A NEEDS-BASED CANADA HEALTH TRANSFER: DRAWING LESSONS FROM AUSTRALIA
Medicare in Canada is a federally and provincially funded public service. The federal government provides financial assistance to the provinces for Medicare through the Canada Health Transfer (CHT), which, along with the other federal transfers (Canada Social Transfer and Equalization), intends to correct the country’s vertical fiscal gap. The federal government has an important role in Medicare, which is to work with the provinces to ensure all Canadians have access to Medicare and to ensure a national standard of Medicare (Government of Canada 1982; Senate 2002). In 2014, the federal government unilaterally amended the CHT formula to an equal-per-capita distribution. This change means the provinces receive their CHT portion based exclusively on their percentage of the national population. The change makes it more difficult for some provincial governments to provide comparable levels of Medicare services because of their relatively lower fiscal capacity and higher medical needs of their populations. A potential way to recognize the inherent differences between provinces and territories is to allocate the CHT based on need. Compared with the simple equal-per-capita allocation, a needs-based formula (NBF) is a fairer allocation of finite resources based on distribution of health needs, but it presents a number of problems. Distributing resources based on need may create inefficiencies or lack transparency because a more complex formula may create unintended consequences, resulting in moral hazards and perverse incentives (a perverse incentive is the negative result of an otherwise good intension). A needs-based CHT formula is likely to succeed only when it properly balances equity, efficiency, and transparency criteria. An equitable, efficient, and transparent formula composition can help an NBF succeed in upholding a national standard, but whether an NBF is feasible depends on the institutional, fiscal, and political context of Canada. Policy makers interested in designing an NBF can look to other countries that use an NBF. However, current literature focuses on formula composition and fails to explain why countries have differing formulas. This study first attempts to fill the gap in the literature by proposing a framework to develop an NBF. Second, the study uses a comparative analysis to understand the historical context of Canada and Australia in developing their respective federal health-transfer programs. Through these analyses, this study aims to answer one question: is it possible to implement a needs-based formula for CHT that is equitable but also minimizes perverse incentives? This study finds that an ideal NBF formula for CHT that meets the criteria of equity, efficiency, and transparency should include age structure, sex, and location of populations. Through the comparative study of Australia and Canada, the study finds that it is possible to implement an NBF formula that considers age structure, sex, and location of populations. However, feasibility of such an NBF in Canada is dependent on establishing a collaborative relationship between the federal, provincial, and territorial governments. In spite of the decentralized fiscal power and regional divides in Canada, it is possible for the governments to collaborate given the strong national support for the Medicare system. Canadians value their Medicare system, which they see as a supranational program that transcends regional interests, and desire to see their governments work together to ensure equitable access to Medicare services. To meet the expectations of Canadians and safeguard Medicare, the federal and provincial governments could adopt the Australian approach and collaborate through a formal body like the Commonwealth Grants Commission or the Council of Australian Governments. By working together through these formal bodies, there is a chance that Canada could adopt an NBF for the CHT, secure a national standard of Medicare, and support the values Canadians have for their Medicare system.
DegreeMaster of Public Policy (M.P.P.)
DepartmentJohnson-Shoyama Graduate School of Public Policy
CommitteeBeland, Daniel; Marchildon, Gregory; Holroyd, Carin
Copyright DateMay 2017