Have we traded away the opportunity for innovative health care reform? The implications of the NAFTA for medicare.

• Author: Epps, Tracey
• Position: Canada

The integrity of medicare depends on governments having flexibility to respond to the changing dynamics of the health care system, This article concludes that the North American Free Trade Agreement ("NAFTA") has potential to place constraints on the ability of Canadian federal and provincial governments to regulate freely.

The health care system is a mix of public and private interests. At its core. "medically necessary hospital and "medically required" physician services are fully publicly financed, but often privately delivered. However, private Financing is funding an increasing number of important goods and services such as chug therapy. Various proposals have been made for the reform of the health care system, including national insurance programs for pillion thugs and home cote, and this article assesses some of these proposals in light of the NAFTA.

Canada has made reservations to the NAFTA to protect medicare but these reservations fail to recognize the public/private nature of the health care system, resulting in uncertainty as to what services are protected from application of some of the NAFTA's key provisions. The expropriation provision presents particular concerns for reform, as the reservations provide no protection from its application. Further, the dispute settlement process allows disputes to be heard away from the light of public scrutiny.

Canada should work towards a political solution to these concerns. In all relevant contexts, both the federal and provincial governments should clarify that their intention with regard to health care is to act for a "public purpose". The authors also emphasize the importance of international trade negotiators working with Health Canada officials to ensure appropriate treatment of health care in international trade negotiations.

L'integrite de l'assurance-maladie depend de la flexibilite qu'ont los gouvernements a reagir aux dynamiques changeantes du systeme de soins de sante. Cet article conclut que l'Accord de libre-echange nordamericain (>) peut imposer des limites aux habilites des gouvernements federal et provincial a gouverner librement.

Le systeme de soins de sante est un melange d'interets publics et prives. Au coeur de ce systeme, los fonds publics financent les services >, alors que le secteur prive offre ces services. Les fonds prives financent un nombre croissant de biens et de services importants tels que la pharmacotherapie. Des programmes nationaux d'assurance pour les medicaments de prescription et les soins de sante a la maison figurent parmi les exemples des nombreuses proposition faites en vue de la reforme du systeme de soins de sante; cot article se penche sur quelques unes de ces proportions a la lumiere de l'ALENA.

Les reserves enoncees a l'ALENA par le Canada afin de proteger l'assurance-maladie n'ont pas su reconnaitre la nature publique et privee du systeme de soins de sante. Ainsi, l'incertitude regne quant a savoir quels services sont proteges. La disposition relative a l'expropriation souleve des inquietudes precises quant a la reforme, car les reserves emises n'assurent aucune protection contre l'application de la reforme. De plus, la procedure pour les reglements de differends permet que les differends soient entendus hors de la portee d'un examen minutieux du public.

Le Canada devrait trouver une solution politique a ces problemes. Los gouvernements federal et provincial devrait enoncer clairement leur intention d'agir darts l'interet du public dans le secteur de soins de sante. Les auteurs soulignent egalement l'importance de la collaboration entre les negociateurs du commerce international et les fonctionnaires de Sante Canada afin d'assurer le traitement adequat de soins de sante dans le negociation des accords de commerce international.

Introduction I. Canada's Health Care System A. Medicare B. The Mix of Public and Private Interests in Canadian Health Care C. The Shifting Public and Private Mix: Recent Changes to Our Health Care System D. The Potential for Export of Health Care Services E. Proposals for the Reform of Medicare II. The NAFTA and Canadian Health Care Reform A. The Relevant Provisions 1. National Treatment and Most-Favoured-Nation Treatment 2. Expropriation 3. Dispute Settlement 4. Reservations B. The NAFTA's Effect on Proposals for Reform 1. National Pharmacare and/or Home Care Programs 2. Managed Competition Reform 3. Internal Market Reform: Contracting Out to Competing Providers 4. Primary Care Reform Conclusion Introduction

Canada's publicly funded health care system ("medicare") is the country's most cherished social program. It has been described as "iconic", (1) "'embedded' in Canadians' perceptions of their political culture" (2) "a unifying force, a national obsession, and, not least, one of the few features that allows Canadians to differentiate themselves from their neighbours to the south." (3) Despite its hallowed status, tensions within medicare are becoming increasingly obvious; the system is now frequently described as being in crisis. (4) Being a system upon which all Canadians must rely, at least for "medically necessary" hospital and "medically required" physician services (5) (for which there are few private options), the trials and tribulations of medicare are never far from the media spotlight and bedevil politicians of all political stripes.

The health care system is shaped by changing economic, political, and social circumstances. One of the most powerful economic and political forces of the past decade is globalization, encompassing the liberalization of international trade and investment. International trade agreements negotiated during the 1990s have trade and investment liberalization as their primary goals and have altered the context within which medicare must operate. The North American Free Trade Agreement (6) ("NAFTA") aims to create a free trade area between the territories of Canada, the United States, and Mexico and is arguably the most important international trade agreement to date in terms of possible implications for medicare. The Canadian government's stated reasons for entering into the NAFTA include:

* Canada needs improved and more secure access to world markets to exploit our economic strengths.

* More open access to foreign markets under fair-trade rules will help the Canadian economy become even more competitive. This will eventually pay off in more and better jobs in Canada, better deals for our consumers, and increased national wealth to help us support and improve our social programs. (7)

There are two sharply contrasting perspectives on the implications of the NAFTA for medicare. Critics argue that, rather than helping the government support and improve medicare, the NAFTA will force Canada to open up medicare to entry by foreign (particularly U.S.) service providers and commercial insurers. (8) It is feared that such an opening of the health care market will inevitably result in the erosion of medicare and a slide into a U.S.-style system of health care driven by for-profit insurers and providers. By contrast, the federal government has given a number of assurances that the NAFTA protects the health care sector and therefore poses no threat to the integrity and sustainability of medicare. (9)

We assess which, if either, of these two contrasting perspectives is correct and closely examine Canada's obligations under the NAFTA in order to determine what constraints it might impose on various proposals for the reform of medicare. While we conclude that the NAFTA will not lead medicare to be privatized "United States-style", the federal government's assurances regarding the security of medicare paint an overly simplistic picture. The NAFTA provides some protection for medicare, yet still poses a number of roadblocks to reforms needed to modernize medicare, such as expanding health insurance coverage to prescription drugs and home care. In the absence of these reforms, and as the focus of health care moves away from physicians and hospitals towards, for example, drug therapy, medicare will slowly but surely be privatized.

In Part I we examine Canada's health care system, its underlying values, and how it has changed in recent years. In so doing, we demonstrate the shifting mix of private and public interests that forms its basis. We then present the specific proposals for the reform of medicare that will be dealt with in this article. In Part II we turn to examine the NAFTA provisions that are of the most relevance to Canada's health care system, paying special attention to Canada's reservation under NAFTA Annex II and to the article 1110 expropriation provision, which applies regardless of reservations. We then go on to examine the impact of these provisions on various proposals for reform, and draw some conclusions as to what can be expected in the future regarding the impact of the NAFTA on medicare and what can be done to ensure Canada's best interests.

1. Canada's Health Care System

   1. Medicare

      A high level of government intervention characterizes Canada's health care system. This is partly justified on the grounds that health care is subject to a number of market failures, (10) but primarily government intervention is justified to ensure a distributive goal of access for all to important health services. Medicare is founded on the belief that most hospital and physician services should be distributed so that all Canadians have access to them according to medical need, and not according to their ability to pay. Medicare is distinguishable from other social programs where eligibility for benefits usually depends on some criterion of financial need (i.e. some form of income testing occurs). It also sharply contrasts with most other sectors of the Canadian economy where services are allocated according to the capacity to pay (e.g. someone with more money can buy more or higher quality goods and services, such as cars, houses, or investment...