Age-Based Federal Health Transfer Overdue in BC

I am very pleased to read today that the Minister of Health has taken up a suggestion I brought to the legislature last year. On CBC’s On The Island this morning, Health Minister Terry Lake told host Gregor Craigie that he will urge Ottawa to change the way health transfers are made during next week’s federal-provincial meeting.

British Columbia has a higher proportion of seniors than the rest of Canada and it is this age demographic that requires more health services.  The funding we receive should reflect the actual cost of services delivered and I am pleased to hear that Minister Lake plans to raise this with Federal government.

Below I provide more details.

The Canada Health Act and Canada Health Transfer

The federal Canada Health Act sets the standards for all provinces and requires coverage for all necessary care provided in hospitals and by physicians. But health care is ultimately the responsibility of the province.

General revenues from the Federal Government provide funding for health care to the provinces and territories through the Canada Health Transfer (CHT). Up until this past year, the CHT consisted of two components: a cash transfer and a tax transfer. Though CHT is allocated on a per capita basis, the cash transfer was not. Instead, the CHT cash transfer would take into account the value of provincial and territorial tax points and the fact that provinces do not have equal economies and, therefore, have unequal capacity to raise tax revenues. This meant that provinces with the highest revenue raising ability received lower per capita CHT cash payments than other provinces.

However, since January 2014, CHT allocations are now determined solely on an equal per capita cash basis. While this new system means that all provinces will receive equal transfer payments based on population size, I believe that this is not the most equitable way to proceed, particularly in light of provincial age demographics and associated health care costs. Take for example BC, a province many view as a popular retirement destination. It is common practice for individuals who have lived and worked – and therefore paid taxes – elsewhere, to move to BC later in life. However, with national trends showing that seniors’ health care costs more than that of any other age group, this can put a significant strain on our provincial health care system — one that cannot afford to go unaccounted for (see Figure 1).

Figure 1: Per capita funding of health care as a function of age. Note that as age increases, health care costs increase dramatically. Annually, more than $25,000 is spent on health care costs for a Canadian over the age of 90. Source: Canadian Institute for Health Information, National Health Expenditure Trends, 1975 to 2012.

Let’s unpack this further. In the 2014-15 budget year, the Federal Government Canada Health Transfer amounted to 32.1 billion dollars distributed across all provinces. In 2014 Canada’s population was estimated to be 35,540,400, and British Columbia’s population was estimated to be 4,631,300. Alberta has a similar population to that of British Columbia (see Table below).

As clearly evident in Figure 2, British Columbia had a smaller percentage of its population in every age group under the age of forty than the Canadian average. The opposite is true for those over the age of forty. Compared to Alberta, British Columbia is home to nearly 70% more seniors. A quick glance back at Figure 1 immediately highlights the glaring inequity in the fixed CHT dollar per person transfer formula. British Columbia has a higher proportion of seniors than the rest of Canada and it is this age demographic that requires more health services. The funding should reflect the actual cost of service delivery.

Figure 2: Percentage of overall population in separate age categories for Canada (Red) and British Columbia (Green). Note that the percentage of overall population under the age of 40 is greater in Canada in a whole than in British Columbia. The reverse occurs over the age of 40 when health care costs per capita start to increase. Source: BC Stats and Statistics Canada.

It’s a relatively straightforward calculation to weight the CHT transfer to each province by its age demographic and associated health care delivery cost. Rather than receiving 13.0% ($4.183 billion) of the total CHT funding (reflecting 13.0% of Canada’s population residing in British Columbia), we should receive 13.5%. While this may not seem like a lot, it translates into 153 million dollars that British Columbia must find from other sources.

Nevertheless, no matter the method that CHT payments are allocated, these federal transfers only cover a portion of BC’s annual healthcare expenditures. The remaining expenses are financed out of general revenues raised by tax and non-tax sources, with MSP premiums presently contributing over $2 billion per year.