Health funding formula helps Ottawa, burdens provinces

Parliament's budget watchdog says Ottawa's new formula for health-care transfers will put the federal government on a solid fiscal footing for the future while leaving the provinces to shoulder a growing burden.

Parliament's budget watchdog says the new health-care funding formula will slowly reduce Ottawa's support for medicare, but it will also put the federal government on a solid fiscal footing for the future.

The trouble is the provinces will have to shoulder a growing health-care burden over the long run and they can't afford to do that without cutting spending elsewhere or raising taxes.

Kevin Page, the parliamentary budget officer, crunched numbers from the federal government's recent announcement on how health care will be funded until 2024. He projected costs and revenues out to 2040-41.

Budget impact

Assuming the federal government's planned health-care transfers grow at 3.9 per cent a year from 2017-18, Parliamentary Budget Officer Kevin Page says his office's projections show:

  • "The federal government could reduce revenue, increase program spending or some combination of both" (italics his).
  • The share of federal payments will "decrease substantially from its 2010-11 level."
  • Provincial and territorial debt as a percentage of GDP will "increase substantially."
  • Growth in program spending relative to the size of the economy "now falls squarely on provincial and territorial governments."
  • Federal and provincial debt together "is projected to ultimately grow faster than the economy, resulting in ever-increasing debt-to-GDP ratio."

Source: Renewing the Canada Health Transfer: Implications for Federal and Provincial-Territorial Fiscal Sustainability

In his report released today, Page found that Ottawa's promised cash transfers will keep pace with projected increases in provincial health spending until 2016-2017.

But after that, Ottawa's funding will be tied to expansion of the economy. Increases will likely average 3.9 per cent annually, compared to the previous six per cent, the report forecast.

That means Ottawa's share of provincial health-care funding will fall to an average of about 18.6 per cent for the coming two decades from about 20.4 per cent today. It will continue to slide significantly after 2035 if the policy persists.

As a result, Ottawa's debt burden will decline steadily, the report said. The federal government will have some room to cut taxes or increase spending and still maintain fiscal health.

The provinces, however, will find their debt rising and some jurisdictions will have to increase taxes, cut spending or both in order to stay on track.

Premiers meet next week

The report comes as the premiers prepare for a crucial meeting on health-care financing in Victoria starting Sunday.

They will attempt to figure out how provinces should deal with health care after suddenly being handed a funding formula from the federal government last month.

Finance Minister Jim Flaherty announced increases in funding with no strings attached — signalling a federal step-back from health-care policy-making and a slow erosion of federal funding increases.

In another report released today, a coalition of health associations said federal and provincial leaders need to confront the deterioration in the health-care system, clarify their roles and then get to work fixing things.

The Health Action Lobby of 34 national health organizations polled leading health-system experts and compared Canada's regime to others around the world.

They found a consensus on what the problems in Canada's health care system are, as well as general agreement on how to fix them.

But they also found a lack of political leadership at both the federal and provincial levels.