In January 1935, Prime Minister Bennett shocked his colleagues and the Canadian public by announcing the end of capitalism and calling for a Canadian version of Franklin D. Roosevelt’s “New Deal.” As part of the legislative reform package, his government passed an Employment and Social Security Act, which included a provision for research into the creation of a national health insurance plan. When Mackenzie King and the Liberals returned to power, this legislation was sent to the Supreme Court of Canada, where it was declared ultra vires, or beyond the legal powers of the federal government. Faced with growing public demand for either federal action or federal funding in social security fields, Mackenzie King appointed a Royal Commission on Dominion–Provincial Relations in 1937. He named judges Newton Wesley Rowell of Ontario and Joseph Sirois of Quebec as co-chairs and, with the other members of the commission, they began to travel across Canada to hear briefs on all aspects of the issue.
Medical experts in Alberta and British Columbia urged the commission to consider their health insurance plans as blueprints for a national system. In recognition of the importance of this topic, the commission asked a University of Toronto social scientist, A. E. Grauer, to prepare a report on public health services in Canada. After circulating a draft version to provincial health departments, Grauer submitted the final report to the commission in 1939. His report highlighted the range of health problems facing Canadians and the limited financial and human resources of the provinces and municipalities, while acknowledging the restrictions imposed by the British North America Act. But, as he also observed:
The functions of the Dominion Health Service are, in the main, three. First, to take care of the health functions specifically assigned to the Dominion Parliament; second, to co-ordinate health policy throughout the country as much as possible, to promote uniform standards of health practice and to give leadership through research, education and publicity; third, to deal with interprovincial health problems beyond the control of individual provinces. (A. E. Grauer, Public Health: A Study Prepared for the Royal Commission on Dominion–Provincial Relations [Ottawa: King’s Printer, 1939], pp. 60–61)
His solution to the existing problems was the creation of conditional grants that would enable provinces to meet national standards, since constitutional amendment seemed unlikely.