The funding formula for health care is broken. Alberta’s windfall proves it

TheGlobeandMail.com – commentary
Oct. 09 2013.   Gregory Marchildon and Haizhen Mou, Contributed To The Globe And Mail

Parliamentary Budget Officer Jean-Denis Fréchette recently announced that Ottawa’s reform of the Canada Health Transfer (CHT) and spending cuts make federal finances sustainable for the long-term – but possibly at the expense of the provinces. Capping the CHT to the rate of economic growth, it appears, will make provincial finances less sustainable.

But this is only one aspect of CHT reform that could negatively impact the provinces. The second, less visible CHT reform – the change to a pure per capita funding formula – will have an even more negative impact on the ability of most provinces to finance necessary health care. As it turns out, only one province – Alberta – will benefit from the new funding formula.

In the federal budget of 2007, the Harper government announced that the CHT would be allocated on a strict equal per capita basis beginning in 2014. What this means is that each province will receive a CHT amount according to the size of its population, regardless of the income, demographic, geographic or other conditions of the province. This is significantly different from the current formula which allocates CHT based on both the population share and the income level of the provinces.

Although the new CHT formula seems balanced and fair on the surface, it will, in fact, make it much more difficult for some provinces to afford necessary health services given their unavoidably higher cost structures for medicare. Less populous provinces with relatively larger and more isolated rural and remote populations, for example, have to spend more to deliver a similar basket of services relative to more densely populated provinces. Similarly, provinces with a larger proportion of older residents also face higher health care costs.

The ‘Big Three’ federal transfers of monies to the provinces presently – the CHT, the Canada Social Transfer (CST), and Equalization – were established to fulfill the national objective of ensuring that core health and social services are made available to all Canadians, an objective that we have entrenched in the Charter of Rights and Freedoms. In theory, the CHT should uphold the five criteria of the Canada Health Act: public administration, comprehensiveness, universality, portability and accessibility of health services – thereby encouraging a sense of common citizenship even if there are differences in how medicare is managed and delivered across the provinces.

When combined with a lack of desire to enforce even the minimal criteria under the Canada Health Act, the new formula is money for nothing. In fact, the new formula will take money away from most provinces while delivering an enormous windfall to Alberta.

Based on estimates for 2014-15, Alberta will receive $954-million more under the new formula than under the current formula – $235 for every man, woman and child in the province. Every other province will lose money as follows: Ontario, $335-million; British Columbia, $272-million; Quebec, $196-million; Newfoundland, $54-million; Manitoba, $31-million; Saskatchewan, $26-million; Nova Scotia, $23-million; New Brunswick, $18-million; and Prince Edward Island, $3-million.

In other words, the government of Alberta is the only winner – a reward perhaps for already running the most expensive provincial health system in Canada?

To remedy this, we propose an alternative formula that adjusts for two health care cost drivers over which provincial governments have no control: demographic aging and geographic dispersion. Those provinces and territories with both a more highly dispersed and an older population would receive more CHT. Think about Labrador as well as the northern and rural areas of Manitoba and Saskatchewan. Those provinces with either an extremely young demographic (Alberta) or a highly urbanized population (Ontario) would receive less.

Altering the CHT in this way would assist provinces facing unavoidably higher health costs to continue to provide medicare services of roughly comparable quality under the five criteria of the Canada Health Act. In other words, the CHT would again serve a national policy purpose, not automatically dish out money based blindly on a population count.

Canadians want to know that their citizenship means something more than being the resident of an individual province. They want to know that they will have access to needed medical services without financial barriers wherever they live in the country. It is time to revisit the original purpose of the CHT.

Gregory P. Marchildon is an expert advisor with EvidenceNetwork.ca, and along with Haizhen Mou, teaches in the Johnson-Shoyama Graduate School of Public Policy, an interdisciplinary centre for public policy research, teaching and executive training at the Universities of Regina and Saskatchewan.

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