Can Canada's Large Pensions Repair Our Ailing Healthcare System?

Andrew Coyne wrote an op-ed for the Globe and Mail on how Ottawa can help fix health care: first, send less money:

The early 2000s were a fertile period for health care reform. The deficit reduction battles of the previous decade had left their mark.

Federal transfers to the provinces had fallen to just over 2 per cent of GDP, half what they were at their peak. Provinces had in turn been forced to curb spending across the board, even for health care: public spending on health care had fallen to 6 per cent of GDP by the end of the 1990s, from 7 per cent at the start. Wait times had lengthened accordingly, to a median of 18 weeks from referral to treatment, twice what they were a decade before. Yet even as spending on health care was restored to previous levels, wait times remained at record highs.

Clearly, something had to give. A series of federal and provincial reports landed, each offering its own sweeping recommendations for change. The year 2002 alone saw the report of the federal Commission on the Future of Health Care in Canada, headed by former Saskatchewan premier Roy Romanow; the report of the Senate Committee on Social Affairs, Science and Technology, chaired by Senator Michael Kirby; and the report of the Alberta Premier’s Advisory Council on Health, chaired by former federal finance minister Don Mazankowski.

The latter two, in particular, were full of interesting proposals that would have preserved medicare as a universal, publicly funded program, while improving incentives for efficiency within the system. It seemed like reform’s time was at last at hand.

And then … nothing. Twenty years later, the system remains largely unreformed. Some provinces have changed some things in some respects – a pilot project for primary care reform here, a proposal for changing how hospitals are funded there – but on the whole very little progress has been made.

What happened? What took the steam out of reform? Why did the provinces give up on trying to fix the system? Very simple: the federal government came to their rescue. In late 2004 the Liberal government of Paul Martin, reduced to a minority in the election earlier that year and under pressure to Do Something about health care, unveiled what it grandly called the “fix for a generation” – notably, a 6-per-cent annual increase in federal transfers to the provinces, for 10 years.

Supposedly the funds were to be used, in the phrase popularized by the Romanow report, to “buy change.” In reality what they bought was stasis. When money was relatively scarce, the provinces had been forced to at least consider fundamental reform. Once the money started flowing again, everybody went back to sleep. For the most part, provincial governments used the increased federal transfers to “buy peace” with health care providers, whose compensation soared. The last thing they wanted to do was to disrupt that fragile truce with something “courageous” (in the Yes, Minister sense) like reform. If you want to know why Canada’s health care is in the state it is today, the Martin “fix” is a big part of it.

Yet if anything the system is in worse shape than ever. Some of that, to be sure, reflects the increased strain on the system from the pandemic. But even before the pandemic wait times had grown to 21 weeks; they are currently more than 26 weeks. Only now this cannot be put down to cuts in spending: At roughly $240-billion – about 9 per cent of GDP, or more than $6,000 per person – public spending on health care is not only higher than it has ever been (but for the pandemic peak), but is higher than in many other developed countries.

Neither can it be ascribed to any deficiency in federal assistance, much provincial rhetoric to the contrary. Total federal transfers in fiscal 2020, the last year before the pandemic, had tripled since 2002; at $79-billion, they accounted for 18 per cent of provincial program spending, up from 14 per cent in 2002. Even if we look only at the portion of federal transfers formally labelled as being “for health care” – a fiction, since the provinces can spend any money they received on anything they want – the picture is the same: At $42-billion, the Canada Health Transfer accounted for 24 per cent of provincial health spending in fiscal 2020, versus 22 per cent in 2002. And this is without getting into any theological debates about the value of federal tax points transferred in 1977.

So: we are spending more than we ever have – 50 per cent more, per capita, after inflation, than we did 20 years ago – yet wait times are nearly 50 per cent worse. The provinces have snoozed away the past two decades while the system was falling apart, narcotized as they were by regular infusions of federal cash. And what is it that is now proposed to fix the system again? More federal money.

The Prime Minister will meet with the premiers early next month. Expectations that they will announce a deal there and then have been played down. But all of the noise over the past few weeks has been to the effect that the two sides are edging closer to an agreement: a sizable increase in federal transfers, in return for provincial acceptance of a handful of federal conditions, including – gasp – that they should publish comparable data on the state of their respective health care systems. No doubt that would be a useful measure, allowing the public and experts to track the provinces’ progress against each other. It might even be worth a federal bribe of some size.

But another great dollop of federal cash, on top of the increases the provinces have already received, is not only unhelpful: it is a disaster. It would be a disaster even if Ottawa had the money, which it doesn’t. It will probably be less of a disaster than it might have been, depending on how restrictive the rest of the federal conditions prove to be. It may even shorten wait times in the short run, just as the Martin “fix” did. But it will only make things worse in the long run.

By now it should be clear that the problem in health care is not a lack of spending, federal or provincial. The problem is rather that we are not spending existing dollars efficiently, or even inefficiently: We are spending them more or less blindly, because nobody within the system knows what anything costs. Until we face up to this fundamental dilemma, any increase in funds will be wasted. And so long as the funds keep increasing, we are unlikely to face up to it.

With the benefit of hindsight we can see how misconceived the “buy change” thesis was. Politicians, like most people, are fundamentally risk-averse: they would rather avoid pain than receive an equivalent dose of pleasure. The political returns from reforming health care, if any, are far off in the future; elections have to be won in the here-and-now. It is always easier to put it off to another time, if not another government, rather than kick the hornet’s nest of angry interest groups and fearful citizens – especially if Ottawa is, in effect, paying you to do so.

It isn’t only that federal transfers take the pressure off the provinces to grasp the nettle of reform. They also blur the lines of accountability. When one level of government is raising the money, while another spends it, it makes it hard for the public to know who to hold to account for any of the system’s ills. That, too, dulls any lingering incentive for reform. Instead of fixing what is wrong, the provinces can always complain that Ottawa is “underfunding” health care, a complaint that only grows louder the more money the feds provide.

If the federal government really wants to help, in other words, it should do the opposite of what it is now contemplating. Far from increasing transfers to the province, it should cut them to zero. Or if that it is too harsh, it should convert the cash portion of the transfer to tax points, completing the process begun in 1977. (For those unfamiliar: a transfer of tax points means that Ottawa cuts its taxes, while the provinces raise theirs an equivalent amount. The total tax burden remains the same, but is distributed differently between the two levels of government.)

This is a point made forcefully in a striking new paper published by the Johnson-Shoyama Graduate School of Public Policy at the University of Saskatchewan. It is striking both because of the quality of the argument, and because of who is making it: Peter Nicholson, former policy guru to, of all people, Paul Martin. (There seem to be a lot of them about these days.)

In Repairing Health Care in Canada: Time to Take the First Step, Mr. Nicholson argues the “first step” should be to replace the CHT with a transfer of tax points, supplemented by an increase in equalization payments to poorer provinces, for whom each percentage point of tax is worth less.

“By muddying the assignment of responsibility,” he writes, “the CHT has reduced the pressure on the provinces to undertake the politically difficult task of health care reform.” Once cash transfers had been replaced with increased tax room, “it would finally be clear to the public that health care policy and delivery is essentially the sole responsibility of provincial governments. And without Ottawa to share the blame for underperformance, provincial governments would have a stronger incentive to organize the delivery of health care so as to achieve greater quality and public satisfaction per dollar spent.”

As a bonus, the value of a tax point will increase over time, in line with economic growth. Good: the provinces will probably need more money in the long run, to deal with the increased costs of looking after the growing numbers of the elderly. But more than that, they need to be accountable for how the money is spent – accountable to their own taxpayers, not to Ottawa.

More reform, less finger-pointing: If sense prevailed, the federal government would get out of the cash transfer game altogether. Instead, it is about to go all in.

Alright, it's Monday and my sciatica is sort of in control but still irritating me (see my LinkedIn post here).

And when my sciatica acts up, I get cranky, very cranky.

On top of that, paid a hefty property tax bill this morning online, so I'm really cranky but I did enjoy a nice coffee and great discussion with someone earlier this afternoon who used to work at PSP and that was enjoyable (more on that in another post).

Anyway, lately my BS tolerance is ZERO and Canadian politicians are aggravating me with their incompetence.

This country we all love deserves so much better than the sorry excuses of politicians in Ottawa and throughout all our provinces.

I'm serious, the collective IQs and EQs of these people is so low, no wonder most Canadians are completely turned off from politics.

Even if you wanted to enter the political arena to make a difference, you're up against a cabal of political morons and an overbloated civil service full of equally inept people who think the status quo is just fine, nothing needs to be fixed.

Just wait till the next recession hits -- and it's coming sooner than our politicians can imagine -- and you'll see, hell hath no fury as Canadian taxpayers scorn! (more like I'm hoping people finally wake up)

That brings me to Andrew Coyne's comment.

It irritates me too. He analyzes the problem and then basically comes up with a simple solution: Ottawa needs to cut healthcare funding to provinces and replace it by a transfer of tax points.

To be fair, it isn't Coyne's idea, it's the idea of Peter Nicholson in his paper, Repairing Health Care in Canada: Time to Take the First Step (click here to view it).

It's actually a good paper and Mr. Nicholson has an impressive resume. He is currently the Chair of the Board at the Canadian Climate Institute and among his many accomplishments, he also served as a Deputy Chief of Staff for Policy in the Office of the Prime Minister of Canada:

Peter Nicholson’s varied career has included senior executive positions in the banking, telecommunications and fisheries industries, as well as a number of public service positions. From 2003 to 2006, he was Deputy Chief of Staff for Policy in the Office of the Prime Minister of Canada. In 2002-03 he was Special Advisor to the Secretary-general of the OECD, and in 1994-95 was the Clifford Clark Visiting Economist with Finance Canada. Dr. Nicholson was the inaugural president of the Council of Canadian Academies from February 2006 through December 2009. The Council supports expert panels that assess the science that is relevant to issues of public importance. Educated in physics and mathematics, Dr. Nicholson received his PhD from Stanford University in 1969. Peter Nicholson is a Member of the Order of Canada and of the Order of Nova Scotia.

Again, read his paper on repairing healthcare in Canada, it is excellent.

The point of my post in to explore another option, namely, to build on the success of the Canadian pension model to fix our Canadian healthcare system.

Admittedly, this isn't my idea, it came from a friend of mine who used to work at CDPQ Infra and who should run for political office because he has a lot more tolerance of nonsense than I do and is far more diplomatic than I am.

Case in point, earlier today, Financial Post reporter Stephanie Hughes posted this article on how friends of the Liberal government are adding to the pressure on Freeland:

I didn't mince my words in my reply:

If they were true friends of the Liberal government, they'd ask her to step down immediately and ride off into the sunset. She is by far the WORST federal Minister of Finance ever and I couldn't care less is she's a woman. It's about time we Canadians voice our concerns without worrying of online reprisals from ESG fluff cakes and politically correct police who don't know their ass from their elbow. 

 ***I'm Leo Kolivakis and I approve this message😁

At least the business-minded Liberals are starting to wake up and voicing their concerns over Ottawa's finances:

Former finance minister John Manley joined a growing group of “business Liberals” who are voicing their concerns over Ottawa's finances.

More details in my latest for @financialpost:https://t.co/H6wbRjQSDu

— Stephanie Hughes (@StephHughes95) January 30, 2023

They know what lies ahead and it's not pretty which is why you need competent leaders at the helm.

Again, I have zero tolerance or patience for nonsense whether it comes from Liberals, Conservatives, the NDP or the Green Party!

Someone told me "Freeland is the Deputy PM and they're grooming her to be PM after Trudeau," to which I replied: "God help us all if that happens!".

I am sick and tired of people telling me I have to support someone just because she is a woman.

There are plenty of qualified and competent women across all fields but you have to also be able to call out the ones who aren't without fearing any reprisal from the online politically correct Gestapo.

Last week, I blasted BDC's politically appointed President and CEO, Isabelle Hudon, for being completely incompetent and wasteful and not focusing on the real issue at hand, namely, Canada is about to experience its worst recession since the 70s and early 80s and the BDC should be solely focused on that.

Moreover, she's a hypocrite. On the one hand, she talks up diversity & inclusion and how the BDC is breaking the glass ceiling by funding female and minority entrepreneurs, which it is, and on the other she's giving millions to McKinsey to revamp BDC's strategy.

McKinsey! The devil personified in consulting who has done more harm to our planet than you can possibly imagine and is the chief architect of rising inequality all over the world!!

To be fair to Ms. Hudon, she's not the only one, every major Canadian pension fund has hired McKinsey at one time or another to "revamp" their strategy.

It is scandalous and a total waste of money! 

Trust me, most high priced consultants look good on the surface but scratch hard beneath that surface and you'll realize they're brain-dead, offer no real value-add, just meaningless platitudes and nice PowerPoint charts which they package in a cookie-cutter report (a few rare ones do but they rarely get the mandates because they aren't business development savvy and in consulting, it's all about business development and repeat business).

So why do all these organizations pay big bucks to consultants like McKinsey? Because everyone else is doing it, covering their legal asses, so they do it too.

It's totally insane but that's the real reason McKinsey and other big consultants thrive, especially when the going gets tough and they're called in to make drastic cuts.

Anyway, I'm losing focus, back to how Canadian pension funds can help repair Canada's ailing healthcare system.

My friend who used to work at CDPQ Infra and I recently had a conversation on soaring healthcare costs.

He rightly remarked that the boomer generation "completely messed things up" because if they had planned carefully years ago, they would have foreseen a demographic time bomb and planned better for soaring healthcare costs in the future.

As my friend said: "Most of healthcare costs are consumed by people during the last five years of their life, so if policymakers had planned accordingly, they would have foreseen soaring healthcare costs as the population ages."

He added: "Instead of the disastrous pay-as-you-go system which hoses Canadian taxpayers, we should have well governed, independent healthcare funds which invest across global public and private markets to meet future healthcare liabilities."

Think about that for one second. 

Just like we model pension liabilities going out 75+ years, I am pretty sure the Office of the Chief Actuary of Canada can model healthcare liabilities over the next 100 years.

Yes, it's not a perfect science, yes people are living longer and innovation in healthcare will potentially help curb costs and yes we need to do a lot more to curb those costs now, but why not create a new federal healthcare fund -- The Canada Healthcare Fund -- whose mandate is solely to invest to meet the future healthcare liabilities of our country?

We do it for pensions, why not do it for healthcare and maybe even education where costs are soaring?

The new healthcare fund can be modeled after the CPP Investments or we can even have CPP Investments, CDPQ, HOOPP, OMERS, IMCO, AIMCo, BCI, and other large pension funds take on these new healthcare liabilities.

That's right, maybe the answer to Canada's soaring healthcare costs is right there, staring us in the face!

Don't get me wrong, as the son of a psychiatrist who dedicated 50 years of his life treating mentally ill patients in Quebec, I know there's a lot to it than just money.

We need to make our healthcare system a lot more efficient and digitize everything.

And here too, Canada's large pensions have the global network to do this properly and a lot more to bolster our healthcare system (they invest with top PE firms and invest in cutting-edge healthcare innovation).

What I'm proposing here (based on my friend's insights) isn't radical in any way, it's logical in every way and we really need to think about this solution to bolster our healthcare system over the long run.

Canadians hold their publicly funded free healthcare system in high regard, they want to see it preserved and bolstered for future generations. 

They do not want to see it privatized even though that's where we are heading.

Health is something we all need to take more seriously, from prevention to cutting wasteful healthcare spending.

We owe it to future generations to do a lot better on this front. A lot better.

I think it's time Canada's large pension funds take over to properly invest healthcare dollars across public and private markets all over the world to meet our future healthcare costs.

Lastly, while I'm on the subject of healthcare, every politician in Canada needs to immediately increase the salaries of nurses and hire nurses who refused to get vaccinated back to work at hospitals now that the vaccine mandates are scrapped.

CTV News' Avis Favaro did an excellent report recently on how COVID-19 vaccine policies at Ontario hospitals are keeping some health workers from filling dire staff shortages.

This is shameful as is having landed immigrants who have become Canadian citizens drive a taxi when they were doctors or nurses abroad before arriving here.

Have them pass rigorous exams to make sure they're qualified, but for Pete's sake, don't waste their training and experience abroad!

As you can see, healthcare, pensions and education -- the three pillars of a well functioning social democracy -- are things I take very seriously, as are the rights of people with disabilities who are treated worse than animals in this country (it's true, it infuriates me!!).

This country we all love and cherish deserves better on all three fronts -- health, education and pensions (like nurses, teachers are also way underpaid even when you take their DB pensions into consideration).

We need to bolster our retirement system to cover all Canadians with a well-governed defined-benefit plan and we need to bolster our healthcare system to make sure it remains free for everyone no matter their income and that it is sustainable over the long run as healthcare costs soar.

So, if you personally know Peter Nicholson, tell him there is a combative and highly opinionated pension blogger with progressive multiple sclerosis suffering from a bad bout of sciatica who wants to talk to him and others who want to reform the Canadian healthcare system to make it a lot better based on a Canadian pension model we know works, and works very well. 

Below, the commitment of Canadians to a publicly funded, universally accessible health care system is beyond question. But the failure of the system to meet the needs and expectations of the public has become abundantly apparent.

In this issue of JSGS Policy Brief, author Peter Nicholson argues that the federal government should end its $45-billion Canada Health Transfer to the provinces, and as compensation, transfer an equivalent amount of taxing room to the provinces.

Nicholson raises many excellent points which is why I recommend reading his paper on repairing healthcare in Canada.

Also, CTV News' Avis Favaro reports on how COVID-19 vaccine policies at Ontario hospitals are keeping some health workers from filling dire staff shortages. This is great reporting, watch it.

“I am ready, willing and able to work,” Lori Turnbull told CTV National News. But nobody will hire her.

What a total disgrace Canada has become, when will real leaders with spines and brains finally emerge?