Tax-Assisted Approaches for Helping Canadians Meet Out-of-Pocket Health-Care Costs
DOI:
https://doi.org/10.11575/sppp.v9i0.42592Abstract
Canadians are not saving for the inevitable costs of drugs and long-term care which they will have to pay for out of pocket in their old age, and these costs could potentially be financially devastating for them. Later in life, when out-of-pocket health-care costs mount, those who previously enjoyed the security of a workplace insurance plan to cover such expenses will face a grim financial reality. Many aspects of care for older Canadians aren’t covered by this country’s single-payer health-care system. Besides prescription drugs, these include management of chronic conditions by ancillary health professionals, home care, long-term care, and dental and vision care.
Statistics show that in 2012, Canadians’ private spending on health care totaled $60 billion, with private health insurance covering $24.5 billion of that amount. Coverage of health-care costs that don’t fall under Medicare’s purview is at present rather piecemeal. The non-refundable federal Medical Expense Tax Credit covers expenses only after the three-per-cent minimum, or first $2,171, of out-of-pocket costs have been paid by the individual. The Disability Tax Credit is available to those with a certified chronic disability, and these individuals are eligible for further support via the Registered Disability Savings Plan. A Caregiver Tax Credit is also available.
The federal government has a golden opportunity to provide an incentive for Canadians to set aside money to pay not only for the often catastrophic medical and drug costs that can come with aging, but also to save so they can afford long-term care, or purchase private health insurance. Too many Canadians, unfortunately, believe
that the federal government picks up the tab for long-term care. In fact, provincial subsidies are provided on a means-testing basis, thus leaving many better-off Canadians in the lurch when they can no longer live alone and must make the transition to long-term care.
Providing more generous tax treatment of current and future out-of-pocket health costs, including insurance premiums, is an obvious way for the federal government to support Canadians to meet their health care needs and improve their well-being. Two existing vehicles can play an essential part of this plan. The government can change the currently non-refundable Medical Expenses Tax Credit and the refundable Medical Expenses Supplement so that out-ofpocket health-care costs are eligible from the first dollar. This would place no added burden on government if the exemption of employer-provided health benefits from employees’ taxable income were removed.
Making an altered METC available to Canadians who pay their out-of-pocket costs from a registered health savings vehicle, which could be created within an RRSP to avoid extra administrative burdens, would provide them with an incentive to save. They could then either self-insure for future out-of-pocket health costs, or purchase private health insurance. A grant component could be added for lower-income families to make such savings incentives more widely diffuse.
Treating health benefits as taxable income subject to the modified Medical Expenses Tax Credit would address efficiency and equity issues with the existing tax treatments of health-care costs while extending tax assistance for out-of-pocket costs to more of the population. When the onus for decision making about payments and insurance purchases is placed on consumers, cost containment in health care and quality improvement incentives naturally follow.
References
Blomqvist, Åke and Colin Busby, 2014. “Paying for the Boomers: Long-Term Care and Intergenerational Equity,” C. D. Howe Institute Commentary, no. 415. (http://www.cdhowe. org/pdf/Commentary_415.pdf )
Boychuk, Gerard, 2008. National Health Insurance in the United States and Canada: Race, Territory, and the Roots of Difference. Washington D.C.: Georgetown University Press.
Busby, Colin and Jonathan Pedde, 2014. “Should Public Drug Plans be Based on Age or Income?” C. D. Howe Institute Commentary, no. 417. http://www.cdhowe.org/pdf/ Commentary_417.pdf)
Butler, James R. G., 2002. “Policy Change and Private Health Insurance: Did the Cheapest Policy do the Trick?” Australian Health Review, vol. 25, no. 6: 33-41.
Campbell, Colin, 2013. “J. L. Ilsley and the Transformation of the Canadian Tax System: 1939-1943,” Canadian Tax Journal / Revue fiscale canadienne, 61(3): 633-670.
“Canadian White Paper on Employment and Income,” Federal Reserve Bulletin, June 1945, 536-549.
Canadian Institute for Health Information (CIHI), 2005. “Exploring the 70/30 Split: How Canada’s Health System is Financed,” Ottawa: Canadian Institute for Health Information.
CIHI, 2008. “Drug Expenditure in Canada, 1985-2007,” Ottawa: Canadian Institute for Health Information.
CIHI, 2014. “National Health Expenditure Trends, 1975 to 2014,” Ottawa: Canadian Institute for Health Information.
Deber, Raisa B., 1999. “Medical Savings Accounts: A Fine Idea Unless You’re Sick,” Health Policy Forum 2 (1): 4-5.
Deber, Raisa B., Kenneth C. K. Lam and Leslie L. Roos, 2014. “Four Flavours of Health Expenditures: A Discussion of the Potential Implications of the Distribution of Health Expenditures for Financing Health Care,” Canadian Public Policy/Analyse de politiques XL(4): 353-363.
Department of Finance Canada, 2015. Tax Expenditures and Evaluations 2014.
Emery, J. C. Herbert, 2010. “Understanding the Political Economy of the Evolution and Future of Single-Payer Public Health Insurance in Canada,” SPP Technical Papers, The Health Series, The School of Public Policy, University of Calgary.
Evans, Robert G., 2004. “Financing Health Care: Options, Consequences and Objectives,” Chapter 5 in The Romanow Papers: Volume I, The Fiscal Sustainability of Health Care in Canada, edited by Gregory P. Marchildon, Thomas McIntosh and Pierre-Gerlier Forest. Toronto: University of Toronto Press.
Finkelstein, Amy, 2002. “The Effect of Tax Subsidies to Employer-Provided Supplementary Health Insurance: Evidence from Canada,” Journal of Public Economics 84: 305-339.
Forget, Evelyn L., Raisa Deber and L. L. Roos. 2002. “Medical Savings Accounts: Will They Reduce Costs?” Canadian Medical Association Journal, 167(2): 143-147.
Fuchs, Victor R., 1976. “From Bismarck to Woodcock: The ‘Irrational’ Pursuit of National Health Insurance,” Journal of Law and Economics 19(2): 347-359.
Hurley, Jeremiah, 2000. “Medical Savings Accounts: Approach with Caution,” Journal of Health Services Research and Policy 5(2): 30-32.
Hurley, Jeremiah and G. Emmanuel Guindon, 2008. “Private Health Insurance in Canada,” CHEPA Working Paper Series 08-04 http://chepa.org/docs/working-papers/chepawp-08-04-.pdf (subsequently published in Private Health Insurance and Medical Savings Accounts: Lessons from International Experience, edited by S. Thomson, E. Mossialos and R. G. Evans. London: Cambridge University Press).
MacInnis, Angus, 1942. “Collective Bargaining,” Quarterly Review of Commerce 9(2): 101-111.
Naylor, C. David, 1986. Private Practice, Public Payment: Canadian Medicine and the Politics of Health Insurance, 1911-1966. Toronto: University of Toronto Press.
Office of the Parliamentary Budget Officer, 2015. The Tax-Free Savings Account. Ottawa: Feb. 24, 2015.
Quadagno, Jill, 2005. One Nation Uninsured: Why the U.S. Has No National Health Insurance. New York: Oxford University Press.
Sanmartin, Claudia, Deirdre Hennessy, Yuqian Lu and Michael Robert Law, 2014. “Trends in out-of-pocket health care expenditures in Canada, by household income, 1997 to 2009,” Health Reports 25(4):13-17. Catalogue no. 82-003-X Statistics Canada
Stabile, Mark, 2001. “Private insurance subsidies and public health care markets: evidence from Canada,” Canadian Journal of Economics 34(4): 921-942.
Taylor, Malcolm G., 1957. “Financial Aspects of Health Insurance,” Canadian Tax Papers, December, no. 12. Toronto: Canadian Tax Foundation.
Downloads
Published
Issue
Section
License
The following is the copyright statement of SPPP.
Copyright © <Author name> <year>. This is an open-access paper distributed under the terms of the Creative Commons license CC BY-NC 4.0, which allows non-commercial sharing and redistribution so long as the original author and publisher are credited.
Publication Copyright and Licensing
The following guidelines and information, provided in six sections, are intended for authors (the “Author”) who are invited to write a paper (the “Work”) for The School of Public Policy Publications (the “Publisher”). The rights and responsibilities conveyed in the SPP Author Agreement will only apply once your paper is accepted for publication. At that point in the publication process, you will be asked to download the form and return a signed copy via e-mail to spppublications@ucalgary.ca. Please review the below information to ensure agreement with SPPP policies.
Section 1: Author’s Grant of Rights
In consideration of the Publisher’s agreeing to publish the Work in The School of Public Policy Publications, the Author hereby grants to the Publisher the following:
1.1 The irrevocable, royalty-free right to publish, reproduce, publicly display, publicly perform and distribute the Work in perpetuity throughout the world in all means of expression by any method or media now known or hereafter developed, including electronic format;
1.2 The irrevocable, royalty-free right to use the Author’s name and likeness in association with the Work in published form and in advertising and promotional materials related to the Work; and
1.3 The irrevocable, royalty-free right to license others to do any or all of the above.
Section 2: Prior Publication & Publication by Others
2.1 The Author agrees not to publish the Work, or authorize any third party to publish the Work, either in print or electronically, prior to publication of the Work by the Publisher.
2.2 The Author agrees not to publish the Work in any publication outlet which is substantially similar to The School of Public Policy Publications for a period of six (6) months after publication of the Work in The School of Public Policy Publications. Substantially similar is defined as a non-subscription, open-access publication outlet with a similar mandate/vision and intended audience.
2.3 Should the Author publish or distribute the Work elsewhere at any time or in any alternate format, the Author agrees to contact The School of Public Policy Publications to inform them of the subsequent publication.
2.4 Should the Author publish or distribute the Work elsewhere at any time or in any alternate format, the Author agrees to make reasonable efforts to ensure that any such additional publication cites the publication in The School of Public Policy Publications by author, title, and publisher, through a tagline, author bibliography, or similar means. A sample acknowledgement would be:
“Reprinted with permission from the author. Originally published in the The School of Public Policy Publications, http://www.policyschool.ca/publications/.”
Section 3: Editing and Formatting
The Author authorizes the Publisher to edit the Work and to make such modifications as are technically necessary or desirable to exercise the rights in Section 1 in differing media and formats. The Publisher will make no material modification to the content of the Work without the Author’s consent.
Section 4: Author’s Ownership of Copyright and Reservation of Rights
4.1 Nothing in this agreement constitutes a transfer of the copyright by the Author, and the copyright in the Work is subject to the rights granted by this agreement.
4.2 The Author retains the following rights, including but not limited to, the right:
4.2.1 To reproduce and distribute the Work, and to authorize others to reproduce and distribute the Work, in any format;
4.2.2 To post a version of the Work in an institutional repository or the Author’s personal or departmental web page so long as The School of Public Policy Publications is cited as the source of first publication of the Work (see sample acknowledgement above).
4.2.3 To include the Work, in whole or in part, in another work, subject to Section 2 above and provided that The School of Public Policy Publications is cited as the source of first publication of the Work (see sample acknowledgement above).
4.3 The Editors and Editorial Board of The School of Public Policy Publications requires authors to publish the Work under a Creative Commons Attribution-NonCommercial 4.0 International licence (CC BY-NC 4.0). This license allows others to distribute, remix, tweak, and build upon the Work for noncommercial purposes, and ensures the Author is credited for the original creation. This onward licensing is subject to section 2.4 of this agreement, which further ensures that the original publisher is credited.
Section 5: Author’s Warranties and Undertakings
The Author warrants that:
5.1 The Author is the sole author of the Work, or if a joint author, the Author has identified within the Work the other authors, and holds the copyright, either solely or jointly, and has the power to convey the rights granted in this agreement.
5.2 The Work has not previously been published, in whole or in part, except as follows:
5.3 Any textual, graphic or multimedia material included in the Work that is the property or work of another is either explicitly identified by source and cited in the Work or is otherwise identified as follows:
5.4 To the best of the Author’s knowledge, the Work does not contain matter that is obscene, libelous, or defamatory; it does not violate another’s civil right, right of privacy, right of publicity, or other legal right; and it is otherwise not unlawful.
5.5 To the best of the Author’s knowledge, the Work does not infringe the copyright or other intellectual property or literary rights of another.
5.6 The Author will indemnify and hold Publisher harmless against loss, damages, expenses, awards, and judgments arising from breach of any such warranties.
Section 6: The Reuse of Third-Party Works
The Publisher requires that the Author determine, prior to publication, whether it is necessary to obtain permissions from any third party who holds rights with respect to any photographs, illustrations, drawings, text, or any other material (“third-party work”) to be published with or in connection with your Work. Copyright permission will not be necessary if the use is determined to be fair dealing, if the work is in the public domain, or if the rights-holder has granted a Creative Commons or other licence. If either the Author or Publisher determines for any reason that permission is required to include any thirdparty work, the Author will obtain written permission from the rightsholder.
