Research Synthesis on Health Financing Models: The Potential for Social Insurance in Canada

CHSRF series of reports on financing models: Paper 1

Full Report (PDF, 505 KB)

Charles D. Mallory, PhD
Alexandra Constant, MSc
Anna Piercy, MSc
Jennifer Major, PhD

Canada is renowned for its universal national health insurance national insurance (NI) system, a collection of systems often referred to globally as medicare. It covers all medically necessary physician and hospital services, as guaranteed by the Canada Health Act (CHA). Although the CHA reflects the high value Canadians place on equity through income and health risk sharing, coverage by the various provincial plans for services not mandated by the CHA is uneven, raising equity concerns.

Most provincial and territorial medicare programs fully or partly fund health services beyond the requirements of the CHA, funding, for example, some costs for medical imaging, medical transportation or drugs prescribed outside of hospitals. For health services not publicly covered, Canadians must purchase private insurance, pay “out-of-pocket” or go without.

Healthcare has changed dramatically since the CHA was passed in 1984. With technological innovation, medically necessary care is no longer provided solely in hospitals, but may be provided in the home, community or other settings. The need to modernize coverage was pointed out in 2002 by both the Romanow Commission and the Kirby committee of the Canadian Senate. Despite efforts by federal, provincial and territorial first ministers in their accords of 2003 and 2004, there has been little progress on funding improved access to non-covered services. There is a need to identify financing options that do not impose burdens on government budgets.

The social insurance (SI) model, common in Europe and used in Canada to finance public pensions and employment insurance, has been suggested as a way to raise revenue to improve access to non-CHA services. Unlike NI systems, which are funded primarily from general tax revenues, SI systems are usually funded by mandatory payroll deductions. This paper examines the implications of using the SI model to expand coverage to services such as pharmaceuticals and long-term care. It does not attempt to establish which model, NI or SI, might be superior, only whether such a change might be better than the status quo.

Certain crucial questions are addressed:

  • Are SI financing models as effective at ensuring income and health risk sharing as NI systems?
  • Does the choice of financing model affect the delivery system, such that adding SI financing for new services might require important changes to Canada’s delivery model, such as provider payment models or restrictions on patient choice?
  • Does the use of payroll taxes in SI financing models have negative consequences for jobs and income growth?
  • Does the SI financing model permit effective cost control and is it sustainable without cash infusions from general tax revenues?

The study begins with a description of how SI functions in four European countries, namely Germany, France, Switzerland and Finland. The countries chosen for this analysis share certain key features with the Canadian model. They all are universal in terms of the population covered and a parallel system of private insurance for publicly insured services is not permitted.