A Needs-Based Allocation Formula for Canada Health Transfer

We analyze the expected impact of the new Canada Health Transfer (CHT) on the capacity of Canadian provinces to provide universal Medicare coverage. We found the new CHT formula, recently redesigned by the federal government, fails to address the differing capacity of provinces to provide Medicare coverage due to the unavoidably higher costs imposed by the population's age structure and geographical dispersion. We propose a modified capitation formula that adjusts for these “unavoidable” cost factors. The redistributive impact on the provinces is examined as well as the extent to which the proposed CHT fits with other federal transfer, especially Equalization.