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Federal health cash transfers in particular are contentious given that they have declined over time as a share of provincial health funding. Moreover, providing them on an equal per capita cash basis does not really account for provincial diversity. The question is: Should health transfers be paid out on a per capita cash basis or in a manner that addresses regional differences in health? The general purpose of federal transfer payments is to assist the provinces in providing reasonably comparable levels of public services at reasonably comparable levels of taxation. The previous health transfer formula could be considered unfair in that Alberta received substantially less cash per capita. However, both the old and new formulas can be considered unfair in that they ignore that some provincial differences in health spending are rooted in population health differences. This is not saying that health transfers should necessarily be a venue for fiscal equalization there is already a program for that. Rather, it makes some sense for federal health transfers to incorporate the recognition of differences in health status and population characteristics. A blended formula Just as we acknowledge the impact of differences in fiscal capacity on the ability of provincial governments to offer reasonably comparable levels of services at reasonably comparable levels of taxation via the federal equalization program, so do we need to recognize the impact on health spending of provincial differences in health status and population characteristics such as aging. The solution? There should be a blended formula that combines the need for base core funding with the simple concept of fairness rooted in historic precedent equal per capita funding with recognition that differences in population characteristics and demographics create different regional spending pressures. The Canada Health Transfer payment should be broken into two components. The first component should be an equal per capita cash payment recognizing the fixed costs of operating a health system with a reasonably comprehensive range of services no matter the size of the province. The second component needs to base the payment on a formula that takes into account population growth, differences in the aged proportion of population, and perhaps even differences in the incidence of illnesses. Only then can the federal health transfers really be fair. Livio Di Matteo is Professor of Economics at Lakehead University and an expert advisor with EvidenceNetwork.ca