How Canada's health system contributes
to a more equal society.
THROW: New study shows
publicly-funded healthcare also a form of income redistribution
By Michael
Wolfson
Expert
Advisor
EvidenceNetwork.ca
OTTAWA, ON/
Troy Media/ - The Canadian Institute of Health Information (CIHI) recently
released a new study on the impacts of Canada’s publicly-funded
healthcare on income inequality. Overall, healthcare spending amounted to
over $200 billion in 2012. Of this amount, over $140 billion was financed
by federal and provincial tax revenues.
While these
grand totals are published every year, the latest CIHI study is unique in
that it breaks down both healthcare spending and the taxes used to finance
it by income groups. With the trend toward growing income inequality, this
study shows the powerful equalizing impact of publicly-financed healthcare
in Canada.
Of course,
in part, this redistribution should not be surprising. Canadians tend to
have their highest incomes in middle age, so this is the stage of life
when tax payments are also highest, while their healthcare needs are
lower. Health care use is highest at older ages, when incomes and
therefore taxes paid are lower. As a result, a considerable amount of the
income redistribution embodied in the publicly financed portion of our
healthcare is simply redistribution across age groups. In this regard,
healthcare has some parallels with public pensions – we pay taxes and
make contributions during working ages, and draw benefits when we are
older.
From another
perspective, however, this redistribution may be overstated. Most of us
will pass through both middle age and old age. So looking over a longer
time frame than a single year, some of the redistribution embodied in the
publicly financed portion of our healthcare is from ourselves when we are
young or middle aged to ourselves when we are older.
The new CIHI
study is novel because it includes this kind of lifetime perspective. For
example, assuming the patterns we observe in the 2011 data were held fixed
over our lifetimes, Canadians could expect to use an average of $220,000
of publicly financed healthcare.
What’s
worth noting is that the top income group – quintile or fifth of the
population – has a life expectancy about five years longer than the
bottom fifth. At the same time, those in the bottom fifth of incomes not
only have shorter lifetimes, they also have more illness during their
years of life. The CIHI study takes account of both the fact that higher
incomes are associated with significantly longer lifetimes, and that
higher incomes are associated with lower rates of disease.
Using this
unique lifetime perspective, the CIHI study estimates that the top fifth
receives 6.6 times as much income before income tax as the bottom fifth.
Switching to disposable income, total income less income and payroll
taxes, the gap falls to 5.1 times. And when the value of publicly financed
healthcare is added, the gap between the top and bottom fifths, again
using lifetime income, falls to 4.3 times.
The bottom
line: even after netting out the age factors and the differences in life
expectancy, publicly financed healthcare in Canada plays an income
redistribution role as important as income taxes.
One
important limitation of the CIHI study is that it does not look into how
much health we are getting for our healthcare dollars. Unfortunately,
there is plentiful fragmentary evidence that many of the dollars spent on
healthcare have no health benefits whatsoever.
Another
limitation is that the CIHI analysis draws on only a snapshot of data from
2011. As a result, it is unable to consider a number of important trends.
One of these is federal-provincial fiscal transfers. Through programs like
Equalization, and the Canada Health Transfer, the federal government
provided over $50 billion to the provinces in 2011, much of which was used
by the provinces to help pay for hospitals, physicians, drugs and other
healthcare costs.
Recent
federal budget changes, though, have shifted the trend line, so that these
fiscal transfers will grow more slowly. At the provincial level, tackling
budgetary deficits is placing further downward pressure on the growth of
spending for healthcare. As a result, the amount of income redistribution
occurring via publicly financed healthcare could well decline over coming
years.
The CIHI
study adds important new information we can use to track these changes;
the analysis should be expanded. With the broad trend toward increasing
inequality in market incomes, the role of the public sector, through both
progressive taxation and providing essential services like healthcare, is
fundamental to maintaining a more equitable, healthy and convivial
society.
Michael
Wolfson is an expert adviser with EvidenceNetwork.ca, and Canada Research
Chair in population health modeling/populomics at the University of
Ottawa. He is a former assistant chief statistician at Statistics Canada,
and has a PhD in economics from Cambridge.
