Privatization by Stealth: Canadian Health Care in Crisis

— Milton Fisk

THE RECENT GROWTH of obstacles to getting health care here in the United States has led to a renewed interest in Canada's system of universal access, called Medicare. Premium inflation has accelerated after stabilizing in the mid-1990s.

Employers, who had trusted Health Maintenance Organizations (HMOs) to limit their expenses for employee health care, are either limiting employee coverage or simply not contributing to it. The steady rise in the number of uninsured in this country is a reminder that a robust economy doesn't mean generalized affluence.

It is ironic though that, just when interest in the United States is rising, the Canadian system itself has become more vulnerable. Emergency room overcrowding has reached crisis proportions in Ontario and Quebec; hospital closings have devastated rural communities in Saskatchewan and Alberta; the provinces are begging for federal health care cuts to be restored to prevent a collapse of the system.

For the past fifteen years, Canada has been ruled by neoliberal governments that have cut back the overall social security system, and Medicare with it. Still, in Canada, Medicare gets approval from 80% or more, and 60% reject the idea of replacing it with a two-tier system in which the government insures those who can't afford private insurance.

Politicians are then unwilling to attack Medicare directly; they prefer stealth rather than confrontation. But the cumulative effect of stealth attacks has been to reduce the system's ability to provide services, which has led to a rash of for-profit health care companies operating outside Medicare along with the private insurers needed to pay for their services.

How could a popular program like Canada's Medicare be put in such danger? Both domestic and international capital have had a hand in it. In the stealth attack, Canadian capital strengthened its hand through international agreements. This was not done so much by explicit provisions for cuts or privatization as by spreading the competitive and privatizing spirit that shaped negotiations leading to the agreements signed by Conservative and Liberal governments alike—the 1989 Canada-U.S. Free Trade Agreement (FTA), the 1994 North American Free Trade Agreement (NAFTA), and the 1994 World Trade Organization (WTO) agreement.

The conflict over Medicare created by trying to implement this competitive and privatizing spirit has shown a decided class character. One side finds it in their direct interest to defend a system of health care with the character of a public good, since with limited resources it is difficult or impossible for them to afford private insurance. This side is primarily working class.

The other side, however, doesn't find it in their personal interest to defend such a system, since they can easily afford private insurance or are rich enough to take their chances without insurance. Instead, this side wants to capitalize every sector, including the health sector.

Their Morals and Ours

The Canadians are said to have a more solidaristic moral culture than we have in the United States. For this reason it is said to be inappropriate to try to adapt their single payer system to the U.S. situation. Such moral differences, however, are hard to reconcile with the seriousness of the neoliberal threat to Canadian Medicare.

In fact, instead of pervasive solidarity, there is a fissure in the Canadian ethos clearly revealed in business-promoted attacks on social security by both federal and provincial governments beginning in 1984.

Canada is a class society, after all, with all the strains on solidarity that implies. Every wealthy individual is aware that he or she pays more in taxes for universal health care than it would be necessary to pay for a private insurance plan. Working people are fragmented not just by the perennial competition within the labor market but also by the recent intensification of national sentiments.

Neoliberalism has attacked both working class organizations and state-supported social services in order to advance the allegedly common interests of deficit control and export sales against the special interests of working people. The sum of these tendencies, whether between classes or within the working class, fashions a society that can't be described as solidaristic without gross simplification.

What, though, of the overwhelming consensus in Canada approving Medicare? One should pair this with the consensus in the United States finding fault with the U.S. health care system. This indicates a similar level of concern for others. But this pairing can't support the conclusion that there is a high level of solidarity in each—for what is being judged is not just the success or failure of each system to provide for others, but also its success or failure from the perspective of competing self- interests.

Even the fact that Medicare came into being in Canada doesn't show a basic difference in moral culture. It shows, rather, an important difference in political institutions: Without a significant third party to join, the forces for single payer in the United States were smothered within the Democratic Party.

The Southern Democrats rejected Truman's effort to get single payer between 1945-1949; Democratic majorities in both houses during the 91st Congress failed to rally support for the Kennedy-Griffiths single payer bill in 1970; and with ninety-some cosponsors in the House, Jim McDermott's 1994 single payer bill was ignored by leading Democrats, already committed to some version of corporate health care.

In contrast, the Canadian New Democratic Party was a third party committed to national health insurance. It could keep the Liberal Party from compromising its earlier commitment to this principle or from stalling in moving to legislate it. When the Liberals came to power with a minority government in 1964, the NDP held the balance of power. Had the Liberals not moved on national health insurance as NDP conceived of it, they faced the defeat of their broad legislative program and a shift of left Liberals to the NDP.

The capturing of U.S. labor by a mainstream party contrasted with the close ties the NDP as a third party was able to forge with Canadian labor in the 1960s. With the Democrats making a right turn, the AFL-CIO felt in 1991 it had to give up its traditional support for single payer if the door to Democratic leaders were to stay open for it on other issues.

Even the NDP had its right turn, a symptom of which was the effort by the NDP premier of Saskatchewan to crush a 1999 strike by over 8,000 nurses protesting a severe nursing shortage.

Ironically, Medicare got started in 1961 in his province with NDP's predecessor party, the Cooperative Commonwealth Federation (CCF), in power.

The Stealth Attack Through Cuts

The attack on Canadian Medicare with the most far-reaching consequences has undoubtedly been the relentless reduction in federal support for provincial health plans. By the mid-1990s, federal spending on health care was actually surpassed by private spending on it. Slashing federal cash transfers to the provinces reduced federal health spending from 6.18% of total federal spending in 1986 to 4.24% in 1992.

Provinces and municipalities have not made up for these federal cuts. The private share of total health expenditures rose from 24% in the 1970s to 30% in the mid-1990s. Big employers are paying for employee insurance for a growing list of items not covered by Medicare.

The rising cost of medicines has made employee insurance more expensive for employers, and has decreased utilization among the sickest. This has created calls for turning the pharmaceutical program, Pharmacare, which now covers only the elderly and various categories of the needy, into a single payer program for everyone, which would then be able to bid down the prices of medicines. It is no surprise that the main force in heading off this reform was the multinational pharmaceutical companies.

In arguing for his 1995 budget, Liberal Prime Minister Jean Chértien said it was necessary to control health spending. But what was increasing was private spending on health care, not public spending. Overall government spending on health care actually declined in 1996 for the first time since the founding of Medicare, dropping Canada to 17th among OECD (advanced industrial) countries in per capita public spending on health care.

Provinces are finding it more and more difficult to realize Medicare's goals of accessibility and comprehensiveness for health care. The condition for receiving federal money is that these and the other goals of Medicare be met; but the imperative to meet them weakens as federal money diminishes.

Why, though, has it been made so difficult for Medicare to remain a public good? The answer that gave momentum to the movement for federal cuts was that the deficit had to be reduced. In 1984, the Business Council on National Issues—Canada's most powerful lobby with CEOs from 150 of its largest corporations—published a position paper calling for deficit reduction, which it claimed could come about only through tax increases or expenditure cuts.

The Council recommended not an elimination of popular social programs but cutting them back, by among other things cutting the transfers to the provinces for Medicare and higher education. The Conservative government of Brian Mulroney then made deficit control its policy.

The deficit argument had to be set aside as low interest rates and prosperity led to a federal surplus in the late 1990s. But this made no difference since the chief thing in the eyes of all the neoliberal regimes remained the same. This has been to limit the role of government in order to open up opportunities for capital. Limiting government was seen as, among other things, a step toward enhancing competitiveness in order to sustain Canada's highly export-dependent economy.

Reducing expenditures on social services would reduce the cost of exports. Nonetheless, since the deficit argument played a decisive role in starting the federal cuts, it is of interest to note that it was a hoax. Statistics Canada, in a study suppressed by Mulroney's government until a copy was obtained under freedom of information legislation, showed that:

•Half the deficit from 1975-1991 came from tax breaks—a half-a-million dollar lifetime exemption on capital gains taxes and an 8% reduction in federal corporate taxes, benefiting mainly corporations and the rich.

•Another 44% came from high interest rates—a 6.1% real interest rate over the 1983-1992 period on long-term government debt, as contrasted with the 1935-1984 average of 1.4%—resulting from the Bank of Canada's monetarist policy of fighting inflation to please bondholders.

•Only 6% of the deficit came from government spending—but there was no net increase of the ratio of social spending to GDP from 1975 to 1991.

Social spending, Statistics Canada concluded, was not the problem.

The Onset of Privatization

There has come to be more to the neoliberal program for Canadian health care than federal cuts. There are other opportunities to be opened up for capital by limiting government. The subtext of the cuts has become getting a greater share of the $(C)75 billion health care industry into the hands of profit-making outfits. The cuts have proven merely a convenient indirect means toward such a privatization. It may, though, be U.S. multinational health corporations, rather than Canadian capital, that get to take advantage of privatization within Canadian health care.

Privatization takes many forms, and in Canada's health care system one isn't faced now with privatization by sale to for-profit firms. Rather, one is faced with a growth of competitors to Medicare. Thus one has a growth in business for private health insurers, and as well a growth in business for providers whose services aren't covered under Medicare.

These forms of competitor privatization are politically more expedient than a sell-off of what Medicare “owns,” which is almost exclusively the human bodies insured under provincial plans. Yet these privatizations are promoted by the cuts and do threaten Medicare's ability to carry out its mission of universality, accessibility, comprehensiveness, portability, and public accountability, as defined in the 1984 Canada Health Act.

Private insurance is getting a boost in several ways. As a result of underfunding, some services have been taken off the provincial lists of covered services. Thus in Manitoba and Quebec free dental services for children were dropped. Other provinces have dropped coverage for eye examinations. Moreover, in many provinces listed services have not been updated to include non-physician services that can reasonably be considered necessary for health, such as home and rehabilitative care.

Those who favor making private insurance available for coverage of as many services as possible appeal to the fact that the Canada Health Act itself requires coverage only of “medically necessary” hospital and physician care. Such an appeal accompanies efforts, like those spearheaded by Alberta premier Ralph Klein, to get around the legal restriction that a service paid for by the provincial plan—“listed” by it—cannot be billed to a patient and hence cannot be covered by private insurance.

Can, for example, a service that a provincial plan pays for be covered by a private insurer when it is performed in a clinic that announces it has cut its ties with Medicare? Physicians sometimes leave hospitals, complaining of low compensation, to offer services only to those willing to pay for them without relying on their provincial health plan. If their work is rehabilitation, they can argue that it is perhaps not “medically necessary” and thus need not have been listed in the first place.

Recently this minimalist view of medical necessity has been pushed to an absurd limit. Physicians have been successful in court against an Ontario Ministry of Health challenge to their billing patients for preoperative tests that under any reasonable interpretation are constituent parts of procedures insured under the provincial plan. In these various ways, private insurance is given the opportunity to fill in a growing number of holes in provincial plans.

The provincial health ministries with which hospitals funded by provincial plans have to negotiate their global budgets are to act as the guardians of the principles of Medicare. This discourages the handful of for-profit hospitals funded under those plans from having ambitious goals for increasing market shares or attracting profit-hungry investors. Thus far, then, for-profit privatization tends to work around the edges rather than to increase the number of for-profit hospitals working within provincial plans.

Here are some of the ways privatization is growing. With cuts in hospital nursing staffs and with the employment of hospital therapists not keeping up with demand, numerous for-profit extended care and rehabilitation centers have sprung up. Often their services are not covered by provincial plans—not because they are delivered in for-profit centers but because the service is both non-physician and non-hospital care.

Cuts in hospital laboratory staffs cause long waits for test results financed out of hospitals' budgets. For-profit laboratories provide quicker service, at least for those who can afford to pay for it either out of pocket or with private insurance. In some cases, hospitals form joint ventures with for-profit laboratories, using the revenue to offset inadequate global budgets. In New Brunswick, four for-profit multinational firms have taken over the administration of the provincial health plan, in violation of the public-administration condition of Medicare.

Finally, hospital funding itself is being privatized. In Ontario, continuing support for hospitals became incompatible with the desire of its Tory premier Mike Harris to slash taxes. His government wants Toronto's hospitals renovated through a hospital bond issue rather than with funds from taxes.

This method of “renovation” begins to modify the goals of the hospitals to conform to the interests of lenders rather than to the public interest in having a healthy society. These and similar privatizations lead toward a health care system with a public outer shell covering for-profit functioning parts.

Harmonizing Down with Free Trade

The Canadian single payer system is anathema to the liberalizing spirit that led Canada to sign recent trade agreements. There is an ongoing battle between those with this liberalizing spirit and those with a more solidaristic spirit—unions, churches, nurses, senior citizens, and a variety of reform organizations, such as the Canadian Health Coalition.

The trade agreements are simply another front in this battle, a front on which the liberalizers aim to level down the greater role of government in Canada to its level in the United States. I comment on three issues in the battle on this front: (1) user fees, (2) the concept of social services, and (3) property rights.

(1) The health care system, it is argued, can be run with lower taxes if it is modified to permit provincial user fees. Lower taxes are a way of leveling downward government supports that the trade agreements try to eliminate. With lower taxes, Canada may begin to reduce the 40% of the GNP spent by government at all levels, bringing it nearer to the 35% of GNP spent by government in this country.

In 1996, premiers from the four western provinces called for “flexibility” in regard to user fees. Provinces could then compete among themselves for foreign investments by touting lower tax rates. Since free health care makes labor more expensive, businesses would be able to make their exports more competitive if there were provincial user fees. Canada might then be able to reduce government's share of the cost of health care from 70% to something a bit closer to the U.S. level of 40%.

So far, however, the argument that user fees save less in taxes than they cost in delayed health care for lower income patients seems to have mobilized enough people to deny victory to this neoliberal attack.15

(2) The NAFTA exempts “social services” from liberalization (i.e. privatization) provided they are established or maintained for a “public purpose.” Canadian trade negotiators interpret this proviso broadly to allow exemption for a social service that is privately delivered in order to realize a public goal.

They seem to accept the common view that a public goal is one that would benefit the society as a whole. It couldn't, then, be realized by a service sold on the market, which the poor couldn't buy. But they see no clash between serving the public goal set by Medicare and delivering health services privately, as most of them are in Canada. (Outside VA and psychiatric hospitals, which are public, physicians are not public employees. Hospitals are overwhelmingly private, though not for profit.)

The U.S. Trade Representative, in contrast, interprets the proviso narrowly so that only publicly delivered social services can be for a public purpose and hence qualify for the exemption. As to the health care system, Canada, unlike Britain, is only the payer not the owner. If this U.S. interpretation of the NAFTA wins out, each and every provincial health plan would have to close down.

It is certainly true that each provincial plan creates a government monopsony (single-buyer—ed.) that prevents or discourages the entry into basic health care of private competitors. It prevents the entry of private insurance into the greater part of health care since there can be no billing of private entities for listed services; it severely limits the entry of private providers operating outside provincial plans, since everyone is already covered by a provincial plan.

What's going on here is not a bit of metaphysics but an insistence on policy. The U.S. government is not saying that private providers are inherently market creatures. It knows full well there is nothing about private providers that prevents them from functioning as part of a public good rather than a market.

The real point is that the not-for-profit private providers in Canada are occupying places that could otherwise be occupied by U.S.-style for-profit corporate health corporations and the hospitals, clinics, laboratories, and physicians that have contracts with them. All that needs doing is to end the control of those places by a single payer. So the U.S. Trade Representative is simply using established neoliberal policy to narrowly interpret the proviso for exempting social services from privatization.

For political reasons, the United States has so far not used NAFTA to destroy Medicare in Canada. Should this happen, the move inside Canada to repeal NAFTA would be irresistible.

Curiously, though, Canadian trade negotiators to the Multilateral Agreement on Investment (MAI) talks allowed a proviso on the exemption from liberalization for health and other social services identical to that in NAFTA. It is clear that Canadian neoliberals still want to keep an international threat to Medicare hanging over the heads of its defenders.16

(3) As noted, seniors, the poor and the disabled have some of their pharmaceutical expenses paid under Pharmacare. Others are covered for medicines by employer programs. Free trade agreements have been responsible for a large part of the dramatic rise in what Pharmacare and employers are paying for medicines.

Beginning in 1969 Canada allowed its generic industry to copy brand name imported medicines. Negotiations in 1986 with the United States for the FTA led to a Canadian promise to provide patent protection to new brand-name drugs, for what turned out to be ten years.

In 1993, as a result of GATT talks in which the United States was pushing Canada to “level up” to its own level of patent protection, Canada extended patent protection up to twenty years. Just for emphasis, U.S. pharmaceutical companies insisted that the twenty-year protection also be a part of the NAFTA's affirmation of property rights. Without benefit of competition from the Canadian generic industry, Canadians would spend $(C)400 million more on medicines in 1994 than in 1993, a 12% increase. As Senator David Pryor of Arkansas wisely noted, NAFTA's pro-monopoly and anti-competition clause on patent protection locks the United States itself into high drug costs.

Which Road Ahead?

There are three general ways of responding to the erosion of Canada's single payer system. The first is the neoliberal way of accepting the trend toward the government's withdrawal from its commitments in the area of health as good for both the economy and health care in Canada. As the trend continues, competition will come to both insurers and providers, leading, on this view, to greater efficiency in health care.

The second is the way of those who think that less is better for health care. They see the erosion of state support as an opportunity to enhance Medicare's ability to act as a public good. Less money will lead the way to replacing what are widely seen as genuine sources of inefficiency. For them it will lead to replacing the fee-for-service system with capitation fees, replacing the medical model of health care with interdisciplinary teams and more emphasis on public health, and replacing the reliance on hospitals with building more community health centers.

The third way is that of those who recognize the trend as eventually making it so difficult for Medicare to deliver universal and comprehensive health care that Medicare will simply become the lower level of a tiered system. This recognition lays the basis for organizing to fight inadequate funding and slow privatization, not for accommodating to them or treating them opportunistically.

Those who adopt the third way generally favor enhancing Medicare by reforming fee-for-service, the medical model, and hospitals. But they reject as an illusion the idea that the neoliberal stealth program wants an improved Medicare rather than one whose mission has been gutted.

ATC 85, March-April 2000

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