Bill C*37 signals federal hands off policy in health care delivery
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Bill C*37 signals federal hands off policy in health care delivery After more than 5 years of mutual haggling, Canada's 11 governments finally agreed on a new formula for deciding whose hands shall reach into the taxpayers' pockets for the money to pay for hospital and medical care and postsecondary education. The new formula, known as "established pro- grams financing" (EPF) is given effect by Bill C-37, now on its way through Parliament. This new law, though horrendously complex in its details, is based on a simple principle - the federal government will provide the provinces with access to at least as much revenue as they had previously for these programs, and provinces will run them as they see fit, subject only to the basic standards in health care of universality, comprehensiveness, port- ability and public administration. The bill delineates conditions under which the federal contribution will be made to the provinces from Apr. 1, 1977 through Mar. 31, 1982. Objectives of the new arrangements are: * To maintain across Canada stand- ards of service and to facilitate their improvement. * To put the programs on a more stable footing so both levels of gov- ernment are better able to plan their expenditures. * To give the provinces flexibility in the use of their own funds. * To bring about greater equality among the provinces with regard to the amount of federal funds they receive under the programs. * To provide for continuing joint policy discussions on health and post- secondary education. These objectives are identical to those for the previous cost-sharing ar- rangements. Detailed accounting required under the cost-sharing formulas for hospital insurance, medicare and postsecond- ary education will be eliminated. This detailed accounting has been a source of irritation and resentment between the two levels of government for some time. Federal contributions to the prov- inces will now take the form of cash payments and the transfer of tax points to the provinces. Federal contributions will amount to more than $6 billion in the next fiscal year. These contribu- tions, in conjunction with the equaliza- This summary was provided by the statistics, systems and economic research unit of the Canadian Medical Association. tion payments, will total almost 21% of provincial gross general revenues, ranging from about 10% in Alberta to over 35% in the four Atlantic prov- inces. The basic cash contribution for 1977- 78 will equal 50% of the national average per capita contribution for all three programs in the base year 1975- 76, multiplied by the population in each province and escalated in line with the growth of the Canadian economy since that base year. The tax point transfer will consist of 13.5 per- sonal and 1 corporate income tax points, plus associated equalization. Since the provinces already receive 4.3 57 personal and the 1 corporate income tax points for postsecondary education, the net tax transfer to the provinces will be 9.143 personal income tax points. The transfer of tax points will be effected through a 9.143% reduction in the federal personal income tax. The provinces, effective Jan. 1, 1977, can raise their tax rates to a correspond- ing (or lesser or larger) amount. For example, Ontario collects $30.50 on every $100 of federal personal in- come tax in that province. The federal income tax will now be $90.857 so Ontario can collect $39.643 dollars. Hence, the tax rate in Ontario becomes 43.6% of the basic federal tax. The value of the tax transfer varies widely among provinces. For example, one nonequalized tax point was worth below $5.2 million in the Maritimes but $84 million in Ontario in 1975-76. The disparities between the tax point yields become less pronounced after tax equal- ization, but they are still substantial. Therefore, in the interest of achieving greater equality of treatment among the provinces, transitional adjustment payments will be made to ensure that the value of the tax transfer is at least equivalent to the value of the federal basic cash contribution. The federal basic cash contribution incorporates two components. The first is 50% of the per capita federal cash to all provinces for all three programs (hospital care, medical care and post- secondary education) for the 1975-76 base year. The second, which is added, is the escalator for 1976-77, which is based on a per capita growth in Can- ada's gross national product (GNP) multiplied by the population in each province. The escalator is in essence the geo- metric average of the growth of GNP per capita over the past 3 years. This escalator will change from year to year depending on the growth of GNP per capita. It is likely to lie between 1.07 and 1.15. The result of this escalator is that the cash payments to provinces will in- crease at rates in line with the average growth of GNP, regardless of how the costs of the programs grow. A further adjustment (inaccurately described as a "per capita levelling pay- ment", although for 8 of the 10 prov- inces it's a deduction) will equalize all per capita amounts - cash and tax transfers combined - over a 5-year period for all provinces. Table I il- lustrates the breakdown of the amounts to be received by each province for 1977-78. Table II projects these amounts to 1982, showing the approach to a uniform per capita level of pay- ments. Table II also gives for com- parison the amounts the provinces would have received had there been a continuation of the cost-sharing ar- rangements now being ended. Table II is based on estimates of future growth in per capita GNP and tax revenues. The growth rate of the GNP will affect the escalator value and hence the future growth of federal cash pay- ments. The growth of tax revenues will affect the yield of the tax points trans- ferred to the provinces. Therefore all the figures under EPF are likely to be either underestimated or overestimated. The likelihood of estimate error is very small for 1977-78 and 1978-79 but in- creases with each passing year. With this important qualification, one can say with confidence that the total federal contribution for 1977-78 will lie between $6400 and $6500 million, a variation of approximately ± 1% from the projected figure of $6460.8 million. For 198 1-82, however, the federal contribution could lie anywhere from $10000 to $11 000 million or a maximum variation of about ± 5% from the projected figure of $10 457.1 million. But even in the event that the fed- eral contributions have been overes- timated by 5% for 1981-82 the prov- inces would still make an extra $1300 million. They could, of course, receive an extra $2300 million if the federal contributions have been underestimated by 5% for 1981-82. To distribute the total amount among the three established programs the share of costs consumed by each for continued on page 812 CMA JOURNAL/APRIL 9, 1977/VOL. 116 809
Transcript of Bill C*37 signals federal hands off policy in health care delivery
Bill C*37 signalsfederal hands off policy in health care deliveryAfter more than 5 years of mutualhaggling, Canada's 11 governmentsfinally agreed on a new formula fordeciding whose hands shall reach intothe taxpayers' pockets for the moneyto pay for hospital and medical careand postsecondary education. The newformula, known as "established pro-grams financing" (EPF) is given effectby Bill C-37, now on its way throughParliament. This new law, thoughhorrendously complex in its details, isbased on a simple principle - thefederal government will provide theprovinces with access to at least asmuch revenue as they had previouslyfor these programs, and provinces willrun them as they see fit, subject only tothe basic standards in health care ofuniversality, comprehensiveness, port-ability and public administration.The bill delineates conditions under
which the federal contribution will bemade to the provinces from Apr. 1,1977 through Mar. 31, 1982. Objectivesof the new arrangements are:* To maintain across Canada stand-
ards of service and to facilitate theirimprovement.
* To put the programs on a morestable footing so both levels of gov-ernment are better able to plan theirexpenditures.
* To give the provinces flexibility inthe use of their own funds.
* To bring about greater equalityamong the provinces with regard to theamount of federal funds they receiveunder the programs.
* To provide for continuing jointpolicy discussions on health and post-secondary education.These objectives are identical to
those for the previous cost-sharing ar-rangements.
Detailed accounting required underthe cost-sharing formulas for hospitalinsurance, medicare and postsecond-ary education will be eliminated. Thisdetailed accounting has been a sourceof irritation and resentment betweenthe two levels of government for sometime.
Federal contributions to the prov-inces will now take the form of cashpayments and the transfer of tax pointsto the provinces. Federal contributionswill amount to more than $6 billion inthe next fiscal year. These contribu-tions, in conjunction with the equaliza-
This summary was provided by the statistics,systems and economic research unit of theCanadian Medical Association.
tion payments, will total almost 21%of provincial gross general revenues,ranging from about 10% in Albertato over 35% in the four Atlantic prov-inces.The basic cash contribution for 1977-
78 will equal 50% of the nationalaverage per capita contribution for allthree programs in the base year 1975-76, multiplied by the population ineach province and escalated in linewith the growth of the Canadianeconomy since that base year. The taxpoint transfer will consist of 13.5 per-sonal and 1 corporate income taxpoints, plus associated equalization.Since the provinces already receive4.3 57 personal and the 1 corporateincome tax points for postsecondaryeducation, the net tax transfer to theprovinces will be 9.143 personal incometax points.The transfer of tax points will be
effected through a 9.143% reductionin the federal personal income tax. Theprovinces, effective Jan. 1, 1977, canraise their tax rates to a correspond-ing (or lesser or larger) amount.
For example, Ontario collects $30.50on every $100 of federal personal in-come tax in that province. The federalincome tax will now be $90.857 soOntario can collect $39.643 dollars.Hence, the tax rate in Ontario becomes43.6% of the basic federal tax.The value of the tax transfer varies
widely among provinces. For example,one nonequalized tax point was worthbelow $5.2 million in the Maritimes but$84 million in Ontario in 1975-76. Thedisparities between the tax point yieldsbecome less pronounced after tax equal-ization, but they are still substantial.
Therefore, in the interest of achievinggreater equality of treatment amongthe provinces, transitional adjustmentpayments will be made to ensure thatthe value of the tax transfer is at leastequivalent to the value of the federalbasic cash contribution.The federal basic cash contribution
incorporates two components. The firstis 50% of the per capita federal cashto all provinces for all three programs(hospital care, medical care and post-secondary education) for the 1975-76base year. The second, which is added,is the escalator for 1976-77, which isbased on a per capita growth in Can-ada's gross national product (GNP)multiplied by the population in eachprovince.The escalator is in essence the geo-
metric average of the growth of GNP
per capita over the past 3 years. Thisescalator will change from year to yeardepending on the growth of GNP percapita. It is likely to lie between 1.07and 1.15.The result of this escalator is that
the cash payments to provinces will in-crease at rates in line with the averagegrowth of GNP, regardless of how thecosts of the programs grow.A further adjustment (inaccurately
described as a "per capita levelling pay-ment", although for 8 of the 10 prov-inces it's a deduction) will equalize allper capita amounts - cash and taxtransfers combined - over a 5-yearperiod for all provinces. Table I il-lustrates the breakdown of the amountsto be received by each province for1977-78. Table II projects theseamounts to 1982, showing the approachto a uniform per capita level of pay-ments. Table II also gives for com-parison the amounts the provinceswould have received had there been acontinuation of the cost-sharing ar-rangements now being ended. Table IIis based on estimates of future growthin per capita GNP and tax revenues.The growth rate of the GNP will
affect the escalator value and hencethe future growth of federal cash pay-ments. The growth of tax revenues willaffect the yield of the tax points trans-ferred to the provinces. Therefore allthe figures under EPF are likely to beeither underestimated or overestimated.The likelihood of estimate error is verysmall for 1977-78 and 1978-79 but in-creases with each passing year.
With this important qualification, onecan say with confidence that the totalfederal contribution for 1977-78 willlie between $6400 and $6500 million,a variation of approximately ± 1%from the projected figure of $6460.8million. For 198 1-82, however, thefederal contribution could lie anywherefrom $10000 to $11 000 million or amaximum variation of about ± 5%from the projected figure of $10 457.1million.
But even in the event that the fed-eral contributions have been overes-timated by 5% for 1981-82 the prov-inces would still make an extra $1300million. They could, of course, receivean extra $2300 million if the federalcontributions have been underestimatedby 5% for 1981-82.To distribute the total amount among
the three established programs theshare of costs consumed by each for
continued on page 812
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BILL C-37continued from page 809
the base year 1975-76 was used. Hence49.9% of the contributions are allo-cated to hospital care, 17.7% to medi-care and the remaining 32.4% topostsecondary education.
Federal officials have emphasizedthat the last thing they want is todictate to the provinces how to dis-tribute the funds among these programs.The new EPF formula is aimed atgiving more flexibility to the provinces.
While the programs have been grouped,the provinces can spend the money anyway they choose - providing basiccriteria are met.The federal government could in-
tervene and withhold its cash distribu-tion if provinces do not meet the na-tional standards, but how they meetthe standards is up to them.
Conclusion
The EPF should provide the prov-inces with more money and flexibility
in allocating it among the various pro-grams. The federal government willsave some money and resources bygetting out of the complex administra-tion of these programs. It escapesopen-ended program funding and anyresponsibility for health care cost con-trol. Its contributions will increase inline with GNP on an easily determinedand budgeted manner. By reducing itstaxes by 9.15% and hence its expendi-tures by a similar amount, the federalgovernment may even gain some poli-tical ground. U
Bill C*37: a commentaryD.A. GEEKIE
The new federal-provincial cost-sharingarrangements represent a major shiftof responsibility for health care in-surance. The federal government hasnot withdrawn from the field but theprovinces will now carry almost totalfiscal responsibility and public account-ability (at the ballot box) for these pre-viously shared responsibilities. Theimmediate effect on physicians andhealth care will be negligible but it willhave major, long-term implications.No. further federal monies will from
now on be granted specifically for hos-pital or medical care insurance or post-secondary education. Not the least ofthe benefits to be derived by the prov-inces is more federal money, as indi-cated in the tables, page 810. FinanceMinister Donald Macdonald has ac-knowledged that, in the long run, thetransfer of tax points will benefit thericher provinces more than the balanceof the country. Yet he claims (and theprovinces have accepted) that all prov-inces stand to gain. "In absolute dollarterms, all provinces are projected toreceive more federal funding than theywould have under the old cost-sharingarrangements" (Hansard, March 23,1977, p 4265). Other results and somepotential problems have received lessexposure.As an example, provincial book-
keeping (and thus thinking) for medi-care and hospital insurance has pre-viously been compartmentalized. Sincethe federal government subsidies wereprogram-specific, provincial govern-ments were, at least psychologically,negotiating with doctors with 60, 50or even 4O. dollars. That is no longertrue. In future, federal contributionswill be determined according to popu-lation and GNP growth only - notprogram cost increases. Increases inutilization or fee schedules will directlyaffect provincial treasuries - in 100.t
dollars. That is not going to make ne-gotiating any easier for the profession.The same factors could make life
more difficult for provincial ministersof health. The struggle for depart-mental budget increases is a fact ofmodern political life. In the past, healthinsurance budgets were partly protectedfrom departmental competition by fed-eral program-specific support. Thatprotection is gone. Hospital care in-surance and medicare will now com-pete for money not only with eachother, but with highways and all otherprovincial programs. Financing ofhealth care will grow increasinglypoliticized.Money will be especially hard to get
for programs that represent new,added-on costs with no potential forreducing current health care expendi-tures. The new formula will inevitablyplace extra pressure on hospital insur-ance, where costs have consistentlyrisen faster than GNP.
True, federal government has of-fered up to $20 per capita to promote"new, lower-cost, more cost-efficienthealth-care programs.. - nursinghomes, ambulatory care etc. But thatwill not produce any major effect. First,this is simply an extension of an exist-ing program under the Canada Assist-ance Plan; several provinces are al-ready using most of the available $20per capita. Second, provinces will nowbe forced to scrutinize stringently suchnew programs to ensure they really aremore cost-efficient - not, as so oftenin the past, simply providing additionalservices and thus costing more.Of course the converse will be true;
there will be incentives for provincialgovernments to encourage programsthat result in real cost reductions. Hos-pital costs, because they represent50% of this Bill C-37 financial pack-age and are the most rapidly escalating,
are where pressure will be most in-tense.The Saskatchewan and Ontario gov-
ernments have learned that leaning onhospitals (especially closing them) cancreate intense political reactions. Re-sisting hospital construction or exten-sion, delaying new cost-producing pro-grams, slow strangulation of exisLingprograms of low priority or low publicprofile or publicly squabbling withphysicians over fee schedules will cre-ate much less pressure for governmentswhere it really counts - at the ballotbox.
Increased politicization of healthcare at the provincial level will be oneof the inevitable results of Bill C-37.Some House of Commons critics sug-gested the new arrangements wouldnot ensure the level and quality of pro-vincial medicare and hospital insurance,nor would these programs necessarilyreceive all the increased federal fund-ing. Mr. Macdonald repliedI have to acknowledge that that part ofthe compensation represented by tax pointsgoes into the provincial revenue and isadministered by the individual provinceas it choosesMy view has always been that the prov-
inces will continue to provide this levelof services, not so much because of thelegal obligations, but because of thepolitical reality that their populationshave come to expect that quality or levelof services, and that the conditions (com-prehensiveness, universality, portability,accessibility and public administration)will continue to be adhered to.
In short, hospital and medical careinsurance funding is now clearly in theprovincial political arena. Physiciansand their provincial medical associa-tions, although self-acknowledged neo-phytes, know the rules. They may findit deleterious or incompatible to thepractice of quality medicine, but in thegame they are and will be. U
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