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Canada Health Act

The Canada Health Act (CHA) is a piece of Canadian federal legislation, adopted in 1984, which specifies the conditions and criteria with which the provincial and territorial health insurance programs must conform in order to receive federal transfer payments under the Canada Health Transfer. These criteria require universal coverage (for all "insured persons") for all "medically necessary" hospital and physician services, without co-payments.

The CHA deals only with how the system is financed. Because of the constitutional division of powers among levels of government, adherence to CHA conditions is voluntary. However, the fiscal levers have helped to ensure a relatively consistent level of coverage across the country. Although there are disputes as to the details, the CHA remains highly popular.

In popular discussion, the CHA is often conflated with the health care system in general. However, the CHA is silent about how care should be organized and delivered, as long as its criteria are met.

Another cause for debate is the scope of what should be included as "insured services". For historical reasons, the CHA's definition of insured services is largely restricted to care delivered in hospitals or by physicians. As care has moved from hospitals to home and community, it increasingly has been moving beyond the terms of the CHA. International data shows that approximately 70% of Canadian health expenditures are paid from public sources, placing Canada below the OECD average.

The key battles around the CHA, however, concerned the question of charges to insured persons for insured services. These were termed 'extra billing' when they referred to physician care, and 'user charges' when they referred to hospitals. The policy debate was a long-standing one. Health care differs from many consumer goods to the extent that it is allocated on the basis of need. If someone who needs care is not to be denied it on the basis of ability to pay, providers often find themselves providing charity care. A guaranteed payer can thus benefit both patients and providers, to the extent that there are no longer bad debts. But a single payer has monopsony buying power and can enforce cost control on providers should it care to do so. Should this power be abused, providers may be under-paid for their activities, face restrictions on their clinical judgement, and so on. The optimal situation for providers is thus the ability to rely upon the guaranteed payer for those unable to pay, while retaining clinical autonomy and the ability to charge more to others. For patients and payers, however, this may present issues around access, equity, and cost control. The debate about the extent to which payers could control providers has been a constant theme in the Canadian health care debate, with extra billing and user fees being a frequent topic.

History: Federalism

Canada is a federal country in which power is distributed between the national government, and the 10 provinces and 3 (sparsely populated) northern territories. The division of power was spelled out in the British North America Act 1867 (renamed the Constitution Act in 1982). Section 92(7) lists as one of the "exclusive powers of provincial legislatures" "The Establishment, Maintenance, and Management of Hospitals, Asylums, Charities, and Eleemosynary Institutions in and for the Province, other than Marine Hospitals." Although this language does not specifically give authority over 'health care,' subsequent court cases and interpretations have generally established the provinces have paramount authority in this area.

Over time, the mismatch between fiscal resources and fiscal capacity became increasingly problematic. If Canadians were to have similar levels of service, it would be necessary for the national government to somehow equalize the ability to pay for it. Yet attempts by the national government to implement programs directly encountered resistance from the provinces, and legal battles. In a few cases, where there was agreement that the federal government should take the lead, adverse court decisions were handled by amending the constitution (e.g., in 1940, in response to a court decision that federal unemployment insurance was unconstitutional, the Constitution Act, 1867 was amended to give the national Parliament jurisdiction over unemployment insurance). More commonly, however, other approaches have been used. Canadian health policy has accordingly been strongly related to Fiscal federalism and questions as to how best to address Fiscal imbalance. In consequence, Canada does not have - and arguably cannot have - a national health care system.

The Constitution Act does give potential powers over elements of health care to the federal government through various clauses (e.g., quarantine), but the role of the federal government has been highly debated. As summarized by a Senate Committee led by Michael Kirby, the federal government has a number of roles to play, including assisting the provinces in paying for health services. Although this has not been tested in court, the federal government has assumed that it is entitled to use its spending powers to set national standards. However, the extent to which 'strings' can be (and are) attached to federal transfers has remained contentious, and most federal governments have been unwilling to antagonize the provinces.

Health insurance before the CHA

The development of Canadian health insurance has been well described by Malcolm Taylor, who participated in many of the negotiations in addition to studying it as an academic. Unlike the UK, Canada never implemented a National Health Service; health care was and largely remains privately delivered. For many decades, it was also privately financed through a variety of programs. In consequence, as Taylor wrote, most Canadians "daily faced the potentially catastrophic physical and financial consequence of unpredictable illness, accident, and disability," and providers, unwilling to deny needed care, had growing bad debts. A number of efforts to establish social insurance systems in Canada had been unable to overcome provincial opposition to federal 'incursion' into their jurisdiction. These included the 1937 Rowell-Sirois Commission on Dominion-Provincial Relations, and the 1945 Green Book proposals of Prime Minister Mackenzie King as part of the post-World War II reconstruction. At the same time, Canada resembled other developed economies in its receptivity to a more expansive government role in improving social welfare, particularly given the widespread sacrifices during World War II and the still active memories of the Great Depression.

Accordingly, following the collapse of the conference proposals in 1946, in 1947, the social democratic premier of Saskatchewan, Tommy Douglas of the Co-operative Commonwealth Federation (CCF), decided to go it alone, and established Canada's first publicly-funded hospital insurance plan. Other provinces - including British Columbia, Alberta, and Ontario, introduced their own insurance plans, with varying degrees of coverage, and varying degrees of success. When Newfoundland joined Canada, it brought along its system of cottage hospitals. These policy initiatives increased pressure on the federal government to get involved, both to assist those provinces which had introduced programs, and to deal with the perceived inequity in those provinces whose citizens did not yet have coverage for hospital care.

The federal government had also acted by using its spending power; in 1948, it introduced a series of National Health Grants to directly provide funds to the provinces/territories for such purposes as hospital construction, professional training, and public health. This increased the number of hospital beds, but did not address the issue of how their operating costs would be covered. The result was that the Progressive Conservative government of John Diefenbaker, who also happened to represent Saskatchewan, introduced and passed (with all-party approval) the Hospital Insurance and Diagnostic Services Act of 1957. This shared the costs of covering hospital services. By the start date (July 1, 1958) five provinces -- Newfoundland, Manitoba, Saskatchewan, Alberta, and British Columbia - had programs in place which could receive the federal funds. By January 1, 1961, when Quebec finally joined, all provinces had universal coverage for hospital care.

Saskatchewan decided to take the money released by the federal contributions to pioneer again, and following lengthy consultations with the provincial medical association, introduced a plan to insure physician costs (The Saskatchewan Medical Care Insurance Plan). By this time, Douglas had moved to national politics, as leader of the federal New Democratic Party (NDP), The provincial plan precipitated a strike by the province's physicians (1962). It was eventually settled, but the CCF lost the 1964 election to Liberal Ross Thatcher. The plan, however, remained popular, and encouraged other provinces to examine similar programs. A policy debate ensued, with some arguing for universal coverage, and others (particularly the Canadian Medical Association) arguing for an emphasis on voluntary coverage, with the government assisting only those who could not afford the premiums. Three provinces - BC, Alberta, and Ontario - introduced such programs.

The federal reaction was to appoint a Royal Commission on Health Services. First announced by Prime Minister Diefenbaker in December 1960, it was activated in the following June. Its chair was Justice Emmett Hall, the chief justice of Saskatchewan, and a life-long friend of Mr. Diefenbaker. Three years later, following extensive hearings and deliberations, it released an influential report, which recommended that Canada establish agreements with all provinces to assist them in setting up comprehensive, universal programs for insuring medical services, on the Saskatchewan model, but also recommended adding coverage for prescription drugs, prosthetic services, home care services, as well as optical and dental services for children and those on public assistance. (None of these have yet been added to the formal national conditions, although most provinces do have some sort of coverage for these services.)

By this time, the Liberals, under Lester B. Pearson were in power. Following intense debate, the Pearson government introduced the Medical Care Act which was passed in 1966 by a vote of 177 to two. These two Acts established a formula whereby the federal government paid approximately 50% of approved expenditures for hospital and physician services. (The actual formula was a complex one, based on a combination of average national expenditures and spending by each province. In practice, this meant that higher-spending provinces received more federal money, but that it represented a lower proportion of their expenditures, and vice versa for lower-spending provinces.) By 1972, all provinces and territories had complying plans. However, the fiscal arrangements were seen as both cumbersome and inflexible. By 1977, a new fiscal regimen was in place.

Change in fiscal arrangements: the 1977 act

In 1977, HIDS, the Medical Care Act, and federal funds for post-secondary education (also under provincial jurisdiction) were combined into a new Federal-Provincial Fiscal Arrangements and Established Programs Financing Act of 1977 (known as EPF). This legislation de-coupled the legislation governing the amount of the federal transfer from the legislation establishing the terms and conditions to be met to receive it.

Under this new arrangement, cost sharing was no more. Provinces/territories now had more flexibility, as long as the federal terms and conditions continued to be met. The federal government had more predictability. Rather than an open-ended commitment, EPF established a per capita entitlement (not adjusted for age-sex or other demographic factors) which would be indexed to inflation. This money would go into provincial general revenues. To simplify a complex formula, the EPF entitlement could be seen as consisting of two components. Part of the funds were in the form of "tax transfers" whereby "the federal government agreed with provincial and territorial governments to reduce its personal and corporate income tax rates, thus allowing them to raise their tax rates by the same amount. As a result, revenue that would have flowed to the federal government began to flow directly to provincial and territorial governments. This transfer could not be reversed by subsequent governments, meaning that the federal government had no fiscal leverage over this component of the transfer. (Indeed, there has been an ongoing controversy as to whether this component should even be considered part of the federal contribution.) The remainder of the entitlement was in the form of cash grants. Although the per capita amount was intended to be escalated to inflation, subsequently, the federal government tried to deal with its fiscal position by unilaterally first reducing and then freezing the inflation escalator. As the cash portion threatened to disappear, in 1996, the federal government combined the EPF transfers with another cost-shared program, the Canada Assistance Plan (CAP), to form the Canada Health and Social Transfer (CHST). This enabled the federal government to both cut the total transfers (by approximately the amount in the CAP) while retaining a 'cash floor' on the total amount. In 2004, these transfers were split into the Canada Health Transfer (CHT) and the Canada Social Transfer. The federal Department of Finance publishes brief guides to these programs. Nonetheless, many argue that there has been no explicit federal transfer for health care since 1977, since these programs are no longer tied to specific spending.

The second component of the federal plan, specification of the terms and conditions which provincial/territorial insurance plans must meet, continued to be those established in HIDS and the Medical Care Act. (Note that there were almost no conditions attached to the CAP or post-secondary education components of the transfers.) The genesis of the CHA was recognition of the extent to which the federal ability to control provincial behaviour had been reduced. One particular problem was the absence of any provision for graduated withholding of the federal contribution. Because there was little desire to withhold the full contribution for minor violations of terms and conditions, provinces increasingly were permitting extra billing for insured services. In response to the resulting political uproar, the federal government again turned to Justice Emmett Hall and asked him to report on the future of medicare. His 1979 report, 'Canada's National-Provincial Health Program for the 1980s' noted some of the areas recommended in his earlier report which had not yet been acted on, and warned that accessibility to health care was being threatened through rising user fees. The federal response was to pass the 1984 Canada Health Act which replaced both HIDS and the Medical Care Act and clarified the federal conditions.

The 1984 act

On December 12, 1983 the Canada Health Act was introduced by the Liberal Trudeau government, spearheaded by then Minister of Health Monique Begin. As she noted, the government decided not to expand coverage (e.g., to mental health and public health), but instead to incorporate much of the language from the HIDS and Medical Care Acts. The Canada Health Act was passed unanimously by Parliament in 1984, and received Royal Assent on 1 April. Following election of a Conservative government under Brian Mulroney in September 1984, in June 1985, after consultation with the provinces, new federal Health Minister Jake Epp wrote a letter to his provincial counterparts that clarified and interpreted the criteria points and other parts of the new act.

Key features of the CHA

The preamble of the act states that the objective of Canadian Health Care policy is "that continued access to quality health care without financial or other barriers will be critical to maintaining and improving the health and well-being of Canadians.The primary objective of the Act is "to protect, promote and restore the physical and mental well-being of residents of Canada and to facilitate reasonable access to health services without financial or other barriers." (Section 3).

To do so, the act lists a set of criteria and conditions that the provinces must follow in order to receive their federal transfer payments: Public administration, Comprehensiveness, Universality, Portability, and Accessibility. There is also a requirement that the provinces ensure recognition of the federal payments and provide information to the federal government. An overview published by the federal government clarifies the conditions as follows:

Public administration

The health insurance plans must be "administered and operated on a non-profit basis by a public authority, responsible to the provincial/territorial governments and subject to audits of their accounts and financial transactions." (Section 8). This condition is the most frequently misunderstood; it does not deal with delivery, but with insurance. However, it does reduce the scope for private insurers to cover insured services (although they are still able to cover non-insured services, and/or non-insured persons).

Comprehensiveness

The health care insurance plans must cover "all insured health services provided by hospitals, medical practitioners or dentists" (Section 9). The Act lists, in the Definitions (Section 2), what is meant by insured services - in general, this retains the restriction to hospital and physician services arising from the earlier legislation. The provinces are allowed, but not required, to insure additional services. Note that the CHA refers to "surgical dental services" but only if these must be provided within a hospital. In practice, this almost never occurs, and the annual health expenditure data published by the Canadian Institute for Health Information (CIHI) confirm that Canadian dental services are almost entirely financed privately. Lobbying by other providers, including nurses, led the act to speak of 'practitioners' rather than physicians; physician services had to be covered, but provinces were allowed, but not required, to define other health professions as qualifying under the Act. To date, this provision has been used only occasionally; for example, some provinces have added Midwifery, which means that their services are also fully publicly paid for.

Universality

All insured persons must be covered for insured health services "provided for by the plan on uniform terms and conditions" (Section 10). This definition of insured persons excludes those who may be covered by other federal or provincial legislation, such as serving members of the Canadian Forces or Royal Canadian Mounted Police, inmates of federal penitentiaries, and persons covered by provincial workers' compensation. Some categories of resident, such as landed immigrants and Canadians returning to live in Canada from other countries, may be subject to a waiting period by a province or territory, not to exceed three months, before they are classified as insured persons; this waiting period arises from the portability provisions.

Portability

Because plans are organized on a provincial basis, provisions are required for covering individuals who are in another province. The conditions attempt to separate temporary from more permanent absences by using three months as the maximum cut-off. As the above-mentioned summary clarifies, "Residents moving from one province or territory to another must continue to be covered for insured health care services by the "home" province during any minimum waiting period, not to exceed three months, imposed by the new province of residence. After the waiting period, the new province or territory of residence assumes health care coverage." The portability provisions are subject to inter-provincial agreements; there is variation in what is considered emergency (since the portability requirement does not extend to elective services), in how out-of-country care is covered (since there is no 'receiving' province), in how longer absences are dealt with (e.g., students studying in another province), whether the care will be paid for at home province or host province rates, and so on.

Accessibility

Finally, the insurance plan must provide for "reasonable access" to insured services by insured persons, "on uniform terms and conditions, unprecluded, unimpeded, either directly or indirectly, by charges (user charges or extra-billing) or other means (age, health status or financial circumstances);" (Section 12.a). This section also provides for "reasonable compensation for...services rendered by medical practitioners or dentists" and payments to hospitals that cover the cost of the health services provided. Note that neither reasonable access nor reasonable compensation are defined by the CHA, although there is a presupposition that certain processes (e.g., negotiations between the provincial governments and organizations representing the providers) satisfy the condition. The CHA allows for dollar-for-dollar withholding of contributions from any provinces allowing user charges or extra-billing to insured persons for insured services. As noted below, this provision was effective in 'solving' the extra-billing issue.

Additional conditions

Section 13 lists two additional conditions which must be met by the province in order to receive its full share of the federal transfers. The first condition is that the federal Minister of Health is entitled to specific information relating to a province's insured & extended health care services. This information is used in drafting annual reports, presented to parliament, on how the province administered its health care services over the previous year. Again, there was - and continues to be - controversy as to how detailed this information should be.

The second condition is that the province must "give recognition" to the federal government "in any public documents, or in any advertising or promotional material, relating to insured health services and extended health care services in the province" (Section 13.b). Again, this is controversial.

Violations and penalties

In order to document compliance with the act the federal Minister of Health annually reports to the Canadian Parliament on how the act has been administered by each province over the course of the previous fiscal year.

For non-compliance with the any of the five criteria listed above, the federal government may withhold all or a part of the transfer payment with “regard to the gravity of the default” (Section 15). Thus far all non-compliance issues have been settled through discussion or negotiation. Some argue that the federal government has not actively attempted to enforce these conditions, with particular issues around handling of portability (e.g., the reduction of coverage for residents while traveling abroad) and comprehensiveness (e.g., de-insuring of some medical procedures).

In accordance with section 20, if a province were to violate the prohibition on extra-billing or user charges, the corresponding amount of that collected would be deducted from the transfer payment. Details about these amounts are available from the Canadian government websites.

One aspect of the CHA was provision for reimbursement of funds withheld for extra-billing and user charges if these were eliminated within three years. Although often contentious (e.g., Ontario's physicians went on strike), all provinces complied with the provisions of the Act. Although the amounts withheld were relatively modest - financial penalties totaling $246,732,000 were withheld from the provinces in the first two years—provinces found it difficult to resist the pressure. (They found that many interest groups seeking additional funds would argue that it could be afforded if the province/territory eliminated their extra billing/user fees. Faced with multiple claims on the same pot, most provinces decided that the easiest path was to eliminate these charges.)

In 1993, British Columbia allowed approximately 40 medical practitioners to use extra-billing in their practices. In response, the federal government reduced B.C.’s EPF payments by a total of $2,025,000 over the course of four years.

In 1996, Alberta had their EPF payment reduced by a total of $3,585,000 over the course of a few years due to the use of private clinics that charged user fees. Newfoundland suffered the loss of $323,000 until 1998 and Manitoba lost a total of $2,056,000 until 1999 from user fees being charged at private clinics. Nova Scotia has also forgone EPF payment for their use of user fees in private clinics.