale decentralization of welfare programs to municipalities.

The results were stunning. The number of Canadians receiving welfare declined from a peak of 3.1 million in 1994 to 1.7 million in 2009, up slightly from 1.6 million in 2008. As a percentage of the population, welfare recipients declined from a peak of 10.7% in 1994 to 5.1% in 2009.

An important consideration in the social reforms of the 1990s was the much anticipated "race to the bottom." An empirical analysis of the period refuted much of this worry and concluded that "there is no evidence to suggest that this shift precipitated a race to the bottom. The evidence here is clear."

Canada faces both a short- and long-term deficit challenge, as well as the need to better contain health-care costs while delivering better results. The federal government should stabilize or even reduce the value of the Canada Health Transfer in order to bring more direct accountability to the provincial level for the raising of resources used in health care while containing cost increases to the federal government. In addition, the federal government should allow the provinces the maximum amount of flexibility to design, regulate and provide health care to citizens within a universal and portable framework. Such changes would begin a genuine process of reform in the country's ailing health-care system.

Financial Post
Jason Clemens is the director of research at the Macdonald-Laurier Institute and author of the recently released Reforming the Canada Health Transfer.