Alberta wins as Ottawa rebalances health-care spending

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Rising health care costs are enough to keep provincial finance ministers up at night.

Canadians use more health care as they age and Canada's population is skewing older as the baby boom generation retires.

That helps explain some of the reaction this month when finance ministers learned the exact dollar impact of a new federal formula for health transfers.

The new formula – which kicks in on April 1 – doles out health transfer cash on a per capita basis rather than factoring in a tax point deal from the 1970s. The new way addresses a long-running grievance from Alberta that it was getting short-changed. But the move to per capita funding in health transfers means Alberta's gains translate into lower increases for other provinces. Ontario made the most noise last week – bemoaning that its increase will only be 3.4 per cent – but other provinces will be even worse off. British Columbia and Newfoundland and Labrador, for instance, will get virtually no increase at all. (For readers who really want to get into the weeds, this Library of Parliament report discusses the change in detail.)

Ottawa says it is sticking to its promise of increasing overall health transfers by 6 per cent until 2017-18, but as the following chart shows, the percentage change for each province varies widely.

Per cent increase in Canada Health Transfer

SOURCE: Department of Finance Canada

The Conservative government knew this change would be controversial. That's why it gave the provinces plenty of notice. The move to per-capita health transfers was first announced by Finance Minister Jim Flaherty in the 2007 budget. Ontario Health Minister Deb Matthews claimed to be surprised last week that Ontario would not be getting a 6-per-cent increase and accused Ottawa of breaking a promise. However when asked by The Globe, her office could not provide any quote from federal Conservatives promising that all individual provinces would receive 6 per cent health increases. Ontario has also expressed surprise that Ottawa would not be covering its decrease in equalization payments, as Ottawa had done for seven other provinces in recent years.

Ms. Matthews' comments are also at odds with the fact that former premier Dalton McGuinty once praised Ottawa's move to per capita health funding.

Why is Ottawa triggering this fight over health transfers? Some other statistics help explain the rationale. When total federal transfers to the provinces are measured in terms of dollars per person, Albertans are clearly getting less from Ottawa than other provinces.

At $1,027 for every Albertan this year, the province is clearly at the bottom. The new health formula brings total transfers to Alberta up to $1,258 per capita, which is similar to Newfoundland and Labrador and Saskatchewan. It is still far from first place Nunavut, where Canadians living in the country's rocky north east receive $40,080 per capita. Federal officials say the big variances in health transfer increases are largely a one-time thing as it implements the new system.

Total federal government transfers per capita (2014-15), $

SOURCE: Department of Finance Canada

Dividing transfers on a per capita basis sounds fair on the face of it. Everyone gets their share. But is it really fair? Provinces face very different realities when it comes to health care. Alberta has strong resource revenues and a growing population of young, healthy workers who are arriving from other provinces.

In contrast, other provinces like those in Atlantic Canada are seeing their populations skew older as younger workers move elsewhere, leaving those provincial governments with higher health care costs and fewer young workers to pay the tax bill.

Finance Canada documents obtained by The Globe through Access to Information show officials did look at proposals such as one from the Mowat Centre to incorporate "expenditure need" into equalization. Essentially, equalization transfers would take into consideration factors like the health and age of a provincial population to determine the size of transfers.

Information below from the Canadian Institute of Health Information shows provincial expenditures on healthcare as a percentage of that province's gross domestic product. By that measure, Alberta's expenses are the lowest at 8.3 per cent.

Expenditures as a per cent of GDP, %

SOURCE: Department of Finance Canada

The lesson in in all of this? Solving one premier's grievance will often trigger howls in other parts of the country. Canada's transfer system is so full of band-aid fixes that it has become virtually incomprehensible. Mr. Flaherty was clearly hoping to avoid painful, drawn-out negotiations when he surprised the provinces in 2011 with new transfer rules that would run until 2024. Provinces will clearly be pushing for changes long before then.

Bill Curry covers finance in Ottawa.