Medical transition system in Canada - preface

Canada has a predominantly publicly financed, privately delivered health care system that is best
described as an interlocking set of ten provincial and two territorial health insurance schemes. All
provincial/territorial hospital and medical care insurance schemes are linked through adherence to
national principles set at the federal level. This structure results from the constitutional
assignment of jurisdiction over most aspects of health care to the provincial order of government.
The development of the national health insurance system, known to Canadians as "Medicare", has
followed an evolutionary path over a period of close to 50 years, beginning with hospital
insurance and followed by medical care insurance.
Prior to the late 1940s, health care in Canada was essentially private in its delivery and financing.
The trend to universal, publicly financed health insurance began in 1947 when the province of
Saskatchewan introduced a public insurance plan for hospital services. Nine years later in 1956,
the federal government, seeking to encourage the development of hospital insurance programmes
in all provinces, offered to cost-share hospital and diagnostic services on a roughly 50-50 basis.
The enabling legislation, the Hospital Insurance and Diagnostic Services Act (HIDS Act),

passed in 1957. By 1961, all ten provinces and the two territories had signed agreements
establishing public insurance plans that provided universal coverage for at least inpatient hospital
care that qualified for federal cost-sharing.
Public medical care insurance also began in the province of Saskatchewan; first announced in
1959, this plan became operational in 1962 following a three-week physicians' strike in
opposition to it. In 1961 the federal government established a Royal Commission on Health
Services (Hall Commission) to carry out an extensive inquiry into the future health care needs of
Canadians and how those needs might best be met. One of the key recommendations in the 1964
Royal Commission report was the establishment of a national medical care programme to
complement the hospital insurance programme. The Federal government followed this
recommendation. The 1966 Medical Care Act enabled the Federal government to enter into
conditional cost-sharing arrangements, again on a roughly 50-50 basis, covering provincial
medical care services. This legislation embodied what were to become the five national principles
which characterize the present Canadian health care system: universal coverage, comprehensive
service coverage, reasonable access, portability of coverage, and public administration of the
insurance plans. Within two-and-a-half years of the act's passage, all provinces had established
qualifying medical care insurance plans which provided coverage for all medically necessary
physician services. Similar plans were in place in the two territories by 1972. Thus, by that year
the goal of national health insurance for hospital and medical care in Canada had been realized.
Other health services, referred to as supplementary health services, including pharmaceuticals,
dental care and vision care, remain outside the national health insurance framework. While most
provinces and territories 

provide some public coverage of supplementary health services (e.g.,
prescription medicines for the elderly), these services are largely privately financed).
By the mid-1970s the federal and provincial governments became dissatisfied with the conditional
cost-sharing arrangements that had been appropriate to the original objective of encouraging the
establishment of reasonably comparable health insurance programmes and service levels across
the country. The legislated cost-sharing parameters produced a powerful "steering effect" on
provincial health expenditures, given that only hospital and medical services were eligible for
federal funding. Provinces concentrated their health-related spending on institutional and
physician services in order to maximize federal financial transfers. The fiscal arrangements were
thus seen as limiting provincial flexibility in developing community-based, alternative health
services. Provinces also objected to the close federal scrutiny of their programmes that was
associated with cost-sharing. 

Federal dissatisfaction with cost-sharing focused on the
unpredictability and the open-ended nature of federal outlays. With federal expenditures linked to
Introduction and historical background 3
provincial spending, it was proving difficult for the federal government to anticipate future
outlays and to budget accordingly.
Alternative health-financing arrangements were introduced in 1977. Established Programmes
Financing (EPF) was the culmination of several years of federal and provincial attempts to
rationalize their financial arrangements for public programmes while, at the same time, retaining
national objectives in the area of health-financing and respecting provincial jurisdiction. Under
EPF, federal contributions to the provinces for three programmes that were already established
(hospital insurance, medical care insurance, and post-secondary education) were de-linked from
actual provincial expenditures and paid in the form of a block fund transfer (1975–1976 base
year expenditures, escalated based on population changes and GNP growth).
The change in financing-arrangements did not alter the national principles that the provincial
health insurance plans were expected to meet under the HIDS Act and Medical Care Act, but did
make the enforceability of those principles much more difficult. Subsequently this led to problems
regarding accessibility to medically necessary health care services. Of particular concern were
patient-user fees in the form of hospital-user charges and extra-billing by physicians. Clustering
of these user fees within certain specialties and in some geographical locations was impeding
patient access.
To address this concern, the Canada Health Act was passed unanimously by the federal
parliament in 1984, after encountering much opposition from organized medicine and the
provinces. It replaced the HIDS Act and the Medical Care Act, consolidating their provisions
within one piece of updated legislation. The act embodies the same five national principles that
had appeared in the earlier acts. These principles are set out as criteria which provincial health
insurance plans must meet in order for a province to qualify for its full federal health transfers.
The act also provides for mandatory financial penalties in order to discourage provincial
allowance of hospital-user charges and physician extra-billing. The legislation remains in force
and has never been amended.
Federal–provincial health-financing arrangements, however, have undergone adjustments and
change since the early 1980s. During the 1980s, the escalation formula of EPF was amended
several times in an effort to restrain federal spending. Beginning 1 April 1996, EPF and federal
funding for social services (former Canada Assistance Plan) were combined to form a new,
reduced single-block fund transfer called the Canada Health and Social Transfer (CHST). The
principles of the Canada Health Act continue to apply to the CHST as they did to EPF.

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