Making sense of health funding dollars and cents

There are provincial winners and losers in the changing world of the Canada Health Transfer and the future could hold even larger discrepancies in funding

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The last few years have seen dramatic changes to the Canada Health Transfer (CHT), which in 2017-18 will total $37.150 billion – no small figure.

Former prime minister Stephen Harper initiated a full per-capita funding formula without a tax-point equalizing adjustment in 2014-15 – basically a top-down policy change.

Harper continued with the six per cent annual escalator, which was part of the original 2004 health accord. But he also unilaterally decided to end the escalator in 2017-18 and replace it with increases in payments to the provinces tied to the growth rate of gross domestic product (GDP) and subject to a floor of three per cent.

The opening offer of the government of current Prime Minister Justin Trudeau was marginally better at 3.5 per cent annual raises to the CHT, plus $11.5 billion over 10 years for mental health and home care. This brings the average annual increase of transfer payments to nearly 3.8 per cent.

The provinces pushed for annual increases of 5.2 per cent and rebuffed the initial federal offer.

Health Minister Jane Philpott then negotiated separate transfer agreements with each province rather than instituting a blanket agreement. Interestingly, this resulted in a growth formula similar to that proposed by Harper. Starting in 2017-18, the growth rate of total CHT cash transfers will be at the rate of growth of nominal GDP – but with a minimum rate of three per cent.

About another half a per cent growth is expected from the $11.5 billion of new federal funds for mental health and home care, although this money is not coming right away. Indeed, the provinces are getting a smaller annual increase than the initial federal offer. Nevertheless, most of those individual deals with the provinces have now been made (Manitoba is the only holdout).

So who wins and loses on health care funding in Canada? And will the provinces ever be happy where federal transfer payments for health care are concerned?

Let’s look at the key changes in turn.

On one hand, Harper’s change to an equal per-capita health transfer recognized the fixed upfront costs of funding a public health-care system, and dealt with this reality consistently across all the provinces and territories. It also limited federal fiscal exposure by making the grant size more predictable given population numbers.

On the other hand, a per-capita formula didn’t take regional variations in health, socio-economic and demographic factors into account. For example, some provinces – particularly in the Atlantic region – have slow-growing populations and more rapid aging, while other regions have larger aboriginal populations with often complex health needs with implications for future expenditure growth.

So how about the new 10-year deals?

The good news for the provinces is there’s no funding cut. Total federal funding for health care will continue to grow – but at a lower rate than the previous six per cent escalator and the 5.2 per cent originally desired by the provinces.

However, there are differences across the provinces when it comes to their CHT growth next year, given it’s a per-capita allocation and provincial populations are growing at different rates. Keep in mind that the three per cent minimum growth applies to the total size of the federal transfer pot and not the increase that each province will get.

Growth in CHT totals by province in 2017-18 will range from a high of 3.5 per cent for Alberta to a low of two per cent for New Brunswick. Saskatchewan will see 3.4 per cent growth, Ontario 3.1 per cent and B.C. three per cent. Even the lone holdout, Manitoba, will see its CHT money grow 3.4 per cent this year. The rest of Eastern Canada, including Quebec, will see their CHT money grow at less than three per cent.

Philpott has now established a precedent for province-by-province negotiations. Even wider variation in health services may be possible if the provinces or the federal government decide to become more mercenary in their approach to federal-provincial negotiations.

In the end, under the new deals, each province will have more health-care money from the federal government, but not as much as they would like. And some will see their CHT totals grow faster than others.

Livio Di Matteo is an expert adviser with EvidenceNetwork,ca and professor of Economics at Lakehead University.

health care funding canada, livio di matteo, Jane Philpott, Canada Health Transfer


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