Canada Health Act

Federal Transfers and Deductions

Provinces and territories must comply with the criteria and conditions of the Canada Health Act (CHA) in order to receive the full amount payable under the Canada Health Transfer. Prior to April 1, 2004, the cash contribution was payable under the Canada Health and Social Transfer (CHST). The following section outlines how Health Canada determines provincial and territorial compliance.

Health Canada's approach to resolving possible Canada Health Act compliance issues emphasizes transparency, consultation and dialogue with provincial and territorial health ministry officials. In most instances, issues are successfully resolved through consultation and discussion based on a thorough examination of the facts. Deductions have only been applied when all options to resolve the issue have been exhausted. To date, most disputes and issues related to the administration and interpretation of the CHA have been addressed and resolved without resorting to deductions.

Health Canada officials routinely liaise with provincial and territorial health ministry representatives and health insurance plan administrators to help resolve common problems experienced by Canadians related to eligibility for health insurance coverage and portability of health services within and outside Canada.

Canada Health Act Division and regional office staff monitor the operations of provincial and territorial health care insurance plans in order to provide advice to the Minister on possible non-compliance with the CHA. Sources for this information include: officials representing provincial and territorial governments; provincial and territorial government publications; media reports and correspondence received from the public and other non-government organizations and individuals.

Staff in the Compliance and Interpretation Unit, Canada Health Act Division, assess issues of concern and complaints on a case-by-case basis. The assessment process involves compiling all facts and information related to the issue and making recommendations to the Minister for appropriate follow-up action. Verification of the facts with provincial and territorial health officials may reveal issues that are not directly related to the CHA while others may pertain to the CHA but are a result of misunderstanding or miscommunication and are resolved quickly with provincial assistance. In instances where a CHA issue has been identified and remains after initial enquiries, Division officials then ask the jurisdiction in question to investigate the matter and report back. Division staff then discuss the issue and its possible resolution with provincial officials. Only if the issue is not resolved to the satisfaction of the Division after following the aforementioned steps, do the penalty provisions of the Act come into consideration.

Canada Health and Social Transfer (CHST) Deductions in 2003-2004

British Columbia did not report to Health Canada the amounts of extra-billing and user charges actually charged during 2001-2002, in accordance with the requirements of the CHA Extra-Billing and User Charges Information Regulations. As a result of reports that British Columbia was investigating cases of user charges, a $126,775 deduction was taken from British Columbia's March 2004 CHST cash contribution, based on the Health Canada estimate for the amount of these changes, for the 2001- 2002 fiscal year period.

With the closure of its abortion clinic in Halifax in November 2003, wherein patients were charged the facility fees in relation to the service, Nova Scotia was deemed to be in compliance with the Federal Policy on Private Clinics. Including adjustments for prior years, a net deduction of $7,119 was applied against Nova Scotia's CHST cash contribution during fiscal year 2003-2004.

History of Deductions under the Canada Health Act

The Canada Health Act, which came into force April 1, 1984, reaffirmed the national commitment to the original principles of the Canadian health care system, as embodied in the previous legislation, the Medical Care Act and the Hospital Insurance and Diagnostic Services Act. By putting into place mandatory dollar-for-dollar penalties for extra-billing and user charges, the federal government took steps to eliminate the proliferation of direct charges for hospital and physician services, judged to be restricting the access of many Canadians to health care services due to financial considerations.

During the period 1984 to 1987, subsection 20(5) of the CHA provided for deductions in respect of these charges to be refunded to the province if the charges were eliminated before April 1, 1987. By March 31, 1987, it was determined that all provinces, which had extra-billing and user charges, had taken appropriate steps to eliminate them. Accordingly, by June 1987, a total of $244.732 million in deductions were refunded to New Brunswick ($6.886M), Quebec ($14.032M), Ontario ($106.656M), Manitoba ($1.270M), Saskatchewan ($2.107M), Alberta ($29.032M) and British Columbia ($84.749M).

Following the CHA's initial three-year transition period, under which refunds to provinces and territories for deductions were possible, penalties under the CHA did not reoccur until fiscal year 1994-1995. As a result of a dispute between the British Columbia Medical Association and the British Columbia government over compensation, several doctors opted out of the provincial health insurance plan and began billing their patients directly. Some of these doctors billed their patients at a rate greater than the amount the patients could recover from the provincial health insurance plan. This higher amount constituted extra-billing under the CHA. Including deduction adjustments for prior years, dating back to fiscal year 1992-1993, deductions began in May 1994 until extra-billing by physicians was banned when changes to British Columbia's Medicare Protection Act came into effect in September 1995. In total, $2.025 million was deducted from British Columbia's cash contribution for extra-billing that occurred in the province between 1992-1993 and 1995-1996. These deductions and all subsequent deductions are non-refundable.

In January 1995, the federal Minister of Health, Diane Marleau, expressed concerns to her provincial and territorial colleagues about the development of two-tiered health care and the emergence of private clinics charging facility fees for medically necessary services. As part of her communication with the provinces and territories, Minister Marleau announced that the provinces and territories would be given more than nine months to eliminate these user charges, but that any province that did not, would face financial penalties under the CHA. Accordingly, beginning in November 1995, deductions were applied to the cash contributions to Alberta, Manitoba, Nova Scotia and Newfoundland and Labrador for non-compliance with the Federal Policy on Private Clinics.

During the period from November 1995 to June 1996, total deductions of $3.585 million were made to Alberta's cash contribution in respect of facility fees charged at clinics providing surgical, ophthalmological and abortion services. On October 1, 1996, Alberta prohibited private surgical clinics from charging patients a facility fee for medically necessary services for which the physician fee was billed to the provincial health insurance plan.

Similarly, due to facility fees allowed at an abortion clinic, a total of $284,430 was deducted from Newfoundland and Labrador's cash contribution before these fees were eliminated, effective January 1, 1998.

For the period from November 1995 to December 1998, deductions from Manitoba's CHST cash contribution amounted to $2,055,000, ending with the confirmed elimination of user charges at surgical and ophthalmology clinics, effective January 1, 1999. However, during fiscal year 2001-2002, a monthly deduction (from October 2001 to March 2002 inclusive) in the amount of $50,033.50 was levied against Manitoba's CHST cash contribution on the basis of a financial statement provided by the province showing that actual amounts charged with respect to user charges for insured services in fiscal years 1997-1998 and 1998-1999 were greater than the deductions levied on the basis of estimates. This brought total deductions levied against Manitoba to $2,355,201.

With the closure of its abortion clinic in Halifax effective November 27, 2003, Nova Scotia was deemed to be in compliance with the Federal Policy on Private Clinics. Prior to the closure, a total deduction of $372,135 was made from Nova Scotia's CHST cash contribution for its failure to cover facility charges to patients while paying the physician fee.

In January 2003, British Columbia provided a financial statement in accordance with the CHA Extra-Billing and User Charges Information Regulations, indicating aggregate amounts actually charged with respect to extra-billing and user charges during fiscal year 2000-2001, totalling $4,610. Accordingly, a deduction of $4,610 was made to the March 2003 CHST cash contribution.

In 2004, British Columbia did not report to Health Canada the amounts of extra-billing and user charges actually charged during fiscal year 2001- 2002, in accordance with the requirements of the CHA Extra-Billing and User Charges Information Regulations. As a result of reports that British Columbia was investigating cases of user charges, a $126,775 deduction was taken from British Columbia's March 2004 CHST payment, based on the amount Health Canada estimated to have been charged during fiscal year 2001-2002.

Since the enactment of the Canada Health Act, covering the period April 1984 to March 2004, deductions totalling $8,753,151 have been applied against provincial cash contributions in respect of the extra-billing and user charges provisions of the Canada Health Act. This amount excludes deductions totalling $244,732,000 that were made between 1984 and 1987 and subsequently refunded to the provinces as per subsection 20 (5) of the CHA.

Table: Deductions to Cash Contributions under the Canada Health Act: 1994-95 through 2003-04

Evolution of Federal Health Care Transfers

Grants to help establish programs

Federal support for provincial health care goes back to the late 1940s when the National Health Grants were created. These grants were considered to be essential building blocks of a national health care system. While the grants were mainly used to build up the Canadian hospital infrastructure, they also supported initiatives in areas such as professional training, public health research, tuberculosis control and cancer treatment. By the mid 1960s, the grants available to the provinces totalled more than $60 million annually.

In the mid-1950s in response to public pressures, the federal government agreed to provide financial assistance to provinces to help them establish health insurance programs. In January 1956, the federal government placed concrete proposals before the provinces to inaugurate a phased health insurance program, with priority given to hospital insurance and diagnostic services. Discussions on these proposals led to the adoption of the Hospital Insurance and Diagnostic Services Act in 1957. The implementation of the Hospital Insurance and Diagnostic Services (HIDS) program started in July 1958, by which time Newfoundland, Saskatchewan, Alberta, British Columbia and Manitoba were operating hospital insurance plans. By 1961, all provinces and territories were participating in the program.

The second phase of the federal intervention supporting provincial and territorial health insurance programs resulted from the recommendations of the Royal Commission on Health Services (Hall Commission). In its final report, tabled in 1964, the Hall Commission recommended establishing a new program that would ensure that all Canadians have access to necessary medical care (physician services, outside a hospital setting).

The Medical Care Act was introduced in Parliament in early December 1966 and received Royal Assent on December 21,1966. The implementation of the Medical Care program started on July 1, 1968. By 1972, all provinces and territories were participating in the program.

Originally, the federal government's method of contributing to provincial and territorial hospital insurance programs was based on the cost to provinces and territories of providing insured hospital services. Under the Hospital Insurance and Diagnostic Services Act (1957), the federal government reimbursed the provinces and territories for approximately 50 percent of the costs of hospital insurance. Under the Medical Care Act (1966), the federal contribution was set at 50 percent of the average national per capita costs of the insured services, multiplied by the number of insured persons in each province and territory. Funding protocols based on conditional grants continued until the move to block funding was made in fiscal year 1977-1978.

Established Programs Financing (EPF)

On April 1, 1977, federal funding supporting insured health care services was replaced by a block fund transfer with only general requirements related to maintaining a minimum standard of health services through the passage of the Federal-Provincial Fiscal Arrangements and Established Programs Financing Act, 1977. Known also as the EPF Act, the new legislation provided federal contributions to the provinces and territories for insured hospital and medical care services (as well as for post-secondary education) that were no longer tied to provincial expenditures. Rather, federal contributions made in fiscal year 1975-1976 under the existing cost-sharing programs were designated as the base year for contributions, to be escalated by the rate of growth of nominal Gross National Product (GNP) and increases to the population.

Under the EPF Act, and subsequent funding arrangements, the total amount of the provincial and territorial health entitlement was now made up of relatively equal cash and tax transfers. The federal tax transfer involves the federal government ceding some of its "tax room" to the provincial and territorial governments, reducing its tax rate to allow provinces to raise their tax rates by an equivalent amount. With the EPF "health" tax transfer, the changes in federal and provincial tax rates offset one another, meaning there was no net impact on taxpayers. The total amount of the health care entitlement did not change.

The EPF Act also included a new transfer for the Extended Health Care Services Program. This group of health care services, defined as nursing home intermediate care, adult residential care, ambulatory health care and the health aspects of home care, were block funded on the basis of $20 per capita for fiscal year 1977-1978, and subject to the same escalator as insured health services. This portion of the EPF transfer was made on a virtually unconditional basis and, unlike the insured services transfer, was not subject to specified program delivery criteria.

The health care portion of the EPF cash transfer was made on a semi-monthly basis to each province and territory by Health Canada. While this federal-provincial-territorial health care insurance funding arrangement did include certain program delivery criteria, Health Canada did not have a viable mechanism to compel the provinces and territories to fully comply with the conditions set out in the existing hospital and medical care legislation. Under the prevailing legislative framework, the Government of Canada was required to withhold all of the monthly health care transfer to a province or territory for each month if the conditions were not met.

It was not until the enactment of the Canada Health Act in 1984 that special deduction provisions came into force allowing for dollar-for-dollar deductions for extra-billing and user charges, and discretionary deductions when provincial and territorial plans failed to fully comply with other provisions set out in the Act. These criteria and conditions remain in force to the present day.

Canada Health and Social Transfer (CHST)

In the 1995 Budget, the federal government announced a restructuring of the EPF Act, now to be called the Federal-Provincial Fiscal Arrangements Act, with special provisions for a Canada Health and Social Transfer (CHST). The new omnibus or block transfer, to begin in fiscal year 1996-1997, merged the health and post-secondary education funding of the EPF Act with Canada Assistance Plan funding (the federal-provincial cost-sharing arrangement for social services). When the CHST came into effect on April 1, 1996, provinces and territories received CHST cash and tax transfer in lieu of entitlements under the Canada Assistance Plan (CAP) and Established Programs Financing. The combined value of EPF and CAP cash was greater than the CHST cash amount provided to provinces and territories, reflecting the need for fiscal restraint at the time the CHST was introduced.

Minor amendments to the CHA reflected a new definition for "cash contribution", and deletion of definitions for "Act of 1977" and "contribution". Revised wording of section 5 made cash contributions relating to all aspects of the CHA, eliminating the requirement for section 6 (for extended health care services). As well, the wording of sections 5 and 13(b) were changed to reference the CHST instead of the Act of 1977.

The new block fund was provided to support the national criteria and conditions in the Canada Health Act (public administration, comprehensiveness, universality, portability and accessibility) and the provisions relating to extra-billing and user charges, as well as maintaining the CAP-related national standard that no period of minimum residency be required or allowed with respect to social assistance. Extended health care services continued as part of the Canada Health Act, subject only to the provision of information and recognition of the federal transfer, as set out in section 13 of the Canada Health Act. To this day, these requirements remain unchanged since 1984.

The new legislation also transferred the cash payment authority from Health Canada to the Department of Finance. However, the Minister of Health continued to be responsible for determining the amounts of any deductions or withholdings pursuant to the Canada Health Act, including those for extra-billing and user charges, and for communicating these amounts to the Department of Finance before the payment dates. The Department of Finance makes the actual deductions, on behalf of the Department of Health, from the twice-monthly CHST cash contributions.

Health Accords: Increasing and restructuring federal support for health

In 2000 and 2003, First Ministers met to discuss health care, focusing on reform, reporting and funding requirements. In 2000, the federal government announced $23.4 billion in new spending over five years on health care renewal and early childhood development. Between 2001-2002 and 2005-2006, the government announced an additional $21.1 billion dollars for increases to the CHST cash contributions, as well as an additional $1.8 billion for targeted programs (medical equipment and primary health care reform), and $500 million for Canada Health Infoway.

In 2003, the government committed $36.8 billion over five years to support priority areas of reform (primary care, home care and catastrophic drugs) through increased CHST transfers ($14 billion) and new, targeted transfers ($16 billion for the Health Reform Transfer; $1.5 billion for medical equipment), as well as support for federal direct spending on health. This included $3.9 billion in unrealized CHST increases committed under the original timeframe of the 2000 Accord (up to and including 2005-2006).

The federal government also agreed to restructure the CHST to enhance the transparency and accountability of federal support for health and other social programs.

The Canada Health Transfer (CHT)

The CHST was restructured into two new transfers, the Canada Health Transfer (CHT) and Canada Social Transfer (CST), effective April 1, 2004. The CHT supports the Government of Canada's ongoing commitment to maintain the national criteria and conditions of the Canada Health Act. The CST, a block fund that support post-secondary education and social assistance and social services, continues to give provinces and territories the flexibility to allocate funds among social programs according to their respective priorities.

The existing CHST-legislated amounts have been apportioned between the new transfers, with the percentage of cash and tax points allocated to each transfer reflecting provincial and territorial spending patterns among the areas supported by the transfers: 62 percent for the CHT and 38 percent for the CST.

The government's 2003 budget set out a long-term predictable, sustainable and growing funding framework for CHT and CST transfers, providing legislated cash levels up to 2007-2008, while the tax transfer component continues to grow in line with the economy. CHT cash and tax transfers are forecasted to be $25.1 billion in 2004-2005 ($14.3 billion in cash transfers, including CHST supplements, and $10.8 billion in tax transfers). CHT cash and tax transfers will reach $26.9 billion in 2007-2008. In total, over the five-year period of the Accord, cash support for health alone will grow by an average annual rate of 10.2 percent.

Targeted federal transfers supporting health

Health Reform: As part of the 2003 Accord on Health Care Renewal, the Government of Canada created a five-year, $16-billion Health Reform Transfer (HRT) to help provinces and territories accelerate reform in priority areas identified by First Ministers: primary care, home care and catastrophic drug coverage. First Ministers agreed to prepare annual public reports to their citizens on each of the reform areas using comparable indicators, to inform Canadians on progress achieved and key outcomes. Funding provided under the HRT will be integrated into the CHT, subject to a review by First Ministers by March 31, 2008, of progress made in achieving reform objectives.

In 2004-2005, provinces and territories will receive $1.5 billion under the HRT, which is allocated on an equal per capita basis. All cash funding under the CHT, CST and HRT can be withheld under the Canada Health Act.

Medical Equipment: Under the 2000 and 2003 Accords, the federal government provided provinces and territories with $2.5 billion to enhance the availability of publicly funded diagnostic care and treatment services. The funds were paid to third-party trusts, giving provinces and territories the flexibility to draw down funds as required over the lifespan of the trusts. These funds were allocated on an equal per capita basis. As they did for the HRT, provincial and territorial governments were to report to Canadians on how they invested the funding.

Additional information on federal-provincial-territorial funding arrangements is available on request from the Department of Finance, or by visiting its Web site.

History of Federal Transfers Related to Health Care

1957 --The Hospital Insurance and Diagnostic Services Act is passed unanimously in both the House of Commons and the Senate, establishing a cost-shared program providing universal insurance coverage and access to hospital services to all residents of participating provinces. By 1961, all provinces and territories have joined this program.

1966 -- The Canada Assistance Plan (CAP) is introduced, enabling the federal government to pay for, among other things, half the cost of certain services required by persons deemed to be in need, but not funded though other federal programs, including the Hospital Insurance and Diagnostic Insurance Act.

1968 -- The Medical Care Act is enacted, establishing a cost-sharing program that empowers the federal Health Minister to make financial contributions to those provinces and territories that operate medical care insurance plans and meet minimum delivery criteria. By 1972, all provinces and territories are participating in this program.

1977 -- The Federal-Provincial-Territorial Fiscal Arrangements and Established Programs Financing Act (EPF Act) is passed. The Extended Health Care Services Program is established providing virtually unconditional per capita funding for certain types of long-term residential care services, home care and adult day care services.

1984 -- The Canada Health Act (CHA) is passed, amalgamating the provisions of the Hospital Insurance and Diagnostic Services Act and the Medical Care Act. The Act also includes the extended health care services provisions, which had previously been included under the EPF. The Canada Health Act now provides for dollar-for-dollar deductions regarding extra-billing and user charges, and discretionary deductions relating to other elements of the criteria and conditions set out in the Act.

The EPF Act is re-named Federal-Provincial Fiscal Arrangements and Federal Post-Secondary Education and Health Contributions Act, 1977.

1995 -- It is announced in the federal budget that in "established programs" funding under the EPF Act and CAP cost sharing will be replaced by Canada Health and Social Transfer (CHST) block fund beginning April 1, 1996. CHST entitlements are set at $26.9 billion for 1996-1997. CHST entitlements for 1996-1997 are to be allocated in the same proportion as combined EPF and CAP entitlements for 1995-1996.

Section 6 of the CHA (amount payable for extended health care services) was deleted in 1995 to reflect the new fiscal arrangements adopted by the government (i.e., Canada Health and Social Transfer) that required one payment to provinces and territories rather than multiple payments. This change did not reduce the scope of insured health services under the Act. Extended health care services are not and never were insured health services under the CHA.

1996 -- A five-year CHST funding arrangement (1998-1999 to 2002-2003) is announced in the federal government budget. It provides a cash floor transfer to provinces and territories of $11 billion per year.

1998 -- The Federal-Provincial-Territorial Fiscal Arrangements and Federal Post-Secondary Education and Health Contributions Act is amended to put in place a $12.5 billion CHST cash floor, beginning in 1997-1998 and extending to 2002-2003.

1999 -- Increases in provincial and territorial CHST cash entitlements of $11.5 billion over five years are announced in the federal government budget. The $11.5 billion is provided to address fiscal pressures in the health care sector.

2000 -- Increased CHST funding of $2.5 billion to help provinces and territories fund health care and post-secondary education is announced in the February Budget. This brings CHST cash to $15.5 billion for each of the years from 2000-2001 to 2003-2004.

Following the First Ministers Meeting of September 11, 2000, the Prime Minister announces an increase in health funding through the CHST of more than $21 billion dollars in cash entitlements over five years. The new money addresses concerns raised by provincial and territorial governments that additional funds are needed to deal with immediate fiscal pressures in the health, post-secondary education and social services/social assistance sectors.

A $1billion Medical Equipment Fund is established to enable provinces and territories to immediately purchase and install medical equipment for diagnostic services and treatment. The Fund was allocated on an equal per capita basis in fiscal years 2000-2001 and 2001-2002.

2003 -- Federal transfers supporting provincial and territorial health care are restructured following the February 2003 Health Care Renewal Accord and the subsequent 2003 Budget. The CHST is augmented by the five-year $16 billion Health Reform Fund beginning in 2003-2004. Two new transfers, the Canada Health Transfer (CHT) and Canada Social Transfer (CST), are to be established by April 1, 2004, from a split in the CHST.

As part of the 2003 Accord, the federal government also provided provinces and territories with a three-year, $1.5 billion Diagnostic/Medical Equipment Fund to support specialized staff training and equipment that improves access to publicly funded diagnostic services.