Three percent health transfer increase reasonable, says analysis

Independent analysis shows for years provinces haven't increased health spending anywhere near six per cent annually

OTTAWA – Provincial ministers insist they can’t possibly live with anything less than a six per cent annual increase in federal health transfer payments, without having to slash billions from their health care services.

Yet independent analysis shows that for years the provinces haven’t increased their spending anywhere near six per cent annually.

According to the Canadian Institute for Health Information, the annual average growth in health spending by provincial governments was just 2.7 per cent between 2011 and 2015 .

That would be consistent with the Trudeau government’s plan to increase the health transfer by no more than three per cent annually.

“Three per cent is, by all kinds of measures … a reasonable number,” says health policy expert Michael Decter, a former Ontario deputy minister of health.

The provinces have been receiving an automatic six per cent increase since 2004, when they negotiated a 10-year health accord with the federal government.

In 2011, Stephen Harper’s Conservative government unilaterally announced that it would continue to pay the six per cent escalator only until 2016. As of 2017, the annual growth in the health transfer is to be tied to economic growth, with a guaranteed minimum of three per cent.

Although the Liberals denounced Harper’s unilateral action at the time, they’ve decided to stick with the three per cent annual increases.

Related: Philpott walks back tough language on federal health message

At the time of the 2004 health accord, Decter says, there was a rationale for six per cent. And indeed, CIHI reports that provincial spending on health care ballooned by an annual average of 7.2 per cent between 1998 and 2010.

But by about 2008, Decter says it became clear that no province was going to continue to boost their health spending by as much as six per cent each year, even though they continued to reap the benefit of an automatic six per cent hike in the federal transfer.

“They didn’t spend it on health,” Decter says, noting that the unconditional federal transfer payment goes into each province’s general revenues and can be spent on anything they like, from tax cuts to paving roads.

What’s more, they didn’t spend it on the priority areas agreed upon in the 2004 accord: reducing surgical wait times, improving home care and primary care and reining in prescription drug costs.

The final report of the now-defunct Health Council of Canada, which was set up to monitor the efforts to meet the accord’s goals, concluded that progress on wait times over the decade of the accord had stalled, primary care services continue to lag behind that of other countries, home care services don’t address long-term needs and drugs costs remain beyond the means of many Canadians.

To the extent that provincial health spending did increase, Decter says it went primarily to boost salaries of doctors and nurses – in effect paying more to do the same work.

According to CIHI, the top three drivers of health spending are hospitals, drugs and physicians. Since 2007, the growth in spending on doctors has outpaced that of hospitals or drugs.

Given the results of the 2004 health accord, Decter says the federal government is right to insist this time that any new funding for health care must actually be spent by the provinces on specific reforms.

Health Minister Jane Philpott is offering an additional $3 billion over four years for home care and says more money may be forthcoming for other priorities, such as mental health services – but only if the provinces agree to spend it on the agreed upon reforms.

Karen Palmer, a health policy expert at Simon Fraser University, the federal government has a point in demanding that provinces be accountable for the way they spend federal health dollars. But she says the provinces are also correct to point out that they are responsible for delivering health care and should be able to spend the money as they see fit.

“It’s that tension between autonomy and accountability” that has bedevilled federal-provincial talks on health care since time immemorial, Palmer says.