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 percent 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 percent.
The opening offer of the government of current Prime Minister Justin Trudeau was marginally better at 3.5 percent 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 percent.
The provinces pushed for annual increases of 5.2 percent 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 percent.
About another half a percent 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 healthcare funding in Canada? And will the provinces ever be happy where federal transfer payments for healthcare 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 healthcare 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 healthcare will continue to grow – but at a lower rate than the previous six percent escalator and the 5.2 percent 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 percent 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 percent for Alberta to a low of two percent for New Brunswick. Saskatchewan will see 3.4 percent growth, Ontario 3.1 percent and B.C. three percent. Even the lone holdout, Manitoba, will see its CHT money grow 3.4 percent this year. The rest of Eastern Canada, including Quebec, will see their CHT money grow at less than three percent.
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 healthcare 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 a professor of Economics at Lakehead University.