The federal and provincial health ministers meeting in Vancouver last week ended somewhat abruptly without an outcome regarding an increase in transfers. The provinces have been asking for increases to the Canada Health Transfer that would raise the federal share of provincial health spending from 22 percent to 35 percent. Given that for 2022-23 the Canada Health Transfer to the provinces is expected to be 45.2 billion dollars, such an increase would amount to an additional cash transfer of well over 25 billion dollars.
The provinces maintain that they need the money to deal with an increasingly strained and stressed system beset by labour shortages and the aftermath of the pandemic. The federal government is leery of simply handing over the money without conditions because of the concern that more money without structural reforms to the health system or some conditions is simply business as usual. After all, the enhanced transfers of the 2004 Health Accord with its 6 percent annual increase escalator that lasted until 2017 was supposed to buy fundamental reforms and transformative change and yet the same problems persist pandemic notwithstanding.
The solutions here are problematic. The federal government could simply hand over more money given that health is a provincial responsibility and wash their hands of the matter. However, given their concerns that the provinces may not necessarily spend the money on health given they are almost as busy as the federal government in handing over rebates and assistance to deal with inflation, they are unlikely to do so. They could proceed unilaterally and create a grant with conditions that provinces could accept if they wished or otherwise deal with the matter on their own – probably by increasing their own source revenues (i.e., raise their own taxes) . Or they could simply do nothing and wait for the provinces to come around. After all, health is a provincial responsibility and the blame for a lack of family physicians or crowded ERs ultimately lands at the feet of provincial governments.
Of course, in dealing with the issue it is perhaps useful to look at some indicators to see what the dimensions of the problem might be. The accompanying figure plots the average annual growth rates from 2008 to 2022 for an assortment of health spending, fiscal and economic indicators. This period includes both the pandemic as well as the 2008-09 Great Recession - both periods that saw surges in federal spending including transfers. This period also coincides with the 2004 Health Accord and its immediate aftermath. The results are intriguing given that they provide some support to both sides in this debate.
The average annual growth rate (all growth rates here are nominal) for total federal transfers was 5.6 percent with the component Canada Health Transfer and Equalization growing at 5.2 and 4.1 percent respectively. Provincial-Territorial government health spending over the same period grew at an annual average of 5 percent – slightly below the rate of growth of the Health Transfer. Needless to say, score one for the federal side. Moreover, total provincial-territorial program spending (including Health) grew at 4.8 percent which means that program spending net of health was also growing slower than health. Score one for the provincial side – the money is not necessarily going to other programs. P-T health spending is growing faster than either nominal GDP or population (though once inflation and population growth are factored in it means that per capita spending growth has been rather anemic).
Nevertheless, total P-T health spending has grown faster than GDP, but provincial-territorial own source revenues have grown slower than GDP while the value of the much-vaunted federal tax points have grown at nearly the rate of GDP. Here, the federal government can claim that there is indeed own source revenue capability on the part of the provinces that remains untapped. On the other hand, the provinces can claim that they are caught in a bind – on the one hand they are trying to bend the cost curve to address sustainability issues (hence the anemic per capita growth rate) while on the other hand the high growth rate of total population plus the aging of the population is adding to total health spending at a rate they are having difficulty coping with.
Is there a solution here? In the absence of a unilateral federal move of transfers with conditions (which is not going to work for everyone) the only solution here is a political one and if the two sides are not talking it is a long way off.
