When it comes to health care funding in Canada, we should stop living in the past

By Greg Marchildon and Raisa Deber

How much should the federal government pay towards health care costs?

Hardly a week goes by without this thorny issue being disputed between federal and provincial governments – even now that the budget has been tabled and health accord agreements have been reached, one-by-one.

There’s considerable scope for inflating or deflating the numbers on both sides. The simple solution often repeated is that health costs should be shared between the federal government and the provinces 50-50. 

But this solution is far from simple and very misleading.

The old model of ‘shared-cost’ financing (with the federal government paying about half the costs of what the provinces spend on medicare) has not existed since 1977. At that time, the shared-cost model was replaced with a block transfer of funds — with roughly half of the new transfer being in the form of ‘tax points.’ This meant that the federal government reduced its tax rate, which allowed provinces to increase their tax rate without any net effect on the taxpayer.

The result was that, since 1977, the federal cash contribution toward health care was roughly 25 percent of provincial medicare expenditures.  Today, provincial governments routinely – and conveniently — ignore the ‘tax points’ when calculating how much money they are receiving for health care from the federal government. 

To make matters more confusing, the block transfer (currently called the Canada Health Transfer) is not earmarked specifically for provincial health ministries to spend on health care. Instead, the entire transfer goes into the general revenue funds of the provinces – and it is up to the provinces where and how they spend it.

This funding system makes it impossible to know whether a Canada Health Transfer dollar from Ottawa to the provinces ends up being spent on health care.

An additional complexity is that the older cost-shared model for health funding did not cover all provincial health expenditures. Federal money was directed only to universal coverage for all residents of each province/territory for ‘medically required’ hospital and medical care services. This restriction still applies today; the Canada Health Act definition of insured services only requires provinces to cover hospital and medical care (largely doctor) services, although they can (and often do) go beyond that.

So how much does the federal government contribute to health care?

If we very roughly estimate the federal contribution to provincial spending on hospital and physician services today without counting the tax points or including all provincial health spending — we end up with a federal cash contribution that is well in excess of 25 percent — now closer to 30 percent. 

Why, then, is there a perceived funding crisis?  Why are the provinces crying foul when it comes to health care funding? 

One key reason is that how we deliver health care has changed.

Provincial governments now spend considerable amounts of money on items that are not insured services under the Canada Health Act; this includes out-patient prescription drugs (since drugs administered in hospitals are required to be covered), long-term care, home care, rehabilitation, dental care and mental health. 

There are no national standards or conditions on covering these services.
Researchers have long pointed out the potential for improving outcomes and cutting total costs if provinces/territories could work together to identify and implement best practices and potentially gain buying power. Some of this is now, thankfully, beginning to happen (e.g., purchasing pharmaceuticals on a national basis).

So rather than squabbling over whether the federal government is contributing its ‘fair share’ of health dollars, it’s time to move on. Now, more than ever, we need federal and provincial governments to talk about the important areas of health care that have never been required to be covered by medicare.  This is particularly pertinent as technology allows more care to be delivered by non-physicians in home and in the community.

Provinces are spending more in health arenas outside of the Canada Health Act, with considerable variability across jurisdictions for who is covered for what.

Our governments need to work out a new arrangement for health for the 21st century. Filling in these gaps with better and more cost-effective coverage should be the focus of our first ministers.

Proposals for targeted funding for some of home care and mental health programs in the bilateral agreements between Ottawa and some provincial and territorial governments could be a helpful first step. But they still omit critical cost drivers such as pharmacare, dental care and rehabilitation.

Moving the debate forward could help us stop living in the past and move towards constructing a better future for all Canadians. 

Greg Marchildon and Raisa Deber
are expert advisors with EvidenceNetwork.ca
and professors in the Institute of
Health Policy, Management and
Evaluation, University of Toronto.