By Richard Forbes.
It was supposed to have been healthcare’s “fix for a generation” or so the prime minister, then Paul Martin, had said.
Nothing could have characterized the Martin government better than the loose jaw-jaw, full of indecision, contradiction and publicity, which bore his Health Accord in the fall of 2004 – the product of frantic, dysfunctional negotiations and late night summitry with the provinces. Imagine sixteen pizzas being delivered to the front door of 24 Sussex Drive at two in the morning, senior officials going back and forth between floors to crunch numbers, bleary-eyed premiers trapped in the basement: Ontario’s Dalton McGuinty, Quebec’s Jean Charest and BC’s Gordon Campbell keeping the peace and working towards a solution; Alberta’s Ralph Klein meanwhile, storming off to gamble across the river in Gatineau. All of them desperate to find out how Canada was making out against Finland in the World Cup of Hockey finals that night (Canada won.)
The offspring of their troubles, the Health Accord, has widely been regarded as a failure in providing the “transformative change” Martin promised. With its generous health transfer to the provinces (which grew by 6% each year) distributing health expenditures over the past decade with no oversight and accountability, the result has been a richer health sector and no positive change in hospital wait-times. Like building bigger roads to tackle congestion, the more money thrown at the healthcare system, the more it absorbed. It took years for provinces to rein in rising healthcare costs to 2.5%-2.7% per annum growth (rather than 6-7% which outpaced even the generous Health Accord’s own elevator.)
And yet when these same provinces returned to the bargaining table to negotiate a new Health Accord this past year, they argued that they would need Canada’s health transfers to continue to grow by at least 5.2% (again, note: healthcare spending in the provinces was only growing by about 2.7%.) While the Trudeau Liberals had promised to work with the provinces to come to an agreement on a new Health Accord, they weren’t prepared to sign off on that kind of spending commitment; not in a post-economic meltdown era, not with anemic economic growth, and certainly not after the provinces had spent the past decade finally getting a control on their own health spending. Not surprisingly, finance minister Bill Morneau’s much more modest one time offer – a stable 3.5% elevator over five years – was balked at and soon widely dismissed and rebuked by premiers.
Although there was interest among most parties to target various priorities with funding, the provinces had descended upon Ottawa to talk only one thing at the finance ministers’ meeting: money. Namely, the negotiated size of untied, non-targeted, unconditional cash. Nevermind health. The provinces brought their offer and Morneau brought his. A failure to come to an agreement that snowy December Monday has led us to where we are now: a full-fledged standoff between the provinces and the federal government…
The first province to cave, New Brunswick, signed a bilateral health agreement with Ottawa guaranteeing them the Flaherty elevator (whichever is higher: 3% growth or nominal GDP growth) and targeted funding for mental health and homecare. It was a deal soon followed by Nova Scotia, Newfoundland and Labrador, Saskatchewan and the territories. Prince Edward Island has since also signed onto the same terms. None of the agreements are exclusive, so if any of the remaining provinces (listed below) can negotiate better terms, the other provinces are free to adopt those terms as an alternate deal.
An unconvincing hardline: Alberta
Like the other provinces on this list, Alberta has requested a first ministers’ meeting to hash out a Health Accord – something health minister Jane Philpott has already vetoed. But Philpott still did express optimism that Alberta might sign a health agreement when approached about the matter last week, telling journalists she would take the opportunity at the Alberta cabinet retreat to reach out to Albertan health minister Sarah Hoffman.
Hoffman in an earlier interview said Alberta would not be opposed to targeted funding for various priority areas (“we’re open to that”) but wanted more money than what was being offered: “We want to discuss funding,” she said. “We want more money.” And in that respect, Alberta is tipping their hand: they don’t have the fiscal room to play chicken with the federal government. Expecting to run a $11B deficit this year, Alberta isn’t intending to balance their books until 2024; long before then, Notley’s NDP will face an election – and with the recent possibility of Wildrose and the Progressive Conservatives merging into a united front, a prospect of another fight, this time with Ottawa, is the last thing they need.
Alberta is likely only entertaining the negotiations further in the hopes bigger players, like Ontario and Quebec, can push Ottawa into caving; hopes that were largely dashed by Saskatchewan’s signing of a health agreement last month.
The smell of desperation: Ontario
Although these negotiations have taken place behind close doors, it appears as though Ontario played a central role in the provinces’ push for a 5.2% annum increase. Premier Kathleen Wynne has since told reporters, “we do need an increase on the base transfer” and that the proposed 3% increase would “not cut it.” Her and her health minister, Eric Hoskins, have focused their complaints especially on the growing disparity between the share of health spending between the federal government and the provinces; that is to say, the “downloading” of health care costs to provinces which in turn creates a fiscal gap.
Ontario has however signaled their flexibility on the length of the agreement (e.g., 5 years? 10 years?) and has accepted the need for targeted funding on mental health and homecare, in part, because they aren’t bargaining with Ottawa from a position of strength: although Ontario’s fiscal situation is improving, Wynne’s Liberals have pledged balanced budgets starting this fiscal year, 2017-18 – a promise unlikely to met without significant health cuts (to the tune of $2.8 billion) or increases to the health transfer. Wynne hinted at her balanced budget concerns in a roundabout way, saying “We’re in our budget cycles, we’re getting ready for budgets and we need to know what those decisions are going.”
The “5.2%” figure proposed by provinces ultimately bears some resemblance to figures cited by Ontario’s watchdogs in the Financial Accountability Office and the Conference Board of Canada; both of whom reported health care costs could rise by 5.3% or 5% annum respectively as a result of Ontario’s aging population.
Because the upcoming budget is expected to yield a 3% increase in the health transfer, it would come as no surprise if Morneau’s 3.5% “deal” was in fact a backhanded offer targeted at an Ontario government desperate to balance its next couple of books.
You could imagine any number of alternative offers under the same guise. If for example, the CHT’s growth were set at 5% for the next two years and then continued at a fixed 3% rate for the next three, such a deal (I call it, “short term gain for long term pain”) might appeal to Ontario given it would go about a third of the way to covering the rising health care cost rises that Queen Park is anticipating over the next two budgets – and at a loss of only $20M in the long term versus the current offer. As far as offers go, it’s also unappealing enough to deter other provinces from hopping on the bandwagon.
Une bonne affaire: Quebec
Quebec’s response to the proposed “targeted funding” was just as you would expect: stern opposition. “By their very nature, targeted funds are temporarily and generally conditional on the achievement of new initiatives that do not necessarily correspond to the priorities of the provincial governments,” wrote the Quebec health and finance minister to Ottawa, last June. “Moreover, history has taught us that when targeted funds run out, the provinces must solely take up responsibility for the expenses related to the new initiatives, which only further increases the financial pressures bearing upon them.” In other words, beyond expanding the fiscal gap, the proposed changes also force priorities on Quebec.
The Couillard Liberals rose to power in Quebec promising to immediately abolish the unpopular Health Tax, only to then announce they would phase out the Health Tax between 2017-2019 in two years time (which isn’t exactly what “immediately” invokes in one’s imagination.) As Quebec’s fiscal situation improved, that plan was accelerated: the tax would be abolished wholly by 2018. By last fall, Quebec’s health minister announced it expected the province would abolish the Health Tax this January without a gradual phase-out at all because of Quebec’s posting of a higher-than-expected surplus.
These ‘good tidings’ as it were are representative of Quebec’s situation on health – which isn’t as dire for Quebec as it is for Ontario (where a health funding cut could sink their re-election chances) – and it’s that the lack of urgency which comes as both an advantage and a disadvantage to the federal government while negotiating an agreement with Quebec.
On the one hand, Quebec’s fiscal house is largely in order; its debt-to-GDP ratio is far more controlled than Ontario’s, thus Quebec shouldn’t require as generous a counteroffer. But on the other hand, it has the freedom to refuse deals and pressure the federal government that Ontario can’t – the PLQ is doing well in the polls, for starters – and any increases to the health transfers they can muster would give them more fiscal room for budget planning to survive the $759M shortfall in lost revenue from the Health Tax, especially as the Couillard government sets its sights on income tax reductions on the distant horizon.
Quebec’s instance along with Ontario that the federal government should pay for a quarter, up from 22%, of Quebec’s health spending, represents a ludicrous high bid (higher even than the proposed 5.2% elevator) to be negotiated down. It seems more likely to me that Ottawa might back away from its targeted funding scheme to appease the province’s coffers but at a cost; a smaller payout (say, $2B over 10y) than what would be expected with the current offer on the table but with greater independence. The smaller sum would in turn deter other provinces from pursuing the offer, keeping the Trudeau government’s hopes for targeted funding intact.
Health before carbon taxes: Manitoba
Manitoba Premier Brian Pallister made headlines in December for suggesting he wouldn’t sign onto the Pan-Canadian Framework on Clean Growth and Climate Change until the province reached a health agreement with Ottawa. Pallister’s assertion is that Manitoba’s uniquely large aboriginal population, in addition to its mental health issues and problems with chronic disease, means healthcare must come first as a priority for the province. And in that respect, the premier has positioned himself in a shrewd position: first, against carbon pricing, and second, against intergovernmental action on the climate file entirely.
But reaching an agreement with Manitoba on healthcare will be anything but easy. Although Manitoba’s health spending per capita is the second highest of the provinces and it’s not expected to balance any budget for the next eight years, its rosy economic growth outlook, which is outpacing the national average, sets Manitoba apart from its peers (except British Columbia) as the only province that can expect to sustain its health spending without cutbacks or tax hikes.
The province’s health minister, Kelvin Goertzen has also voiced his opposition to the federal government’s plan to use targeted funding, finding provinces in a better position to judge their own provincial interests. “I know that there are priorities on Sussex Street in Ottawa but there are priorities on Main Street in Winnipeg and they don’t always match up,” said Goertzen, as if homecare and mental health aren’t priorities on “Main Street”. “We believe that the provinces understand where their priorities are best in health care.”
Only until Ontario or Quebec cave will a province like Manitoba feel any pressure to sign a health agreement with the federal government; their strength in the standoff depends on the presence of other bigger provinces continuing negotiations. For that reason, Manitoba’s officials have continued to emphasize the relative size of the provinces remaining in negotiations in terms of population, in addition to pushing for multilateral talks where the voices of premiers can outnumber the federal government and pressure the prime minister: “There should be a long-term discussion on this with the premiers and the prime minister, not over crumpets and bits during a supper,” said the health minister, apparently uninviting himself for supper at Sussex Drive.
Manitoba is a more or less perfect storm, which sets itself apart as one province to watch, not only in the ongoing health funding dispute, but in the future federal election. As a prairie province with a large aboriginal population it is both activist and industrialist; it features some of the country’s strongest pipeline opponents and its loudest pipeline advocates. Pallister has simply tied healthcare as an issue to the larger weave of issues at play for Trudeau: climate change, pipelines, aboriginal reconciliation, the cost of living and the oil and gas industry. In doing so, Manitoba has become a tricky minefield to negotiate; one that’s representative of the challenges that lie ahead for the prime minister.
“The Comeback Kid”: British Columbia
In British Columbia’s case, the predicament facing Premier Christy Clark is far simpler than the other premiers – the province’s election isn’t simply looming, its writs are near dropped – BC goes to the polls this May. Therefore, the disagreement over the health transfer elevator, like any fight with Ottawa, is just another opportunity that’s presented itself to show off Clark’s most impressive quality to voters: her ability to bargain and pressure the federal government. In some ways this is good news for Trudeau’s Liberals, it means Clark will want to reach a deal to have something to show for her hardheadedness, but it also means that a deal won’t come without significant wrangling and publicly so.
This is a approach that Clark has practiced time again and time again. Since delaying the CPP negotiations as the sole holdout and refusing to sign onto a climate change plan until it treated BC “fairly”, Clark’s “five conditions” deal which she drew as a line in the sand (in front of any pipeline hoping to reach tidewater, that is) proved to be another major victory for her government when Trudeau approved Kinder Morgan this year only after Kinder Morgan first sought to meet Clark’s conditions. It’s a recipe for success that Clark likely hopes to replicate come May: posture her government against Ottawa on healthcare, bargaining hard and furiously to draw the best concessions she can hassle out of Morneau in a most public display of high stakes bargaining.
And posture, BC has. Terry Lake, the province’s health minister, has repeatedly stated that no separate agreement will be negotiated with Ottawa – decrying the entire bilateral process as a “divide and conquer” approach. Indeed in December, Lake went as far as to say he wasn’t sure if he would even attend the meetings to negotiate a new Health Accord: “I really don’t feel the justification to be going all the way to Ottawa,” Lake told journalists, saying that he would need to see something more “concrete” in terms of a proposal.
But timing is ultimately running out for an agreement to be reached, not only with BC but with any of the remaining holdout provinces. For starters, Ottawa is set for an early budget this year reportedly; it looks to have its budget printed by February 28, which means the details of the budget will have to be finalized in the coming weeks.
Meanwhile some commentators will be asking, rightfully so, whether this approach – this “divide and conquer” tactic as Lake put it – is the “real change” that Trudeau’s government promised? Perhaps not. An acrimonious standoff with the provinces isn’t exactly what people had envisioned when the prime minister had promised to work together with the provinces. But dealing with the provinces was never going to go smoothly. These fights always seem to bear a bipartisan ugliness; one where bigger budgets come to represent departmental success and smart bargaining is all that stands in the way of burgeoning costs and the political deterioration of evidence-based policymaking.
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