By Ben Eisen
and Bacchus Barua
The Fraser Institute
In the 1990s, Prime Minister Jean Chretien’s Liberals reduced the amount of money it sent to the provinces to help fund provincial welfare programs but, in return, gave the provinces greater freedom to design and implement their own welfare programs. The success of these reforms, which generally reduced costs and shrunk the welfare rolls, provides a roadmap for improving Canadian healthcare.
Before the Chretien welfare reforms, provinces had to comply with a series of federal rules governing their welfare programs or their federal transfers were reduced. The Liberals cut these strings, freeing the provinces to innovate.
The “less cash for greater autonomy” swap spurred a flowering of policy innovation across the country as provinces pursued different reform strategies to meet the needs of their specific populations. The following years saw impressive reductions in welfare dependency and increases in employment across Canada, as provincial welfare reforms improved work incentives, provided job training and experience, and helped many Canadians escape poverty.
Chretien’s government also reduced federal transfers to the provinces for healthcare. However, there was no wave of healthcare innovation at the provincial level comparable to provincial welfare reforms partly because, unlike with welfare, Chretien’s government avoided the more controversial healthcare reforms.
The 1995 federal budget made this difference explicit, stating that the provinces would be “free to pursue innovative approaches” to welfare reform without having to consider whether those reforms would trigger a reduction in transfer payments. On healthcare, however, it would continue to punish provinces that deviated from federal rules “by withholding funds, if necessary.”
This refusal to cut the strings on healthcare transfers has had long-lasting repercussions. Instead of a wave of policy innovation, healthcare policy during the 1990s was characterized by inertia. Though they had less money to work with, the provinces remained unable to pursue many reform strategies that have improved health outcomes and reduced costs in other countries with universal healthcare systems.
For example, provinces were forbidden to experiment with cost-sharing programs (user-fees, co-payments and deductibles) that could potentially incentivize individuals to use scarce healthcare services more responsibly. This, despite the fact that such fees (with annual limits and exemptions for vulnerable populations) are commonplace in most other universal healthcare systems. Canadian provinces have declined to introduce such fees for fear of seeing their transfers cut.
Partly because the provinces have not had the freedom to experiment with and pursue reform policies, Canada’s healthcare system continues to underperform relative to peer jurisdictions. Despite healthcare spending levels that are among the highest in the developed world and growing at an unsustainable rate, Canadians continue to face remarkably long wait times for care not generally seen in countries with higher performing universal healthcare systems.
In short, the Chretien Liberals dramatically improved the federal government’s approach to welfare transfers but, on healthcare, did not finish the job.
Once the Liberals were replaced by Stephen Harper’s Conservatives, the Tories also failed to act, opting to leave the status quo mostly intact.
A new Liberal government is now in power, and its health minister seems aware that policy innovation – not more money – is necessary to improve Canadian healthcare. If the government is serious about sparking innovation and change, it should finish the work of transfer reform begun by the Chretien Liberals. This means cutting some of the strings still attached to healthcare spending, and freeing the provinces to pursue policy reform as they see fit.
Ben Eisen, Jason Clemens and Bacchus Barua are analysts with the Fraser Institute.