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Dec 20, 2016

When it comes to health care, the federal and provincial governments are arguing over growth rates. Here’s why that’s the wrong conversation.

December 20, 2016

Canada’s federal and provincial governments failed to reach a long-term agreement on health care funding in Ottawa yesterday. Time will tell whether this failure represents an impasse, or just one of many rounds of negotiation to arrive at a mutually agreeable settlement.

Up to this point, much of the disagreement between the federal government and the provinces has been over growth rates. Provinces argue that a 5.2 per cent growth rate in the Canada Health Transfer (CHT) – the federal government’s main vehicle for supporting provincial health care spending – will be necessary to meet the actual cost pressures provinces will face over the next decade.

For its part, reports indicate that the federal government has offered to maintain a 3.5 per cent escalator on the CHT for the first five years of the accord, supplemented by targeted investments worth $11.5 billion over the next decade. Without being privy to the particulars of the offer beyond what is publicly available, the federal offer with respect to the CHT growth rate for the first five years appears odd, given that the 2016 federal budget assumed average annual growth of 3.8 per cent for the CHT between 2016-17 and 2020-21.

The federal government justifies this escalator by pointing to the low growth in provincial health care spending over the last few years. It is a fact that provinces and territories have collectively constrained average annual growth in health care spending to 3.1 per cent since 2009-10. It is also true that over the same period the federal government maintained a 6 per cent CHT escalator. But so what? The “my-growth-rate-is-bigger-than-your-growth-rate” argument assumes that we were at the right starting point in the first place. Wrangling over percentages, however, misses the larger point and is not the argument we should be having, not now.

The future rounds of negotiations must focus on how both orders of government can re-establish a true partnership in health care. It is only through collaboration that Canada will be able to confront the serious challenges health care is facing.

The negotiations must focus on how both orders of government can re-establish a true partnership in health care. Wrangling over percentages misses the point and is not the argument we should be having. It is only through collaboration that Canada will be able to confront the serious challenges health care is facing.

Canada’s health care system was designed to be a partnership. Costs were supposed to be shared (more-or-less) equally between provinces and the federal government. At least, that was the idea fifty years ago when Prime Minister Lester B. Pearson and the provinces agreed to extend universal access to medicare. The architecture of block-funding arrangements established by the Trudeau (pater) government a decade later still largely underpins how the federal government supports provincial health spending today.

However, in the wake of a decades-long series of unilateral freezes and cuts, the federal government has downgraded its funding role to junior-partner. Despite recent increases in transfers, federal support for provincial health care spending through the Canada Health Transfer (CHT) and tax points still stands at 35 per cent (as of 2015-16). If the federal government were to fund health care like a partnership between equals, it would have to add $10 billion to the envelope it currently spends annually.

Instead of a partnership, provinces have been left holding the bag by a series of federal governments largely indifferent to the costs of funding the health care system. The impact of that federal indifference will be made even worse by an aging baby boomer population that will severely strain Canada’s health care system.

In the coming years provincial health care systems are projected to groan under the weight of this aging population. The first of the baby-boomers (born in 1946) turned 70 this year. In ten years, they will turn 80. Seniors account for a larger per-capita share of the health budget, so as the large cohort of baby-boomers ages, they will represent a growing added strain on provincial health budget.

To prevent this scenario from wreaking havoc on provincial balance sheets, transformative change is needed. Provinces are generally doing what they can with the limited resources available in the current fiscal environment, but the change required to meet the challenges that an aging population will bring to the health care system will be a large-scale endeavour.

Currently, provincial health care systems funnel too many chronic cases through the acute care system. This is an expensive and inefficient care delivery model. The problem is: where do you go if all that exist are emergency rooms and other acute care facilities? Keeping non-acute cases out of acute care settings must be the over-arching priority for transformation in the health sector. Canada needs a robust, patient-centred community care system to complement and take pressure off the acute care system. Building that system will take both time and money, and the federal government is needed now more than ever.

As we explained a few weeks ago, the need to transform the health sector is a historic opportunity for the federal government to re-establish its role as a full partner in the health care system.

Despite the short-term deficits the federal government is running, in the long-term, it is in an enviable position of fiscal sustainability, in stark contrast to the provinces. Reaching the target of a funding partnership within five years is achievable.

For their part, provinces must commit to using new federal health funding to buy transformation. The federal government will want assurances that the money is in fact being used for those purposes.

The tool the federal government generally uses to secure those assurances comes in the form of hard conditions on transfers. This is precisely the same tool that tends to cause consternation in provincial capitals – to varying degrees – about intrusion into provincial jurisdiction. This is understandable in the Canadian context, where hard conditions have shown in the past to lead to misdirection of spending to areas that are not necessarily shared priorities. Provincial consternation is amplified by past examples of unilateral federal abandonment of what were supposed to be shared priorities between orders of government. There needs to be more trust on both sides to secure a sustainable partnership in health care for Canadians.

There are ways to mitigate the provinces’ anxieties around “creeping conditionality” while securing the transparency and accountability around spending that the federal government seeks. The answer lies in effective, transparent institutions. Canada needs a truly pan-Canadian (not federal) institution mandated to promote transparency and accountability in health care. Such an institution should report on how wisely health care dollars are being spent by providing evidence-based assessments and recommendations. In addition, it should be relied upon to furnish intergovernmental discussions with impartial facts.

Transparency, facts and a renewal of true partnership are all key components to re-establishing trust in an area too often tinged by intergovernmental tensions. Trust between provinces and the federal government will be instrumental in fostering the collaboration required to address the actual challenges facing the health sector. They are too big for one order of government to confront alone. To confront these challenges, more will be required out of the federal government, not less. It is time to put aside the argument over growth rates, and to focus how governments can re-establish a true partnership in health care.

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Mowat Centre

Release Date

Dec 20, 2016

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