Funding the Healthcare System Post COVID-19 Pandemic

Introduction

The COVID-19 pandemic has pushed labour markets, stock markets, education systems, government apparatuses, and most notably the healthcare system to uncomfortable limits. However, despite these pressures, the coordinated intergovernmental response and the resilience of healthcare workers have been instrumental in mitigating the spread and effects of the COVID-19 virus. The pandemic has put into focus the importance of the responsive nature of government institutions and the robustness of the Canadian healthcare system. With the increased economic stress placed on multiple levels of government and logistical and labour-related pressures our healthcare system, this article will discuss what the future of the healthcare system could look like in a post-COVID-19 pandemic environment.

Government Spending During the Pandemic

Canada’s relative success in responding to the pandemic was supported in part by the federal government’s economic stimulus plan. A main component of this economic pandemic response was $116 billion in direct aid to households and businesses in the form of wage subsidies and tax credits.[1] An integral part of this stimulus package was the Canada Emergency Response Benefit, which provided a $2,000 direct monthly payment to individuals who became unemployed as a result of the pandemic.[2]

Provincial governments also played an important in pandemic funding responses. Ontario, for example, created a $13.3 billion COVID-19 contingency fund for additional healthcare investments, spending on social programs and funding to help small businesses.[3] The Province of Ontario recently reported that it had spent the entire fund, which consisted of $1.4 billion to provide grants to small business struggling in the pandemic, $869 million in additional funding for hospitals, $135 million for the province’s vaccination strategy and $105 million to lower hydro rates for homeowners.[4] Québec created a provision of $4 billion for economic risks, while British Columbia announced broad packages in support of their agri-food, electricity, and fishing sectors.[5] However, despite being under provincial jurisdiction, 88% of healthcare spending in response to the pandemic has been from federal government funds, with the provinces spending a combined $5 billion of provincial funds on healthcare.[6]

The State of Provincial and Federal Government Finances

As a result of the economic stimulus package launched in response to the pandemic, in July 2020, the Government of Canada announced a projected deficit for fiscal year 2020-21 of $343 billion.[7] This represents a government deficit of 121% of GDP in 2020.[8]

These deficits were also projected by several provincial governments, albeit on a smaller scale. Ontario announced that its deficit would nearly double from an earlier projection of $20.5 billion to $38.5 billion.[9] Québec projected a deficit of $14.9 billion for fiscal year 2020-21,[10] while British Columbia projected a deficit of $12.8 billion,[11] and Alberta projected a deficit of $24.2 billion.[12]

As a direct result of the federal government’s increased levels of borrowing and increasing debt, Fitch, a credit rating agency, downgraded Canada’s credit rating from “AAA” to “AA+.”[13] The consequences of this credit downgrade have impacts on healthcare funding by both federal and provincial governments in two important ways: it reduces the government borrowing capacity, and it increases the cost of borrowing for.[14] In line with this trend, Alberta’s credit rating was also downgraded in June from “AA” to “AA-” with an outlook revised from stable to negative.[15]

The Impact of Previous Healthcare Spending Cuts

2020 is not the first time that Canada’s credit rating has been downgraded. As a result of years of deficit spending and a recession in the early 1990s, Canada’s credit rating was downgraded from “AAA” to “AA+,” prompting the federal government to take aggressive action to reduce spending.[16] However, when the federal government reduces spending, the effect is that its operating deficit is absorbed by provinces in reductions in federal government cash transfers, including for healthcare funding. During this time, the proportion of provincial healthcare expenditures covered by a direct cash transfer from the federal government decreased from 30.6% in 1980 to 21.5% in 1996.[17]

The impact of these cutbacks directly affected the hospital sector. Between 1986 and 1994, the number of staffed beds in short-term care units in all categories of public hospitals decreased by 27%, despite the overall growth in Canada’s senior population.[18]  In Ontario, the provincial government closed and merged more than 40 healthcare institutions.[19] In Manitoba, the impact of healthcare cuts resulted in an 8% reduction in hospital budgets and a 19% reduction in the number of beds at acute care hospitals during the between 1989 and 1994.[20] The reduction in funding for provincial healthcare systems were so impactful that that the Alberta Government recommended more experimentation with the private delivery of healthcare in the province.[21]

The Future Sustainability of Government Finances

The Office of the Parliamentary Budget Officer has indicated that the Federal Government’s current fiscal policy is currently sustainable over the long term, despite the $247 billion spent in pandemic response measures.[22] However, for the subnational governments, the current fiscal policy is not sustainable over the long-term.[23]This is because provincial governments have a less diversified tax base and fewer spending powers. Unlike the federal government, subnational governments face increasing health care costs due to Canada’s ageing population, limited increases in in federal transfers, and pandemic-related expenditures.[24] It remains to be seen whether the health care system can be funded adequately to continue the current levels of quality into the future.