Evaluation of 4.1.1 - Grants to the Government of the Northwest Territories and the Government of Nunavut for Health Care of Indians and Inuit

1.2.1 Historical Context

Health care in the territories largely developed in 1945 when the Federal Department of National Health and Welfare (now Health Canada) became responsible for delivering health care services to the Northwest Territories and Yukon. These responsibilities expanded with the creation of the Medical Services Branch in 1954^{Footnote 2}. Originally, the intent was to divide the cost of insured healthcare services between the federal government and the territorial governments equally (50/50). The GNWT and the Government of Yukon, however, struggled to meet their commitments due to a large Aboriginal population and the high expense of reaching isolated communities. In 1959, for Northwest Territories and 1960 for the Yukon, Cabinet approved annual Grants to the territories to cover 95 percent of insured hospital services costs for status First Nation and Inuit residents. In 1970, the Grant Agreements expanded to also cover 100 percent of costs for physician services.

It should be noted that insured hospital services include those that are medically necessary to maintaining health, preventing disease, or diagnosing or treating an injury, illness, or disability.^{Footnote 3} The Agreements do not include non-insured services such as dental, eye care, or mental health counseling.^{Footnote 4}

In addition to the Grants, the Northwest Territories (in 1970) and the Yukon (in 1972), joined the national medical insurance plan, which provides doctor services to all residents, whether Indigenous or not.

The Grants continued until 1977 when changes to the Financial Administration Act changed the grant arrangements into contribution agreements.^{Footnote 5} These agreements continued for both territories until 1992-1993 when National Health and Welfare devolved responsibilities to the Government of Yukon, moving all associated funding, including the Contribution from INAC, into the more general base of Territorial Formula Financing^{Footnote 6}. With this devolution process, the federal government no longer had responsibility for funding hospital and physician services in the Yukon. This continues to be the present situation in the Yukon.

As for the Northwest Territories, National Health and Welfare devolved responsibility for health care services slightly sooner, in 1986-1988. Unlike the Yukon, however, the GNWT did not incorporate the INAC contribution into its Territorial Formula Financing arrangement. At that time, agreement could not be reached with GNWT on the amount of INAC funding to be incorporated into the Territorial Formula Financing. Instead, the parties choose to keep INAC's funding as a separate contribution.

Between 1986 and 1988, National Health and Welfare devolved responsibilities for the administration of health care to the GNWT. It was devolved by region of the Northwest Territories, including a separate agreement for the devolution in the Baffin region. While responsibility for administration now belongs to the GNWT, the responsibility for funding remains with INAC.

Shortly after this devolution, INAC noticed an increase in claims during fiscal years 1987-1988 and 1988-1989. The increase has been attributed to three principle factors: the creation of new positions and the costs to maintain them after the transfer of Baffin region health care responsibilities to the GNWT^{Footnote 7}; the outstanding issue of an undetermined increase in nurses' salaries, which was not resolved before the transfer; and the rising costs of the program, which extended beyond the annual contribution amount.

By September 1992, the GNWT claimed Canada owed $110.9 million over the five-year period from 1986-1987 to 1990-1991, while Canada claimed its debt was a much smaller $78.1 million^{Footnote 8}. After a failed period of negotiations, the GNWT pursued legal action against Canada in 1992.

An out of court settlement was reached in 1995 with the agreement that Canada would pay the GNWT a one-time payment of $24 million. Due to this settlement, the Contribution Agreement was amended to include a two percent annual escalator applied to a base amount of $33.5 million in 1995. These remain characteristics of the present 2016-2017 Grant Agreements.

With the creation of Nunavut in 1999, INAC Contribution funding to the GNWT for hospital and physician services was divided, with 56.3 percent devoted to the Government of Northwest Territories and 43.7 percent to the Government of Nunavut, thereby resulting in two separate contribution agreements. Due to the creation of Nunavut, Canada, the GNWT, and Nunavut re-opened discussions on how to amend the general federal funding base of the Territorial Formula Financing. However, both the GNWT and Nunavut requested the INAC funding arrangement be continued. They expressed concern that the Northwest Territories Aboriginal Groups and Nunavut Tunngavik Incorporated would oppose having the funding incorporated into the Territorial Formula Financing.^{Footnote 9}

To respect the original Grant Agreements, the Contribution Agreements were converted back to Grants in 2005, with agreed upon terms and conditions. Currently (2016-2017), the GNWT and the Government of Nunavut continue to receive Grants on an annual agreement cycle.

1.2.2 The Grants Today

Presently, INAC provides Grants for insured hospital and physician services to the GNWT and the Government of Nunavut on an annual agreement basis. At the beginning of each fiscal year, the GNWT and the Government of Nunavut submit cost estimates to INAC to demonstrate that the Grants' funds are being applied to hospital and physician services. The estimates, however, have no impact on the Grants' funding levels, which increase by a set two percent annual escalator. As the transfer is a grant, it is the responsibility of the territory to administer the funds to the facilities and services listed in the Agreement and report on the Grant in their Public Account statements.

1.2.3 Objectives and Expected Outcomes

The Grants to the Government of the Northwest Territories and the Government of Nunavut for Health Care of Indians and Inuit are situated under The North's 4.1.1 sub-program: Political Development and Intergovernmental Relations. This program also supports the devolution of land and resource responsibilities to territorial governments and ensures that circumpolar cooperation activities reflect Canadian interests. The Grants connect to the Program Result: "Community health and safety in the North is strengthened".^{Footnote 10} The services offered by the Grants are intended to lead to better health outcomes for Indigenous and Inuit residents in the Northwest Territories and Nunavut.

The Performance Measurement Strategy for 4.1.1 Political Development and Intergovernmental Relations does not specify immediate outcomes for the Grants to Northern Hospitals. However, the final program result in the strategy states that "Community health and safety in the North is strengthened". While the purpose of the Grant is to assist in obtaining this result, without outputs to measure or Immediate Outcomes to pinpoint, it is difficult to determine if the Grants are on track to achieve the final program result. However, INAC key informants and territorial key informants both confirm that the Grants are in line with INAC priorities and the priorities of the GNWT and the Government of Nunavut.

1.2.4 Program Management, Key Stakeholders, and Beneficiaries

INAC's Northern Affairs Organization manages the Grants under the Northern Governance Branch, which ensures timely delivery of the Grants to the GNWT and Government of Nunavut.

The governments of the Northwest Territories and Nunavut are responsible for receiving and distributing the Grants to the appropriate facilities, based on a series of agreed upon terms and conditions. However, due to the nature of it being a grant rather than a contribution, INAC does not require detailed reporting from the GNWT or the Government of Nunavut to justify spending.

The intended target beneficiaries of the Grants are the applicable health care facilities and Indigenous residents.

1.2.5 Program Resources

The Northern Affairs Organization has designated one full time equivalent to manage and administer the Grants in addition to other duties.

INAC's Grant payments increase by a two percent annual escalator. The costs of the Grants, separated by territory, are demonstrated in Table 1, which shows the annual Grant amounts transferred from INAC to the GNWT and Nunavut over the past five fiscal years.^{Footnote 11}

2.3.1 Data Sources

Data was collected using multiple lines of evidence, including:

• Historical Documents: Research and background information used during the 1992-1995 legal dispute was reviewed to provide a historical context of the Grants. This information supported an improved understanding of the origins of the Grants, the extent of medical services in the North, the devolution of National Health and Welfare to the GNWT, as well as the political environment that led to the 1992 dispute between the GNWT and Canada over health care funding levels and the contribution amount.
• Document Review: The document review included the Grant Agreements with the GNWT and the Government of Nunavut from 2011-2012 to 2016-2017, Office of the Auditor General Reports from 2009-2011, GNWT and Government of Nunavut Auditor's Reports on Compliance from 2003-2005, a Special Study on INAC's Funding Arrangements, a report from the Expert Panel on Equalization and Territorial Formula Financing, and Annual Business Plans and Public Accounts of the GNWT and the Government of Nunavut from 2014-2016. The information was reviewed in line with the evaluation issues and questions and searched for consistency between the agreements, the audit reports, and the territorial Public Accounts statements.
• Media Review: News articles were reviewed to situate the Grants in the 2016-2017 northern health context as well as monitor the 2016-2017 changes to the Canada Health Transfer.
• Key Informant Interviews: From October 2016 to January 2017, 16 interviews were planned and 13 were successfully completed. Their numbers were comprised of the following groups:

2.3.2 Considerations, Strengths and Limitations

It should be noted that there are limited program elements to evaluate due to the formulaic, two percent annual increase to the Grants. Similarly, since the Grants require minimal management, there are a limited number of experts who are aware of the Grants and available for interview.

Those who do manage the Grants, however, are very knowledgeable and were valuable information resources for this evaluation.

While the Grants are detailed in terms of their history, the present administrative duties are relatively small in scale and therefore require minimal management.

4.2.1 Territorial Formula Financing

The Territorial Formula Financing is the current conduit for most federal funding to the territories. It is an unconditional transfer that helps the Yukon, the Northwest Territories, and Nunavut fund essential public services such as hospitals, schools, and infrastructure^{Footnote 20}. Finance Canada calculates the transfer based on the territory's eligible revenues (what the territory could have raised if it taxed according to the national average), its Gross Expenditure Base, relative population growth to the rest of Canada, and spending growth across Canada. Depending on the territory's economic circumstances, the eligible revenues can change from year to year and with it the total amount in the Territorial Formula Financing. While the INAC Health Grant grows at a set two percent every year, the Territorial Formula Financing can increase or decrease depending on these factors.

Throughout the evaluation, key informants indicated that, from the perspective of relevance, INAC may not be the best fit to manage these Grants. As a Grant dedicated to health in which the federal role is principally to calculate the annual transfer amounts, some key informants questioned why the Grants are not managed by a body who either has experience administering health programs or one that is accustomed to calculating Grants and Contributions. The Grants' history is the best response to INAC's involvement.

When the responsibility for National Health and Welfare devolved to the GNWT in 1988, there was a discussion between Canada and the GNWT around moving INAC's funding into the Territorial Formula Financing. However, an agreement concerning the amount to roll into the Territorial Formula Financing could not be reached so the funding arrangements remained under the responsibility of INAC. In 1998 (GNWT) and 1999 (Government of Nunavut), discussions on whether to include INAC'S funds in the Territorial Formula Financing arose again. However, being unable to obtain a consensus among territorial Indigenous groups, who favour the Indigenous-specific label of INAC's transfer, the funds were once again excluded from the Territorial Formula Financing.^{Footnote 21}

The period from 1986-1988 was the ideal time to move INAC's hospital and physician services funding for the GNWT into the Territorial Formula Financing since Canada was in the process of amending the Territorial Formula Financing transfer to account for devolving health care responsibilities to the GNWT and their associated costs. This was the perfect opportunity to devolve the INAC funding in parallel with other health care related programs and to add the equivalent costs to the Territorial Formula Financing. It becomes more of a challenge to amend and adjust the Territorial Formula Financing without the opening that devolution provides. While it is true that Nunavut is approaching a devolution period, this is a devolution of land and resource responsibilities rather than a devolution of health care services.

The appeal of the Territorial Formula Financing, however, still exists. It is currently one of the principle contributors to health care funding in the North, and includes the amount deemed necessary in 1988 to support health care services (with the exception of the INAC funding) after devolution. Finance Canada delivers the Territorial Formula Financing as a condition-free, grant-like fund, leaving the responsibility with the territories to decide where best to allocate the funds. It should be noted, however, that if INAC's funds are included into the Territorial Formula Financing, there is nothing to prevent the GNWT or the Government of Nunavut from allocating increased the Territorial Formula Financing funds to other government priorities. The only great deterrent is the GNWT's and Government of Nunavut's consistent spending patterns on health care, which calls for the need for dedicated funding.

Territorial key informants recognized a risk to including the INAC Grants into Territorial Formula Financing in that it would remove the Grants' Indigenous-specific labels. This is one concern which kept the funding from being rolled into Territorial Formula Financing in 1998-1999. Officials from the Northwest Territories, however, felt it important to indicate that the present Grant Agreement divides health care services by ethnicity.

A possibility exists to shift the INAC Grants to the Territorial Formula Financing as an appendix, therefore keeping its current structure and Indigenous-specific label, but transferring management responsibilities to another authority such as Finance Canada. This seems like an ideal option from INAC's perspective, but it would be an added Grant for Finance Canada to manage with no termination date in sight. It is unrealistic to assume that Finance Canada has the capacity to administer multiple individual programs such as this one from all federal departments.

4.2.2 Other Health Transfers

The Canada Health Transfer is also administered by Finance Canada but operates under different rules than the Territorial Formula Financing. This transfer goes to all provinces and territories to provide comparable treatment to all Canadians regardless of where they live^{Footnote 22}. The Transfer is guaranteed to grow by at least three percent per year, which currently surpasses the INAC Grants' annual increase of two percent. Adding the Grants to the Canada Health Transfer, however, raises similar issues to those mentioned above for the Territorial Formula Financing. The Canada Health Transfer is calculated based on provincial and territorial spending on health. If the Northwest Territories and Nunavut were to receive funds in addition to those calculated on the nation-wide scale, it would be considered an exception to the national rule. The Grants would therefore remain add-ons to a larger transfer, much as they would for the Territorial Formula Financing.

The evaluation team spoke to key informants from Health Canada to gauge the possibility of moving the Grants in their present format to a department with a mandate more in tune with health care delivery. The idea exists that if the Grants remain as they are, without being assimilated into a larger funding mechanism, perhaps a directorate with more experience in health care would be better placed to manage the Grants. Interviewees indicated that Health Canada could be a viable option, although, it should be noted that Health Canada traditionally manages non-insured Grants and Contributions^{Footnote 23} such as the Non-Insured Health Benefits Program, while the INAC Grants cover insured hospital and physician services.).^{Footnote 24}

5.1.1 Grant Calculations

Due to the annual two percent escalator, the transfer amounts in the agreements require minimal effort to calculate each year. Key informants from the Government of Nunavut and the GNWT as well as INAC program staff indicate a high level of satisfaction regarding the approval times of the annual agreements as well as the efficiency of payment deliveries at the end of each month.

INAC begins the monthly delivery of funding shortly after the agreements have been signed. If any payments are missed while the agreements are pending approval, they will arrive alongside the first payment after the agreements have been signed. The sooner the agreements are signed, the sooner the GNWT and the Government of Nunavut begin to receive payments, which are delivered at the end of each month. The signing dates on the agreements within the last five fiscal years indicate that approval times have been decreasing, as is shown in tables 4.1 and 4.2.

As shown in Table 4.1, the GNWT's agreement for 2015-2016 was approved in May 2015, which is much faster than the 2011-2012 approval date in October 2011. For 2011-2012, the GNWT would have had to wait seven months after the start of the fiscal year to receive funding. While all back payments are delivered alongside the first payment, the GNWT would still need to fund seven months of costs to provide the hospital and physician services without INAC support. Comparatively, receiving the first payments of the 2015-2016 year in May 2015 means there was very little lag after the 2014-2015 funding ended.

INAC key informants confirm that the Grants in their current form are easy to administer. The only significant changes to each new annual agreement are the capped total amount of funding, the program budget and expenditure plan, and the payment schedule. Although the present system appears to be working efficiently, INAC program staff indicated an internal consideration to drafting multi-year agreements. Some key informants, however, noted that the time required to calculate the funding for each year would not change.

5.1.2 Current Grant Structure

When the GNWT receives INAC's Health Care Grant, they deposit it in a collection of heath care funding from all sources, such as the Canada Health Transfer and the Territorial Formula Financing. From there, key informants indicate that resources are distributed to facilities as needed. Therefore, there may be facilities that indirectly receive funding from the INAC Grant, which are not listed in the agreements.

According to INAC program staff, the facilities are listed for historical reasons. Although their names have updated over time, those listed are the facilities, which remained under INAC funding when health administration devolved to the GNWT in 1988 and the Grant was omitted from the Territorial Formula Financing. Any new facility created after that date is officially funded by sources other than INAC.

INAC Grants are a portion of overall health care funding, and therefore can only fund a portion of territorial health care facilities. Although it is not INAC's responsibility to track the Grant, as per the agreement, GNWT informants affirm that the funds are delivered where they are needed. This system seems to be working efficiently and effectively, and there was no suggestion by INAC program staff of any need to update the agreements to include new facilities.