Health Care and Federal-Provincial Relations: Cash and Confrontation


Ed Whitcomb

Like so many policy questions in Canada from transportation to trade to the environment, health care involves federal-provincial coordination. And, as historian and retired diplomat Ed Whitcomb writes, coordination is most definitely a euphemism for how bilateral interactions on health care have played out over the past half-century. 

Governments have long been involved in health matters, dealing with epidemics and supporting church-run hospitals, for example. When they began to develop the welfare state in the 1880s, health care was bound to be a major element. Under the BNA Act of 1867, health was clearly a provincial responsibility, but Ottawa was responsible for the health of Indigenous peoples and for the tens of thousands of wounded veterans produced by the First World war. By 1945, Canadians were ready for a greatly-expanded government role in health and welfare and the question was what level of government would provide it—the provinces, which had constitutional responsibility, or Ottawa which had a greater capacity to collect taxes.

Saskatchewan took the lead in 1947 when its socialist government, the CCF, introduced hospital insurance. The federal CCF and Progressive Conservative parties were interested, so for political reasons the Liberal government of Louis St.-Laurent took action. In April, 1957, the House of Commons unanimously passed the Hospital and Diagnostic Services Act, which covered a range of hospital services. The scheme was designed to fail, because it required the support of five provinces with half Canada’s population and Ontario and Quebec were opposed. A year later, the newly-elected Progressive Conservative government of John Diefenbaker dropped that condition, five small provinces joined the scheme, and Canada had universal hospital insurance. Saskatchewan then used the money freed up by Ottawa’s contributions to hospital insurance to launch the next program in its plan for the welfare state; Medicare. 

Saskatchewan introduced its public Medicare system in 1959. The federal CCF naturally wanted a federal program, the Diefenbaker government appointed a Royal Commission to lay the foundations, and the federal Liberals joined the bandwagon promising Medicare in the 1962 election. Work on various plans proceeded at both the federal and provincial levels, and at a conference on June 19, 1965, Liberal Prime Minister Lester B. Pearson told a surprised group of premiers that Canada was to have a federally-drafted, shared-cost Medicare program. Eighty percent of provincial services would be covered and Ottawa would pay half the cost. 

Only Saskatchewan agreed. Alberta Premier Ernest Manning said it was unnecessary and questionable constitutionally. A furious Ontario Premier John Robarts stated that it was “one of the greatest frauds that has ever been perpetrated on the people of this country.” Quebec regarded it as yet another massive incursion into provincial jurisdiction. The provinces would be paying half the bill for the new health programs and they had to meet four federal conditions: that the program be portable, comprehensive, universal, and government-run. Ontario had private plans that did not meet these criteria and it had a government plan to cover those too poor to participate in the private ones. It did not need a national plan and vehemently objected to the federal government’s attempt to impose such a massive plan in an area of provincial jurisdiction. Alberta and Manitoba did not support any government-run scheme, but B.C. started to move towards Saskatchewan’s position. 

Public opinion was strongly in favour of the single plan for the whole of Canada, and the Medicare Act was passed by the Commons in December 1966, with a start-up date of July 1, 1968. Saskatchewan and B.C. were the only provinces that joined Medicare at the beginning but all had joined by 1971. Medicare became one of the most successful and popular programs ever launched by any government in Canada, entering political legend as a “Canadian value.” 

Ottawa had a well-established policy towards shared-cost programs. It selected an area in provincial jurisdiction where there was high public demand for more service (and good political mileage to be made), developed a program without consultation, presented it to the provinces, published it to obtain public support, demanded that the provinces pay half the costs, and, once it was in operation, reduced its contributions, leaving the provinces to pay more for a federal program the public now saw as normal. Medicare followed the pattern, and by the early 1980s, Ottawa’s share had fallen to well under the original 50 per cent. In response, strapped hospitals and doctors had started charging user fees and extra-billing for services they believed were not covered by Medicare.

That produced a public uproar. Defenders of Medicare argued that this was creating a two-tier system that benefited the rich who could pay those extra fees. In fact, Medicare had never covered all aspects of health and had been a two-tier system since the beginning. Nevertheless, Prime Minister Pierre Trudeau’s government responded with the Canada Health Act of 1984. It imposed dollar-for-dollar penalties on provinces that allowed user fees and extra-billing. That was an additional condition to the original four. Provincial governments were enraged over yet another invasion of provincial jurisdiction done without consultation. B.C., Alberta and Quebec took Ottawa to court and lost. The Act did reduce extra-billing and user fees, but Medicare’s monopoly could not be fully enforced. Many people resented the violation of the principle of freedom of choice: some went abroad or to other provinces and paid for quicker or better service; some provinces began allowing medical clinics to charge for services such as MRIs; and uniform standards between provinces simply could not be enforced perfectly. Two-tier health service was, in fact, multi-tier health service and
it still is. 

In the mid-1990s, the federal Liberal government of Jean Chrétien made massive cuts to all transfer payments to the provinces, which further weakened both health care and its own influence over provincial programs. Once its budget was balanced, a top priority was restoring some but not all of the federal funding for health care, which it did in the budgets of 1999 and 2000. In return for that money the provinces had to accept new accounting practices and commit more expenditure to four specific areas: primary care, home care, drug costs and hospital equipment. These were additional conditions to the original four of the 1967 medicare scheme and the fifth one which had been added in 1984. 

In 2004, the new prime minister, Paul Martin, made health care a top priority, particularly reducing long wait time for certain health services. Once more, Ottawa was cherry-picking an issue that was receiving more attention than others and therefore had political appeal. For the provinces, the idea of accepting new conditions for another partial restoration of funding was unacceptable as was the amount offered. Martin was forced to increase the funding from $11 billion over six years to $41 billion over ten years. The agreements ended the bickering over health funding for a decade but was not the “fix of a generation” he had promised.

Martin’s 10-year accord on health care was due to expire in 2014, and the next prime minister, Stephen Harper, had no intention of letting the 10 premiers gang up on him at a public conference designed to negotiate a renewal. Instead, on December 19, 2011, Finance Minister Jim Flaherty announced the amount of transfers for the period 2014-2024. Ottawa’s contribution would continue to increase at the same rate as in the existing program (6 per cent) for two more years, and then drop to the level of inflation or 3 per cent for the following eight years. That was a reasonably generous amount and the provinces would have to live with it or raise their own taxes. Like the Martin program, this one met the provincial demands for transparency, stability and predictability. Unlike the Liberal programs, Ottawa did not attempt to tell the provinces how to run their health services, a fact that drew much criticism from Canadian nationalists. The provinces were forced to find efficiencies within their health care systems which they did with considerable success, and health care disappeared from the federal-provincial agenda theoretically for another 10 years or at least as long as the Conservatives were in power. 

Finance Minister Jim Flaherty, who put the provinces on notice that health care transfers would stop increasing by 6 per cent a year. Policy photo.

In the 2015 election, Justin Trudeau’s Liberals criticized Harper’s health deal and promised better relations with the provinces. Since their main demand was an increase in the 3 per cent rate of growth in transfer payments, it was understandable if they believed there would be an increase in that rate. To their surprise, a year after the election, Ottawa unilaterally announced that the rate of growth in Harper’s program would be maintained. Under pressure, Ottawa offered to increase the rate from 3 per cent to 3.5 per cent and to provide $11.5 billion over 10 years for homecare and mental health, yet another example of federal cherry-picking amongst dozens of services and another federal condition on health transfers.  

The provinces were united in rejecting the proposal but within days Ottawa had “negotiated” separate deals with New Brunswick, Newfound and Labrador, and Nova Scotia, the old politics of divide and conquer and of Ottawa’s reliance on Canada’s poorest provinces to accept new federal programs with whatever conditions Ottawa dictates. As usual, the other provinces had to fall in line. With this new deal in place, peace once more descended over federal-provincial relations in terms of overall health care though other issues such as the opioid crisis and the legalization of marijuana kept federal and provincial politicians and officials engaged with each other. 

There is a puzzling paradox in all this. Since Confederation, Ottawa has spent far less on those Canadians whose health is its responsibility than the provinces have spent on their health responsibilities. The starvation and disease of First Nations was well known in Ottawa in the 1880s. Over a century ago, Ottawa was told that tuberculosis rates on Indian reserves far exceeded those among the white population, a problem that accelerated in the residential schools. Yet, for 70 years Ottawa has collected hundreds of billions of dollars from taxpayers in the ten provinces and forced their governments to alter their spending priorities and to treat certain services as though the need was the same in every province. 

Today, as the provinces struggle to adjust to the latest imposition of Ottawa’s priorities, another TB epidemic rages in the North and the Canadian Human Rights Tribunal has repeatedly ordered this government to spend as much on Indigenous people as the provinces spend on other Canadian citizens. It is difficult to avoid the conclusion that Ottawa’s interventions in provincial health policies, however valuable, have been as much about politics and power as the good health of our citizens.  

Ed Whitcomb taught European and Canadian history and has written 16 books including short histories of Canada’s 10 provinces. His latest book is a history of federalism: “Rivals for Power: Ottawa and the Provinces, The Contentious History of the Canadian Federation.” He has won numerous awards and is on the Brandon University Wall of Fame.