The Health Action Lobby (HEAL) is a coalition of national organizations dedicated to protecting and strengthening Canada’s health care system. Its 29 members represent more than half a million providers and consumers of health care. HEAL is committed to working with other organizations and governments to ensure that Canada’s health care system meets Canadians’ needs both now and into the 21^st century.

When HEAL was founded in 1991, federal cash contributions to the provinces for medicare under the Established Programs Financing (EPF) arrangements were on a "track to zero." With entitlements frozen and with tax transfers increasing, the cash component, i.e., the difference between the two, would have eventually disappeared and with it the capacity of the federal government to ensure that all Canadians had access to the health care system.

While HEAL welcomes the fact that a cash floor has now been established within the Canada Health and Social Transfer (CHST) program, HEAL remains concerned about the level of this floor. HEAL is also concerned that the federal government’s capacity to respond to the health and social needs of Canadians may be diminished, should there be an erosion of the federal spending power as a result of the federal-provincial negotiations concerning Canada’s Social Union.

The Spending

Power

Under the Constitution Act of 1867, health, along with education and welfare, falls primarily within provincial jurisdiction. But the federal spending power is unrestricted. The federal government has used that power, initially through the mechanism of cost-sharing, and, more recently, by means of block-funding, to influence provincial programming in all of these areas. More specifically, the federal government clearly demonstrated national leadership in using its spending power to create, over time and in concert with the provinces and territories, Canada’s most cherished institution, medicare.

Medicare

HEAL believes that medicare, Canada’s national health insurance system, is best viewed as a complex, federal-provincial/territorial institution. At the federal level, it is defined by the Canada Health Act and the CHST program. And at the provincial or territorial level, it is defined by the provinces’ and territories’ health insurance plans.

The link between these two levels or components of medicare is that the provinces and territories receive their "full" cash contribution under the CHST program provided that their health insurance plans satisfy the five program criteria in the Canada Health Act. These criteria are universality, portability, public administration, accessibility, and comprehensiveness. How the provinces and territories organize and deliver health services is up to them, and how much they spend is a matter of their own priorities. There are no requirements in federal legislation that they spend any particular amount.

Outlook

The fiscal situation and outlook are better now than they have been in decades. The federal government is enjoying a growing surplus and will have to decide among cutting taxes, achieving a lower debt-to-GDP ratio, or increasing program spending. In all likelihood it will do all three. HEAL and most Canadians agree that health is the top spending priority.

Reports of recent polling conducted by Earnscliffe Research and Communications, as one example, showed that the public favours increased spending on health care, and tax relief only after medicare services have been guaranteed.

Health Spending

The Canadian Institute for Health Information (CIHI) reports that Canadian health spending is estimated to be $76.6 billion in 1997, an increase of 1.5% over the previous year. CIHI also estimates that total health expenditures are 9.2% of Gross Domestic Product (GDP) in 1997. After peaking at 10.2% in 1992, the share has returned to its 1990 level. In 1997, Canada ranked fifth among OECD countries for health spending, behind the U.S., Germany, Switzerland and France.

While the rates of growth of both public and private spending have declined in the 1990s, public sector spending has slowed down more than that in the private sector, and in fact total public sector spending did not grow in 1997. The result is that the public sector share of spending fell to 68.7% in 1997 and private sector spending rose to 31.3%. HEAL continues to be concerned about "passive privatization" of the health sector.

Arrangements

The federal government now transfers some $26 billion a year to the provinces and territories under the CHST program: $13.5 billion is in the form of an (equalized) tax transfer and the balance, $12.5 billion, is in cash. The latter amount represents what may potentially be withheld to ensure compliance with the Canada Health Act or the non-residency requirement for social assistance.

The "Canada Social Transfer," as it was then called, was announced in the 1995 Budget. It was simply the adding together of EPF and the Canada Assistance Plan (CAP). It was a two-year program, 1996-97 and 1997-98. The addition of CAP to EPF served to postpone, but not eliminate, the day when federal cash transfers would disappear. In a way it made things worse because under this program CAP, as well as EPF, cash transfers would eventually vanish.

In the 1996 Budget, an $11 billion floor was added to the CHST along with a funding guarantee for five years beyond the initial two. In addition, it was announced that 50% of the per capita differences in entitlements would be phased out over the guarantee period.

These were all positive steps. But HEAL remained concerned about the level of the floor and about the slow and partial phasing out of differences in provincial and territorial per capita entitlements.

The government announced its intention to establish the floor at $12.5 billion in the spring of 1997, and did so in the 1998 Budget, in which the CHST cash floor was set at $12.5 billion over the 1997-98 to 2002-03 period. This was consistent with HEAL’s recommendation of the time.

Current Estimates

The table below sets out, in the simplest possible form, federal transfers to the provinces and territories in respect of health, education and welfare over the 1994-95 to 1998-99 period.

$ Billions

Source: Department of Finance, 1998

On the basis of the table above, there has been a cumulative reduction in cash transfers of $16.5 billion since 1994-95.

It should be noted that when the provinces and territories talk about "restoration" of the $6.2 billion in cuts in federal cash transfers, they are referring to the difference between the $18.7 billion in cash in 1994-95 and the current CHST floor of $12.5 billion.

In light of the above and the Social Union negotiations, HEAL would urge the federal government to continue to demonstrate national leadership by respecting provincial jurisdiction and by using its spending power to strengthen health and social services all across Canada.

HEAL believes that these twin objectives can be accomplished through the mechanism of the CHST program by restoring the cash transferred on the one hand, and by expecting the provincial and territorial governments to be more accountable to their own electorates for how federal dollars are spent on the other.

HEAL believes that any new money transferred to the provinces should be used not only to improve access to insured benefits under the Canada Health Act, but to revitalize the continuum of health and social services to ensure that the health and social needs of Canadians are met.

Before turning to HEAL’s specific recommendations, it will be useful to set out the four essential elements of any block-funding formula: (1) a base, (2) an escalator, (3) a method of allocating funds among provinces and territories and (4) a form of payment, usually a mix of cash and tax transfers.

The Base

The CHST cash floor is now set at $12.5 billion. The provinces and territories would prefer to have the floor raised to the pre-CHST level of $18.7 billion, an increase of $6.2 billion. Following their annual conference on August 5-7 in Saskatoon, the premiers argued that cash payments under the CHST had fallen by 33% while at the same time federal program spending fell by just six per cent. The premiers indicated that they were "committed to directing additional funds to core health services."

HEAL believes that "restoration" of the health component of the pre-CHST cash, $2.5 billion, would be appropriate and accordingly recommends that the CHST cash floor be raised from the present $12.5 billion to $15 billion. As noted above, this infusion of cash should be used to reinforce the existing continuum of care.

Over and above the "restoration" of cash notionally allocated to health under the pre-CHST arrangements, HEAL believes that an additional $1 billion should be added to the cash floor in exchange for clear commitments from the provinces and territories that they agree to ensure access to a broad range of health and social services provided to their electorates and to provide annual public reports concerning these services in a form that would permit interprovincial/territorial comparisons.In sum, HEAL recommends that the CHST cash floor be raised by $2.5 billion to $15 billion under the present administrative arrangements and that an additional $1 billion in "new" money be added contingent on the provinces and territories agreeing to new mechanisms to ensure accountability to their citizens.

The federal government has made a commitment to permit provinces and territories to "opt out" of any new cost-shared programs in areas within their jurisdiction, provided that they mount programs of their own with similar objectives. Traditionally, opting out has meant that the jurisdiction in question would receive a tax transfer in lieu of cash so that it could finance the program in question with its own revenues and so not be dependent on the federal government. HEAL is concerned that this commitment could compromise the federal government’s capacity to create new national programs. Accordingly, HEAL would welcome clarification of this commitment. Would it extend to block-funded programs, and what would happen to the concept of "national standards" if every province and territory chose to opt out?

The Escalator

At the moment there is no provision for the growth of the CHST cash floor. Accordingly, its value will be eroded over time by the increasing demands from an aging and growing population, and by inflation. Health care costs are also driven by public expectations, epidemiology of disease, research costs and by the diffusion of increasingly costly technology and pharmaceutical products, as well as by other cost pressures.

Accordingly, HEAL proposes that the CHST base be escalated, beginning on April 1, 1999, through such possible means as either a compound three-year moving average of GDP or federal personal income tax revenues. In this way, the real value of the cash component will be maintained in order to help meet Canadians’ needs into the 21^st century.

It is worth recalling here that there is a precedent for applying the escalator to the cash component rather than to the total entitlement (cash plus tax). In the 1977 EPF arrangements, the escalator was applied to what was then called "basic cash." The formula was changed in 1982 when the escalator was applied to the total entitlement instead. That change in the formula put EPF cash on the "track to zero."

Territories

HEAL believes that the CHST program should be equal per capita. Under the current CHST formula, 50% of the per capita differences among provinces and territories, will be eliminated by the year 2002-03. In the interest of more equitable treatment of these provinces penalized by the cap on CAP, HEAL recommends that the levelling process be accelerated. While levelling down could be completed over 10 years, which would be consistent with the current arrangements, levelling up could be completed by 2002-03.

There is also a precedent for this. Under the 1977 EPF formula, provinces and territories above the national average per capita at the outset were "levelled down" in five years, and those below were "levelled up" in three.

Resolution

HEAL believes that the process for determining whether a provincial or territorial health insurance plan is in compliance with the program criteria embodied in the Canada Health Act should be more open and transparent. While it would be possible to develop a joint resolution process or even third-party adjudication, HEAL believes that it is essential, in the national interest, for the federal government to retain the power to ensure compliance.

Based System

In the 1997 Budget, a $150 million Health Transition Fund was announced. The three-year, equal per capita, fund was intended to help provinces launch pilot projects to investigate new and better approaches to health care. Projects could include, for example, better ways to provide medically necessary drugs and home care services. HEAL welcomed this initiative because of its potential contribution to developing an evidence-based health care system.

HEAL believes that moving toward an evidence-based health care system is highly desirable, and federal government support is necessary. A number of research funds support health system research (the National Health Research and Development Program (NHRDP), and the Health Services Research Foundation (HSRF)), and research results require dissemination and consideration for decision making. In addition, the results of research made possible by the Health Transition Fund will soon become available. HEAL recommends that these findings on how to restructure the health care system to better meet emerging priorities be made widely available so that advantage may be taken of them in a timely way.

Summary

HEAL remains concerned about the strength of the federal commitment to medicare and accordingly recommends that: