Canadian Federalism and Public Health Care: The Evolution of Federal-Provincial Relations

One of the most critical issues in Canadian federalism since the 1950s has been the delivery of public health care. This article provides an introduction to the nature and evolution of federal and provincial relations in the area of health care policy, with particular focus on the fiscal and policy aspects and their impact. Included is a discussion of the basic division of powers in health care, Canadian federalism and the introduction of public health care, and shifts in this federal-provincial relationship since the 1950s.

Division of Powers and Health Care Policy in Canada

An overview of federal-provincial constitutional powers in the area of health care

Canadian Federalism and the Introduction of Public Health Care

Federal-provincial relations and the creation of the public health care system

Canadian Federalism and Public Health Care 1970-2000

Federal-provincial relations and public health care over three decades

Recent Trends in Canadian Federalism and Public Health Care

Shifts in federal-provincial relations in public health care between 1999 and 2004

Sources and Links to Further Information

List of article sources and links to more on this topic

Division of Powers and Health Care in Canada

An overview of federal-provincial constitutional powers in the area of health care

The Constitution, Federalism, and Health Care

The Canadian Constitution is the premier political institution in Canada. It sets out the basic structure and functions of government. Central to the Constitution is the establishment of a federal system in Canada, where there are two autonomous orders or levels of government: the federal (national) government and the provincial (regional) governments. The Constitution provides these different levels of government with their own constitutional powers and jurisdictions. As such, the Constitution, and its system of federalism, plays a central role in the context of health care policy; the Constitution established the role and powers of each level of government in creating and administering key elements of Canada’s health care system.

For more information on the Constitution and Federalism in Canada:

Provincial Powers in the Area of Health Care

Under the Constitution, the provincial level of government is granted the majority of legislative power in the area of health care. Section 92(7) of the Constitution Act, 1867 grants the provinces exclusive authority over the “establishment, maintenance, and management of hospitals, asylums, charities, and eleemosynary institutions in and for the province, other than marine hospitals” (Department of Justice Canada, Constitution Acts 1867 to 1982). In other words, only the provinces, not the federal government, may pass laws regarding the creation and administration of hospitals and mental health facilities.

Canada’s modern health care system, however, involves much more than simply the establishment and operation of hospitals. In response to this, the courts have interpreted the provincial power over hospitals in a very broad manner, extending provincial legislative authority to almost all areas of health care delivery. This includes areas such as health care insurance regulation, the distribution of prescription drugs, and the training, licencing and terms of employment for health care professionals, such as dentists, doctors, and nurses. This judicial interpretation has resulted in provincial dominance in the area of health care, at least with respect to the power to create laws concerning how health care is delivered to the majority of Canadians.

Federal Powers in the Area of Health Care

While the provinces enjoy the majority of legislative authority in health care, the federal government nevertheless has some important powers which enable it to play an important role in the development and implementation of health care policy.

First, the federal government is constitutionally empowered to legislate in select areas of health care, including marine hospitals, quarantines, and the oversight of food, pharmaceutical, and medical device safety. The federal government is also constitutionally responsible for health care delivery to certain groups in Canadian society that fall exclusively within the federal jurisdiction. This includes First Nations peoples living on reserves, the Inuit, serving members and eligible veterans of the Canadian Forces, members of the Royal Canadian Mounted Police (RCMP), inmates in federal penitentiaries, and refugee protection claimants.

Furthermore, the Peace, Order and Good Government section of the Constitution Act, 1867 (commonly referred to as the “POGG clause”)grants the federal government the power to legislate in areas outside its normal jurisdiction in times of national emergency. In the context of health care, this would include the power to legislate whenever health issues affect the nation as a whole or becomes a problem beyond a province’s ability to deal with it, such as in the event of a widespread epidemic. Under such circumstances, the federal government may assume control over health care delivery temporarily.

One of the federal government’s most important health-related powers, however, is its spending power. This refers to the constitutional right of a government to spend money in areas outside its normal constitutional jurisdiction. This spending power is available to both levels of government. It is, however, a much more powerful tool in the hands of the federal government, as Ottawa typically has a sufficient fiscal capacity to spend in its own areas of jurisdiction, as well as those of the provinces. Most provincial governments, by contrast, do not enjoy the same financial ability.

This spending power represents a key lever for the federal government as a means of exercising authority over the provinces and, indirectly, influencing health care policy. Each year, the federal government gives the provinces billions of dollars to support the delivery of provincial health services and programs. In so doing, the federal government regularly places conditions on the provinces in conjunction with this funding. It may require the provinces to spend the money on certain health services or programs, or to deliver health care according to specific federal standards and objectives. A province may, of course, refuse the federal funding and the conditions that come with it. However, most provinces are highly dependent upon Ottawa for health care funding dollars and simply cannot afford to forgo these funds.

Territories, Cities, and Health Care

Constitutionally speaking, neither territories nor cities have any powers in the area of health care. This is because neither is granted autonomy under the Canadian Constitution. Territories fall under the jurisdiction of the federal government and are creations of federal legislation; cities are under provincial jurisdiction and owe their existence to provincial legislation.

Even though the territories do not have any constitutional powers over health care, they nevertheless have control over the delivery of health care services for their own residents. This is because the federal government has provided territorial governments with powers and responsibilities similar to those held by the provinces (although, these powers are recognized only in federal legislation and not in the Constitution). Like their provincial counterparts, the territories oversee the creation and regulation of hospitals and other health-related facilities; distribution of prescription drugs; and the management of training, licencing, and terms of employment for health care professionals. While the federal government does not intervene directly in the health policy of the territories, it does exercise considerable influence through the financial transfer of funding, as it does with the provinces.

In the past, municipalities in Canada have played a large role in health care. Indeed, at one time, in some provinces, municipalities were charged with the responsibility for creating, funding, and administering hospitals. Since the introduction of public health care, however, the role of cities has been reduced considerably. Today, most hospitals are operated by provincial governments or health boards created and controlled by provincial governments. Nevertheless, some municipalities, especially in large urban cities, will deliver limited health services and programs, either independently or in cooperation with their respective provincial governments.

Canadian Federalism and the Introduction of Public Health Care

Federal-provincial relations and the creation of the public health care system

Early Health Care in Canada

Canada’s early health care system was drastically different than it is today. Prior to the 1940s, health care services were predominantly provided by private or charity hospitals and clinics. Canadians, generally, paid for their health care services, either directly, through charitable donations, or private forms of health insurance. Health care professionals, such as doctors, primarily operated as private businesses, either independently or in association with a particular hospital or clinic. There tended to be very little direct government involvement in health care delivery, although this did vary from province to province.

Introduction of Provincial Hospital Care Plans

Beginning in the late 1940s, Canadian health care began to take on aspects of its modern public form. In 1947, the Government of Saskatchewan, helmed by Premier Tommy Douglas, introduced the first universal hospital care plan. Under this plan, the provincial government assumed hospital-related costs for its residents. The government financed the plan through a combination of annual health premiums charged to residents and general provincial revenues. By 1949, Alberta and British Columbia had also introduced similar hospital care plans for their residents.

In 1957, the federal government became directly involved in public health care through passage of the Hospital Insurance and Diagnostic Services Act. This federal legislation committed the Government of Canada to financing 50 percent of the cost of provincial hospital care. In addition to providing federal funding for pre-existing plans in Saskatchewan, British Columbia, and Alberta, the federal government used the Act to negotiate publicly-funded hospital care plans in the remaining provinces. By 1961, agreements were in place with all provinces, providing hospital care coverage across Canada.

Introduction of Nationwide Medicare

The introduction of provincial hospital care plans meant that Canadians were covered for those medical services received within hospitals. This coverage, however, did not extend to the services of physicians received outside hospitals. The majority of Canadians, instead, were required to pay for these services, either directly, through private insurance schemes, or through non-universal public plans.

In 1962, the Government of Saskatchewan introduced universal coverage for physician services delivered outside of hospitals. Under the plan, physicians billed the government directly for the services they provided to their patients. Doctors, however, were free to practice outside the public system, and to charge higher fees than those reimbursed by the government (a practice called “extra billing”).

In 1966, the federal government introduced the Medical Care Act. Under this legislation, it committed to sharing costs with the provinces for all physician services, regardless of whether they were provided in a hospital. Moreover, the Act stipulated certain criteria which a province would have to meet in order to gain this federal funding.

The Act required that a province’s health plan be administered by a non-profit government agency (or some agency accountable to government); provide coverage for all medically necessary services rendered by a physician or surgeon; be universally available to all provincial residents on equal terms and conditions; and provide portability of benefits when the insured resident was temporarily outside of the province. Moreover, the Act stipulated that insured services were to be provided in a manner that did not preclude reasonable access to those services due to either direct or indirect charges. This limited the provinces’ discretion in charging health care premiums or to allow user fees and extra-billing by hospitals and doctors.

The federal government used the Medical Care Act as the basis for negotiating a nationwide public health care plan with the provinces (this nationwide system is commonly referred to as “Medicare”). By 1972, each province had established its own system of free access to medical services. While these provincial systems were framed by the basic conditions set out in the federal Act, there nevertheless existed significant differences from one province to another. Each province set up its own system of publicly administering hospitals. Moreover, there existed significant differences in terms of the services covered from province to province, as well as how each government paid for its public system. Some provinces, for example, introduced health premiums (annual payments made by individuals to the government to cover some of the costs of health care services). Other provinces paid for their public health plans exclusively through general tax revenues.

The introduction of national Medicare established the federal government as key player in health care policy. Under the Medical Care Act, the federal government committed to paying a significant portion of the costs associated with provincial Medicare plans (provided they met the criteria set out in the Act). During the period immediately following the introduction of Medicare, the federal government committed to paying one-half of whatever the provinces spent on health care coverage. Not only was the federal government a financial partner in public health care, but it was also able to indirectly influence provincial policy in this area through the conditions it attached to federal health funding under the Medical Care Act.

Federal-Provincial Inter-relationship in Public Health Care

Canada’s system of federalism had a significant influence on the manner in which public health care was instituted in Canada. Legislative authority for health care falls predominately within the hands of the provinces. As a result, Canada did not create a national health care system, at least in the sense of being centrally administered and completely uniform across the country. Instead, Canada’s public health care system is constituted by set of provincial regimes, which were instituted at different times and administered in different manners by their respective provincial governments.

Nevertheless, today, Canada’s public health care system can be considered ‘national’ in two important senses: a) through the use of its spending power, the federal government was able to encourage the implementation of some form of public health care across the entire country; b) as a financial partner in health care delivery, the federal government has been able to ensure basic criteria for the operation of these different provincial health care systems. While Canadians do not enjoy exactly the same public health care plans from coast to coast, provincial systems are uniform in terms of being publicly administered, relatively comprehensive, universal, portable, and without significant financial or other barriers to access.

Canadian Federalism and Public Health Care 1970-2000

Federal-provincial relations and public health care over three decades

The period between the 1950s and 1970s saw the federal and provincial governments put into place the basic framework for public health care in Canada. The decades that followed, however, saw increasing levels of tension and animosity between the two levels of government over public health care policy. This was due in large part to two main factors. The first were changes in federal funding to provincial health care plans, which saw the federal government withdraw from its earlier commitment to cover one-half of whatever the provinces spent. The second was the enforcement of federal criteria on how the provinces could operate their health plans.

Changes to Federal Health Care Funding

With the introduction of Medicare, the federal government committed to funding one-half of any provincial health care program which met the criteria set out in the Medical Care Act (see previous section). In the 1970s, however, the federal government became concerned over the rapidly escalating costs of social services, such as Medicare, and its ability to continue covering half of whatever the provinces spent.

As a result, in 1977, the federal government changed the nature of federal funding for public health care. It removed the detailed conditions placed on the provinces in order to receive federal monies. Provinces were no longer required to meet the criteria first established in the Medical Care Act. In return, the federal government announced that it would no longer pay one-half of the provincial program costs. It would, instead, only increase its funding to the provinces by a certain annual percentage – which would not necessarily cover one-half of the overall costs.

The 1980s and 1990s saw, again, a tightening of federal funding for health care, this time due to efforts by the federal government to control ballooning budget deficits. The most substantial development in the health care funding equation came in 1995, when the federal government introduced the Canada Health and Social Transfer (CHST). Previously, most federal funding for provincial social programs came in the form of Established Program Funding (for post-secondary education and health insurance) and a program called the Canada Assistance Plan (social assistance and welfare services). With the creation of the CHST, however, these federal transfers were merged into one block grant with few conditions on how the provinces spent the money.

Under the CHST, the Government of Canada reduced its overall financial transfers to the provinces. The CHST also altered the very nature of these transfers. Previously, many federal commitments, such as those dealing with provincial health care plans, were supported through cash payments to the provinces. Under the CHST, however, there was a greater reliance on tax point transfers for funding. Tax point transfers (better known as tax points) involve a reduction (or capping), by the federal government, of its taxation levels in order to provide additional ‘room’ for the provinces and territories. Accordingly, provincial/territorial governments are able to increase the amount of tax they charge to citizens and, in turn, raise new revenues to support their social programs.

These changes under the CHST had serious consequences for the provinces and their public health care systems. This was particularly true in have-not provinces – those that were highly dependent on federal cash transfers in order to pay for their health care plans. Not only were these provinces faced with reductions in overall federal transfers, but the shift to a greater reliance on tax points also posed challenges. With weaker tax bases, have-not provinces tended to benefit more from the transfer of dollars than from tax points. Consequently, many provinces faced a fiscal crunch due to rising health care costs and a reduction in the federal contribution to help offset those costs.

The result of these changes to federal funding: the provinces and territories were required to bear a greater share of the costs for social programs, such as Medicare. This resulted in a high level of animosity between the two levels of government, with the provinces regularly arguing that the federal government was not contributing its fair share to Canada’s public health care system.

Introduction of the Canada Health Act, 1984

Another important development to occur during this period was the introduction of the Canada Health Act in 1984. Originally, the federal government regulated the basic framework of provincial health care plans through the criteria outlined in the Medical Care Act. Following its 1977 decision to stop paying for one-half of health care costs, however, the federal government announced it would no longer place any conditions on federal funding in support of health care. As such, the provinces were free to administer their health care plans as they deemed fit.

This led to the introduction of a number of controversial measures by some provinces during the late 1970s and early 1980s, particularly user fees and extra-billing. User fees refer to the charges a patient is billed for specific medical services, such as a hospital visit; extra-billing (or double-billing) involves a practice where doctors charge patients fees for services in addition to seeking reimbursement for the provision of those services from the provincial government.

In response, the federal government introduced the Canada Health Act in 1984. The legislation re-established conditions that the provinces would have to follow in order to receive federal health care funds. Central to the Act was the prohibition of user fees and extra-billing, and the establishment of five basic criteria deemed essential for the operation of provincial health care services. These criteria closely matched those first introduced under the 1966 Medical Care Act, and required provincial plans be: publicly administered (administered by a public agency); comprehensive (cover all medically necessary services); universal (cover all provincial residents); portable (ensuring continued coverage when persons are temporarily outside of their home province); and accessible (reasonable access to health services without financial or other barriers).

For more information on the Canada Health Act:

Additionally, the Canada Health Act included a penalty regime, under which the federal government would hold back funding to those provinces that failed to meet any of the Act’s criteria. While not widely used, this penalty regime has been applied in several instances. Immediately following the Act’s introduction in 1984, the federal government announced it would be applying penalties to those provinces that permitted user fees and extra-billing (the federal government later released the money it had held back, but only once the provinces had eliminated these practices). In the 1990s, the federal government applied the penalties on several occasions, mostly when provinces permitted the application of user fees in private medical clinics.

From the perspective of the federal government, the introduction of the Canada Health Act was an important instrument to maintaining certain national standards in public health care. From the perspective of the provinces, however, the federal action was viewed as an encroachment on provincial authority and jurisdiction. This concern was magnified, moreover, by the fact that the federal government had significantly, and unilaterally, reduced its financial commitment to provincial public health care plans.

Recent Trends in Canadian Federalism and Public Health Care

Shifts in federal-provincial relations and public health care between 1999 and 2004

Towards the end of the 1990s, tensions between the federal and provincial governments in the area of public health care were high. Yet another shift in the nature of federal-provincial relations would take place – influenced largely by the fact that the federal government had restored order to its fiscal house, bringing its budget deficits under control, and posting larger and larger annual surpluses. Moreover, the federal government showed signs it was willing to constrain use of its spending powers in areas of provincial jurisdiction, and work with the provinces to address health care-related issues.

1999 Social Union Framework Agreement

The first significant change came in 1999, when the federal government, provinces (except Quebec), and territories signed the Social Union Framework Agreement (SUFA). SUFA provides a framework through which the two levels of government can collaborate on Canada-wide priorities and objectives in the area of social programs.

For more information on the Social Union Framework:

Central to this framework were several key commitments by both levels of government. The provinces and territories agreed to eliminate residency-based policies that constrained access to social programs for migrants, and to use funds transferred from the federal government for agreed-upon purposes – which included health care policy. In return, the federal government agreed to limit the use of its spending powers by, for example, consulting with provincial and territorial governments prior to renewing or altering existing social transfers; not introducing new social programs funded through intergovernmental transfers without the agreement of a majority of provincial governments; and providing prior notification before introducing new Canada-wide social programs funded through direct transfers to individuals. The first two of these commitments are highly relevant to health care, as they require that the federal government work with the provinces and territories before making significant changes to the basic funding or framework of the public health care system.

In addition to its commitments under SUFA, the Government of Canada also announced a multi-billion dollar increase in transfers to the provinces in the 1999 federal budget. This increase was intended to alleviate some of the financial burden on the provinces vis-à-vis the rising costs of social programs, including health care.

2002 Romanow Commission on Health Care

Another key development in this story on health care policy: the Royal Commission on the Future of Health Care, headed by former Saskatchewan premier Roy Romanow. Formed in 2001, the Commission’s mandate was to review federal, provincial, and territorial policies in health care and recommend possible measures for reform. The Commission’s final report, tabled in November 2002, comprised 47 detailed recommendations, touching on a wide range of health care-related issues. Central to the Commission’s report was the recommendation that Canada should continue to pursue a public health care system where the cost of medical services was covered by governments.

In the broader federalist context, the Commission recommended significant changes to federal-provincial/territorial relations within the realm of health care policy. Generally speaking, the Commission suggested a collaborative relationship between the levels of government – a relationship where each level of government was an equal partner in the public health care policy. Additionally, the Commission recommended enacting a Health Covenant which would have set out a national vision and framework for public health care, and be binding on all governments. It also recommended that a Health Council of Canada be created, with the goal of fostering collaboration between levels of government.

The Commission also recommended dramatic changes to federal financial support of provincial health care plans. This included creating a new federal transfer, which would solely target health care. (At the time, federal transfers for health care were lumped together with monies for other social programs under the Canadian Health and Social Transfer.) The Commission suggested this new transfer be cash-only, rather than consisting of a combination of cash and tax transfer points. Finally, the Commission recommended the federal government increase its share of federal funding for health care to a minimum of 25 percent of provincial/territorial costs. This represented an increase over existing federal funding levels at the time, but was still significantly lower than the 50 percent promised by the federal government when Medicare was first introduced.

Another Commission recommendation: the broadening of Canada’s public health care system to include uniform national coverage for prescription drugs. This included the introduction of provincial/territorial drug plans, which would be paid for, in part, by a new federal ‘Catastrophic Drug Transfer.’

For more information on the Romanow Commission:

2003 Accord on Health Care Renewal

While the Romanow Commission’s report was not binding on any of the governments, some of its recommendations were enacted through subsequent federal-provincial/territorial agreements on health care. The first of these was the Accord on Health Care Renewal, agreed to by all governments in 2003. The Accord constituted an action plan to improve timely access to quality health care for all Canadians. Under this plan, the federal government committed $34.8 billion dollars in additional funding for health care over the five-year period from 2003-04 to 2007-08. In 2004, the federal government added an additional $2 billion, bringing the total to $36.8 billion over the five-year period.

In addition to this increase in federal funding, the Accord also led to several other key initiatives. Under the Accord, governments created the Health Council to monitor and make public reports on the Accord’s implementation. The federal government also split the Canada Health and Social Transfer into two block grants: the Canada Health Transfer (CHT) and the Canada Social Transfer (CST). The objective in this division was to enhance transparency and accountability, both with respect to the amount of money transferred by the federal government for health care and how that money was spent by the provinces and territories.

As part of this Accord, the governments committed to ensuring Canadians would have reasonable access to catastrophic drug coverage by the end of 2005-06, with part of the $36.8 billion in new funding to be committed to new provincial drug plans. As of December 2007, however, little action had been taken on establishing national catastrophic drug coverage.

For more information on the 2003 Accord on Health Care Renewal:

2004 Agreement on the Future of Health Care

A year later, federal, provincial, and territorial governments agreed to a new 10-year plan to sustain the public health care system. Under the agreement, the federal government committed to provide an additional $18 billion to the provinces and territories over the next six years for health care. The federal government also guaranteed a 6 percent annual increase in federal health transfers after that until 2015. According to the federal government, this amounted to $41 billion in new funding over 10 years. This new money is in addition to the $36.8 billion agreed to in the 2003 Accord.

In return, the provinces (except Quebec) and territories agreed to a number of federal demands in the area of waiting times and home care services. This included setting common benchmarks for measuring waiting times across the country, and achieving agreed upon reductions in waiting times for medical treatment in five key areas (cardiac care, cancer treatment, diagnostic imaging procedures, joint replacement, and sight restoration). The provinces/territories also agreed, by 2006, to increase funding for certain home care services, such as short-term acute and mental health care, and for longer term end-of-life care.

In order to bring Quebec into the new health care arrangement, the federal government agreed to a separate agreement with the province, official entitled Asymmetrical Federalism that Respects Quebec’s Jurisdiction. Under this deal, Quebec promised to reform its home care services in its own way. The province also agreed to set its own benchmarks and indicators for waiting times that would be comparable to those implemented by the other provinces.

Another important element of the 2004 health care agreement was the establishment of a mechanism for resolving future disputes regarding the Canada Health Act. Originally part of the 1999 Social Union Framework Agreement and agreed to in a 2002 letter of intent, the purpose of the new mechanism was to minimize inter-governmental conflict over the interpretation and application of the Act’s basic criteria for provincial health care plans. In addition to a commitment by all governments to work together to avoid disputes before they occur, the new mechanism also included specific procedures for dispute resolution, most notably the establishment of a third-party panel to review disputes and make recommendations. It is important to note, however, that the decisions of the third party panel are not binding, meaning that the federal government retains final authority to apply the Canada Health Act.

For more information on the 2004 Health Care Agreement:

Renewed Federal-Provincial Partnership in Health Care

The period between 1999 and 2004 saw a significant shift in federal-provincial relations in the area of health care. That said, the basic structure of federalism and public health care remains, with the provinces and territories responsible for administering their own public health care plans and the federal government acting as financial partner and enforcer of basic uniform, national standards. Nevertheless, the tone of the relationship between the two levels of government has changed from the highly combative situation of the 1970s, 80s, and 90s. This was due, in large part, to significant increases in federal funding for public health care – a critical demand for the provinces and territories. Moreover, through several agreements, including the Social Union Framework Agreement, the 2003 Accord on Health Care Renewal, and the 2004 Agreement on the Future of Health Care, the governments established key commitments and mechanisms for dealing with health priorities while minimizing inter-governmental conflict.

This, however, is not to suggest a complete absence of federal-provincial tension in health care. Continued rising costs and differences of opinion between governments on such issues as the Canada Health Act, waiting times, home care, and pharmaceutical coverage, will all continue to be potential sources of animosity between governments into the foreseeable future.

Sources and Links to Further Information

List of article sources and links for more on this topic

Sources Used for this Article
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Links for Further Information