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Modernizing Medicare

Canadian Medicare was established in the 1960s at a time when the nature of illness and treatment, as well as Canadian demographics, were far different than they are now.

The Canada Health Act, the central piece of federal legislation governing health care in Canada, sets out the “medically necessary services” that must be covered by provincial health insurance plans. These are defined as “hospital services, physician services and surgical-dental services.”

This may have been an adequate way of defining health care services in the 1970s, when care provided by a physician or in hospital represented 60% of total health care expenditures. Today, that figure is only about 40%. The definition leaves out important services, including outpatient prescription drugs, dental care, much mental health care, and most long-term care services that are playing an ever increasing role in the context of an aging society and the rise of chronic disease. These services are covered to some extent in all provinces, often with co-payments and deductibles charged to patients. This rigid way of defining medical necessity is problematic for several reasons including:

1) It means that Canada’s health care system is less comprehensive than it should be;

2) Inter-provincial equity is threatened, since some services may be covered in one province and not another;

3) It hinders our ability to achieve economies of scale and control cost increases, especially in the area of prescription medications;

4) It hinders our ability to implement strategies to improve the quality and consistency of health care services based on best evidence.

Policy Objective

Governments should expand coverage to areas not originally covered under the Canada Health Act, that represent important treatments or services. Coverage should be based on need and not ability to pay and should not cause any Canadian to suffer undue hardship as a result of paying for medically necessary care. This paper focuses primarily on one area where the policy problem is especially acute: medically necessary prescription medicines outside of hospitals.

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Current Status

Medicare is Canada’s most cherished social program. Canadians have reaffirmed their support for universal health care in poll after poll. A persistent large majority of Canadians polled believe the federal government should spend more on health care. Support for universal health care is so strong amongst Canadians that many are willing to reduce spending on other services for the sake of medicare. Health policy expert Carolyn Tuohy described health care’s prominence in Canadian society by saying, “Health care has become not a pillar of the Canadian welfare state but a citadel: self-contained, impenetrable, and dominating.”

Starting in the 1940s and 1950s, Medicare was implemented incrementally in Canada. Provinces implemented universal hospital insurance schemes in a staggered fashion: starting with Saskatchewan in 1947, followed by British Columbia in 1948, and Alberta in 1949. The rest of the provinces followed suit after the passage of  the Hospital Insurance and Diagnostic Services Act  in 1957 — a federal law that offered to match funds to all provinces that established universal insurance plans for hospital care that met certain requirements. Insurance for outpatient services followed in the 1960s and 1970s, again, beginning with Saskatchewan in 1962, followed by Alberta in 1963, British Columbia in 1965, and Ontario in 1966. Following the passage of the federal Medical Care Act in 1966, the federal government offered to match provincial government expenditures on all insured health services so long as the insurance plans conformed to four conditions: universality, public administration, comprehensiveness and portability; the other provinces followed suit. By 1971, all provinces had a universal health insurance program in place that covered both hospital and outpatient services, funded half by the provinces and half by the federal government.

In 1977, the federal government began to transition away from cost-sharing schemes to block funding in many areas of social spending, including health care. The Canada Health Act (CHA) was passed in 1984, combining the provisions set out in the original two pieces of legislation and updating them to re-affirm the federal government’s commitment to universal health care insurance. Accessibility was added as a fifth condition in the CHA, as well as specific prohibitions on extra-billing and user fees. The federal government is able to withhold its transfer to a province on a dollar-for-dollar basis if provinces allow either of these to take place, though this has rarely been exercised. In 1996, the federal government merged the block health  transfers with Canada Assistance Plan transfers to form the Canada Health and Social Transfer (CHST). In 2004, the CHST was replaced with the Canada Health Transfer (CHT). The CHT is expressly dedicated to health care and is linked to the requirements of the CHA (the federal government can withhold one dollar of the CHT for every dollar collected through user fees and extra-billing).

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Sarah McKenna & Jamison Steeve

Release Date

May 20, 2015

Release No.