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Federal Support for Health Care: The Facts
March 2004
Repeated provincial claims that the federal share of health care spending is 16 cents, down from 50 cents in the 1960s, are false.
Analyzing provincial claims
Provincial claim: The federal share of health care spending is 16 cents on the dollar.
Fact: To arrive at this figure, provinces divide the cash portion of the Canada Health and Social Transfer (CHST) by all of their social spending, not just their health care spending – they also include social services, and primary, secondary and post-secondary education in their calculation.
| Comment:
It is misleading to use the total amount of provincial social spending to calculate the federal share of provincial health care spending. Total provincial health spending is actually $78 billion compared to $145 billion for social spending in 2003-04. Using the total amount of provincial social spending in itself is an inappropriate comparison in any event. This figure includes provincial spending on primary and secondary education, which has never been directly supported by federal transfers. It is also misleading for the provinces to ignore the $17 billion in CHST tax points provided by the federal government and the $9 billion transferred to provinces through the Equalization program.[1] These amounts are available for health care spending. Provinces have the flexibility to spend all or any part of these amounts on health care. |
Provincial claim: The federal government covered half of provincial health spending in the 1960s and through to 1977 through a 50:50 cost-sharing regime.
Fact: The federal government never cost-shared 50% of all provincial health care spending, and since 1977 has provided block-funding support to provincial health care and post-secondary education spending through a combination of cash and tax transfers.
| Comment:
The 50:50 cost-sharing regime covered a defined and restricted range of provincial spending on health care. For example, expenditures on mental and tuberculosis hospitals, home care, certain outpatient diagnostic services, and administration costs were not cost-shared. As a result, pre-1977, the federal share of total provincial health care spending in the past was never greater than 41% (in the 1960s).[2] Furthermore, the value of CHST tax points cannot be ignored in comparisons between the present and the past, since half the cash under the cost-sharing regime was converted into tax points in 1977 by mutual consent. |
Provincial claim: There is a set share of federal transfers for health care.
Fact: The CHST is a block fund, which provides flexibility to provinces to allocate this funding according to their own social priorities among health care, social services and post-secondary education. They can spend as much of the CHST on health as they want.
| Comment:
Under the CHST there is no share of federal transfers earmarked for health care. Provinces have full flexibility to spend all or any part of the CHST and Equalization on health care. It was by mutual agreement that cost sharing of specific provincial expenditures on health and post-secondary education was changed to block funding. This gave provinces much greater flexibility in how they allocate federal transfers. The provinces had complained that cost sharing distorted provincial spending decisions and favoured better-off provinces since they could afford to spend more and so attract more federal dollars than less well-off provinces. Effective April 1, 2004, the federal government will create a new Canada Health Transfer to improve transparency and accountability of federal transfer support for health. |
What is the federal contribution to health spending?
The federal government contributes to provincial health spending through the CHST (both cash and tax points), targeted funding for medical equipment and health reform, as well as Equalization, and makes substantial direct contributions to health care and health research.
1. The federal contribution to provincial health spending through transfers for healthFirst, let’s look at total CHST – that is, cash and tax points – which amounts to almost $38 billion in 2003-04, including the $1 billion from the 2003 CHST supplement.
The CHST supports health, post-secondary education, social assistance and social services, including early childhood development and early learning and child care. Since health spending represents about 62% of the total that provinces spend in these areas, it is reasonable to assume that they spend 62% of the CHST, on average, on health annually.[3]
That’s more than $23 billion of the annual CHST transfer. Adding in the $1 billion in support from the new Health Reform Transfer and the $500 million from the 2003 Diagnostic and Medical Equipment Fund increases this amount to about $25 billion.
This total of about $25 billion amounts to 32% of provincial health care spending of $78 billion.
2. The additional federal contribution to provincial health spending through Equalization[4]Next, the federal government provides 8 of the 10 provinces with Equalization, and they have the flexibility to allocate as much of this money to health as they choose.
Equalization is not targeted just to social spending, so let’s look at all provincial program spending in order to determine a reasonable amount.
On average, provinces spend about 39% of their program budgets on health care. It is reasonable to assume 39% of annual Equalization goes to health, which means about $3 billion a year for health care.[5]
Added to the $25 billion in federal support through the CHST, the Health Reform Transfer and the Diagnostic and Medical Equipment Fund, this brings the federal contribution to about $28 billion, or 35% of provincial health care spending.
3. Direct federal contributions to total public health spendingIn addition, the federal government’s direct spending for health care is estimated at approximately $5 billion in 2003-04. This is for First Nations health, veterans’ health, health protection, disease prevention, health information and health-related research. As well, through the tax system, the federal government provides support worth about $1 billion a year. This includes credits for medical expenses, disability, caregivers and infirm dependants.
When you add the over $6 billion in direct spending and tax credits to $28 billion in transfers to provinces, the federal government is providing about $34 billion a year, or about 40% of all national public spending on health care in Canada.[6]
In short:
1. Health care makes up 62%, on average, of what provinces spend on social programs covered by the CHST. That means it is reasonable to say that 62% of the CHST is spent on health. Adding in federal support through the Health Reform Transfer and the Diagnostic and Medical Equipment Fund gives a federal contribution of about $25 billion, or an average of 32% of provincial spending.2. When an amount of Equalization payments corresponding to the amount of total program spending that provinces allocate to health is added, the federal share rises to 35%.
3. When direct federal support of over $6 billion yearly is included, the total federal contribution to national public health spending (what all governments spend) is about 40%.
4. So, while there is no single correct number for the federal share of provincial health care spending, the numbers above show substantial federal support for health care in Canada.
5. To provide greater clarity and transparency in federal transfer support for health, effective April 1, 2004, the federal government will create a Canada Health Transfer.
1. Finance Canada (February 2004 estimates). [return]
2. Finance Canada estimate. [return]
3. Finance Canada estimate. [return]
4. The Government of Canada also supports territorial health care spending through Territorial Formula Financing, in addition to figures provided. [return]
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| Last Updated: 2004-03-19 |
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