Winners and losers in the changing world of the Canada Health Transfer

By Livio Di Matteo

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

The Harper era saw the move to a full per capita funding formula without a tax-point equalizing adjustment in 2014-15 – basically a top-down policy change.  Prime Minister Harper did continue with the 6 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 tied to the growth rate of GDP and subject to a floor of 3 per cent.

The opening offer of the new Trudeau government was marginally better at 3.5 per cent annual raises to the Canada Health Transfer 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 federal CHT cash transfers will be at the rate of growth of nominal GDP — but with a minimum rate of 3 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, though this money is not coming right away. Indeed, the provinces are getting a smaller annual increase than the initial federal offer.  Never the less, most of those individual deals with the provinces have now been made (Manitoba remains the only hold out to date).

So who wins and loses on health care funding in Canada?  Perhaps the bigger question is if the provinces will ever be happy where federal transfer payments for health care are concerned. 

Let’s look at the key changes in turn.

On the 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 regularly available population numbers.

On the other hand, a per capita formula did not 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 that there is no funding cut.  Total federal funding for health care will continue to grow — but at a lower rate than the previous 6 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 is a per capita allocation and provincial populations are growing at different rates.  Keep in mind that the 3 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 2 per cent for New Brunswick. Saskatchewan will see 3.4 per cent growth, Ontario 3.1 per cent and BC 3 per cent. Even the lone holdout – Manitoba, will still see its CHT money grow 3.4 per cent this year.  The rest of eastern Canada, including Quebec, will see their federal CHT money grow at less than 3 per cent.

Worth noting, Minister Philpott has now established a precedent for province-by-province negotiations. Even wider variation in health services may indeed be a possibility in future negotiations 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 advisor with EvidenceNetwork,ca and Professor of Economics at Lakehead University.