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October 16, 2006

Cost Sharing Health Care

The federal contribution to provincial health expenditures in BC represents 56.4% of spending on hospitals and physicians when both cash and tax points are included in the calculation. In order to evaluate provincial claims about what is sustainable it is necessary to understand the debate on federal-provincial cost sharing.

It would help Premier Campbell's conversation on health if the government would make more information available. We not only can't find out how much a hip replacement costs, we cannot find out from a BC government website how much is spent on hospitals. The resource section in the Ministry of Health's service plan shows the majority of its budget, $7.5 billion out of $11.5 billion, going to the health authorities. We are out of luck if we think the health authorities are going to disclose what they do with our money. They aggregate expenses to just four categories: compensation; supplies, maintenance and sundry; contracted services and capital asset depreciation. The Fraser Health Authority is an exception in that it provides a table (pages 50-51 of its multi-year operating plan for fiscal years 2005-06 to 2008-09) that provides some functional breakdowns but it doesn't include a line that clearly shows how much it spends to operate its hospitals.

Fortunately, BC provides information to the Canadian Institute for Health Information (CIHI) which reports preliminary figures showing that of an estimated total of $12.832 billion in public health expenditures in 2005, $4.718 billion was spent on hospitals and $2.673 billion was spent on physicians, leaving $5.441 billion for everything from Pharmacare to other professional services.

Aggregate spending on hospitals and physicians is important when the provinces and the federal government talk about historical cost sharing of health costs. Health Minister George Abbott phoned Vaughn Palmer to clarify his recent misstatement on what the federal government contributes to health expenditures in BC. In his October 14th column, Palmer reported that Abbott clarified that his claim about federal spending amounting to only 6% was in reference to direct spending, not what Ottawa transfers to the provinces as its share of provincial spending. Palmer went on to conclude: "Assign the full value of the tax points to health, and Ottawa is underwriting about one-third of the provincial health budget. Which is a lot more than six per cent and a lot less than 50 per cent -- which was the original target when the federal and provincial governments got into the business of providing "cost-shared" programs." The reference to 50 per cent is a common misunderstanding which can confuse the conversation on health care.

Historically, the federal government did not cost share with programs other than hospital and physician services. The federal Hospital Insurance and Diagnostic Services Act was proclaimed in 1957 and implemented July 1, 1958. It originally provided federal cost-sharing for inpatient hospital services equal to one-quarter the provincial per capita cost plus one-quarter the national per capita cost; consequently, low cost provinces got more than 50% and high cost provinces got less. The federal Medical Care Act, which allowed federal cost sharing of physician services, passed in 1968, and all provinces participated by the end of 1970. As with hospital services, cost sharing was based on 50% of the national average for qualifying services, not on actual province-by-province costs. In his 1980 review of Canada's health programs, Emmett M. Hall found that federal contributions for hospital and medical care in fiscal year 1979-80 represented 44.7% of provincial expenditures. The original federal cost sharing arrangements have been replaced several times over. It is widely acknowledged that Finance Minister Paul Martin balanced the federal budget by starving the provinces of transfer payments for health during the 1990s. In recent years the federal government has moved to increase its share, but it is not helpful for anyone to exaggerate the highest contribution ever made by the federal government. Canada never paid 50% of all provincial health expenditures, just hospital and physician costs. British Columbia in 2006-07 will receive $2.782 billion in cash from the Canada Health Transfer and $1.425 billion in tax points. That makes the federal cash contribution equal to 21.5% of total provincial health spending, or 32.5% if you count tax points; however when one looks at just expenditures for hospitals and physicians, the federal cash contribution increases to 37.3%, or to 56.4% when tax points are included in the calculation. It is appropriate for provinces to argue for federal cost sharing for services that weren't historically cost shared, and changes to block funding allow the provinces to spend federal funds on any type of health expenditure. In order to argue for 50% federal cost sharing on all provincial health expenditures, not just hospitals and physicians, the provinces have some explaining to do. It is understandable that the federal government may think that its funding is being used to fund tax cuts rather than health care.


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