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Big spending is the big trend in Ottawa again. The Trudeau government's first budget signalled a new era of activist government with bold plans to boost federal outlays on infrastructure, families with children, and clean water, housing and education for aboriginal Canadians.

All this activism makes the budget's silence on health care all the more curious. Not only is there no commitment to restore the former Harper government's cuts to provincial health transfers, which take effect in 2017, but the budget did not even follow through on Prime Minister Justin Trudeau's campaign promise to boost spending on home care by $3-billion over four years.

The budget's fiscal projections show that, starting next year, the Canada Health Transfer will rise in line with nominal growth in gross domestic product, rather than the 6-per-cent annual increases the provinces have pocketed in the past decade.

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If no deal is struck on a new health accord before next year, the shock will be brutal for debt-burdened provinces with aging populations.

According to the budget, the health transfers will increase by $1-billion, or 2.8 per cent in 2017-18, to $37.1-billion. That is below even the 3-per-cent minimum increase promised by the Harper government. With annual increases henceforth tracking nominal GDP growth, Ottawa will be transferring about $5-billion less a year in health-care cash to the provinces by 2020 than it would have under the 6-per-cent escalator.

The cumulative impact on provincial health-care budgets will be devastating. Ottawa's share of public health-care spending, currently about 22 per cent, is set to fall to about 18 per cent within a decade. And while experts are divided about just how much an aging population will drive up costs – today's seniors are healthier than ever – most everyone agrees that already stressed Atlantic Canada and Quebec will face big financial pressures.

The Canadian Institute for Health Information pegged average annual health-care costs for Canadians under 65 at $2,525 in 2013, though the average is inflated by expensive infant care. Still, average health-care costs were almost five times higher – $11,595 – for seniors. For those older than 80, of which there will be more and more in coming years, the average cost of care is closer to $20,000.

CIHI estimates population aging has been responsible for annual increases in health-care spending of about 1 per cent since 2013, which sounds modest until you consider that the costs are not borne equally. More than 17 per cent of Quebeckers and Newfoundlanders are older than 65, compared with about 11.5 per cent of Albertans. Costly new treatments extending life are continually being introduced, forcing hard-up health ministries to make difficult choices about which ones to cover.

While the Trudeau government has promised to negotiate a new health accord with the provinces, it has given few hints about how hard a bargain it will drive. The decision not to include more money for home care in the budget may reflect the provincial resistance to Ottawa dictating how health transfers are spent. Quebec is demanding that all federal health-care funding flow through the Canada Health Transfer (CHT), which comes with no strings attached.

The Canadian Medical Association has called for a "demographic top-up transfer" to supplement the CHT, which is calculated on a strict per-capita basis, to compensate provinces with older populations. A Conference Board of Canada study estimated the cost of such a top-up at $1.6-billion in 2016, rising to $1.9-billion by 2020.

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Canada is relatively unique among developed countries in ignoring age in calculating health transfers. Whether Mr. Trudeau intends to change that is unclear. "My party is aware of the challenges that increasing health-care costs and an aging population represent for provincial governments," he said in a letter to Quebec Premier Philippe Couillard during last year's election campaign. But neither the letter nor the Liberal platform promised more money, other than the still-unfulfilled vow to inject $3-billion into home care.

There may be enough cushion built into the federal government's fiscal projections to accommodate an increase in health transfers without Ottawa having to go much deeper into the hole, a fact not lost on the provinces.

The Trudeau government has yet to feel the brunt of provincial pressure for more money. But it will. How it responds will speak volumes about where its true priorities lie.

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