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Health care in Canada presents a central puzzle of fiscal federalism: provinces exercise primary responsibility for health policy, yet the federal government provides substantial financial support and seeks to influence provincial priorities through transfers and intergovernmental agreements. This paper examines how the design of federal health transfers structures this relationship, focusing particularly on the politics of conditionality. Rather than treating grants as simply conditional or unconditional, we conceptualize conditionality as varying in the specificity of policy requirements, reporting obligations, monitoring, and enforcement. We ask why federal governments often provide substantial transfers while leaving provinces considerable discretion over implementation. We argue that relatively flexible conditionality reflects the political interdependence of the two levels of government. Federal governments seek policy influence and political credit but face costs from monitoring, enforcement, and intergovernmental conflict, while provinces seek federal resources without surrendering control over taxation, spending, and service delivery. Canadian health transfers therefore illustrate how federal systems reconcile fiscal interdependence with subnational policy autonomy.