In the mid-1990s, National Post’s prolific columnist William Watson wrote he would miss deficits when they were gone. It was a way of pointing out that stultifying inertia would replace the refreshing force of reform once Canadian governments got their fiscal houses in order. 

And nowhere is inertia more stultifying than in health care. For the past few years, the drive has been to find more money to push into the health care envelope. That money was not directed toward improving health care delivery or toward reforming our single-payer system. Instead, cash infusions drove up health care inflation via increases in wages to health care providers. Four-fifths of a 14% increase in funding for the regional health authority in Calgary, for example, is going to increased wages and salaries following an obscene 22% province-wide wage increase for nurses. 

With the prospect of deficits, the force of reform is returning. The first order of business will be to establish who will drive the debate — Ottawa or the provinces. 

During the last bout with deficits, Ottawa accelerated its three-decades long retreat from the health care field when the 1995 budget proposed to reduce cash contributions to health by 40%. This made sense at just about every level, for there is no real reason for Ottawa to be involved in the evolution of health care in Canada. 

The provinces, not Ottawa, administer health care programs. Ottawa, generally, does not run hospitals, pay nurses or bargain with doctors. It does not design payment mechanisms or decide which services should be funded. All it has is a bully pulpit based on the Canada Health Act and the stick of financial penalties under cash transfers to the provinces. 

Ottawa makes political use of its pulpit and penalties, which results in confusion about which government is responsible for health care. This confusion is not costless: It allows the provinces to shift the blame to Ottawa when it makes mistakes, and allows Ottawa to claim credit for reforms it had nothing to do with. Ottawa’s cash transfers also mean provinces do not have to bear the full tax cost of health care spending — particularly in recent years, as the provinces have allowed (nay, begged) the feds to play a bigger financing role. 

From an economic point of view, there are no interprovincial issues that warrant national oversight. User fees in Alberta will not affect the health of people in Saskatchewan. Agreements between provinces already address the issue of border crossers — a person carrying an Alberta Health Care card into a Saskatchewan hospital will trigger payments between the two governments. 

There are real advantages to allowing provinces to design health care systems that differ across provincial boundaries. Just as competition in the private markets results in greater innovation, so does competition between provinces allow for experimentation and a better alignment of health care to the desires of electorates. 

Contrary to Canadian health care mythology, there is no single Canadian health care system. Services covered in some provinces are subject to user fees in others (abortions, for example). Some Canadians pay health care premiums, while others do not. Private hospitals have been allowed to operate in some provinces (Ontario, B.C.), but not in others. 

Only Ottawa’s pulpit and penalties stand in the way of new experiments. If the people of Ontario wish to allow higher income individuals to take the strain off the system by purchasing health care without travelling to the United States, they should be allowed to do so. If Alberta wishes to implement co-payments for certain services through a medical savings account funded by health care premiums, it should do so. If the people of Saskatchewan wish to have every possible service, including home care and pharmaceuticals, paid for by the government and are willing to pay the required taxes, they should do so. 

The remaining provinces could then observe these experiments and decide which model they like. 

This experimentation will take boldness on the part of provincial governments. To win the health care debate, they might consider paying up-front penalties to Ottawa for reforms outside the health act. Those penalties should reflect the relative size of Ottawa’s contribution to health — so if a province charges $100-million in user fees, it would pre-pay a $13-million penalty to reflect the fact Ottawa’s contribution is 13% of the cost of provincial health care. 

In the longer term, provinces should rally around the idea that Ottawa should replace its distorting cash transfers with additional tax room for the provinces to fund health. This tax room will enter the equalization formula, so all provinces would get similar amounts to fund health care demands. The provinces might even consider allowing Ottawa to keep some of this additional money as a contribution toward national security. 

Canada’s last bout with deficits produced some refreshing health care reforms: Ottawa reduced its role, most provinces restructured or regionalized their delivery systems; and a debate over the sustainability of our single-payer system began. The reform initiative receded when money became plentiful. The sense of reform is now returning, mainly because governments are facing the prospects of fiscal deficits. 

These deficits are, therefore, welcome, but only in a Watsonian kind of way.