Ontario’s Health Premium is Not the Answer

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Appeared in the National Post

Ontario’s new health premium, which kicked in last month, is not the answer to the province’s health care financing troubles. In fact, the premiums -- which now cost taxpayers between $150 and $450 per person, depending on income -- will have to triple by the 2007-08 budget-year if revenues are going to keep up with the rate of growth in health care spending.

Simply put, public spending on health care is growing much faster than government revenues. The 2004 Ontario Budget shows that it now swallows about 42% of total revenues from all sources, up from around 25% when medicare was first established more than three decades ago. And projections show that, without new taxes, health spending will take up an even larger share of total revenues in the future, reaching 50% of all revenues by 2013, 60% by 2017, 75% by 2023 and theoretically 100% of all provincial revenues by 2030.

Since the new premium is not linked to growth in health care costs, personal income or economic growth, it will only cause a one-time spike in revenues. The revenue-boosting effect will end when this year’s premiums double in 2005. After that, revenue growth from all sources will remain virtually flat.

The Ontario government seems to be ignoring the coming crunch. On average, health care spending has grown by 5.9% annually after inflation since 1999 -- a sum consistent with historical growth rates. Yet the provincial budget projects that health spending will grow by only 1.4% after inflation. This is 4.5% below actual trends, and entirely implausible.

If trends continue as expected, health spending will eat up larger and larger portions of total revenue every year, reducing the money available for other public services such as education and infrastructure renewal.

While Ontario’s Liberal government pledged not to increase taxes when it was elected to office last year, it got around that promise by introducing health premiums. This seems to imply that the government intends to rely on premiums to fund future increases in health care spending. But if Ontario wants to keep public health care expenditures at a constant percentage of general revenues and fund all excess costs through the new health premium, then the current premium charges will have to be repeatedly jacked up until, by 2014, they are 10 times what they are now.

Those who favour paying a constantly growing share of their income in taxes and premiums to support the current approach to health care financing should ask themselves how much is enough. Eventually, continually rising taxes will cause economic stagnation, high unemployment, low productivity and declining standards of living.

There are more rational options available. If premiums were restructured as deductibles -- that is to say, user fees charged to those who use the health system -- they would be more likely to contribute to the long-term sustainability of health care financing. By discouraging the frivolous use of the health system, deductibles would shorten waiting times, produce savings for taxpayers and restrain the growth rate in future public expenditures.

In 2002, recognizing the necessity for sustainable financing, Roy Romanow’s health-care commission recommended charging deductibles for pharmacare. The same reasoning applies to medicare.

Going further, a parallel private system would help to relieve demands on public resources. This two-stream approach is used in many other countries, including much of Europe, where public and private health care systems complement one another.

The Canada Health Act and the dogmatic devotion to status quo medicare it has spawned may have convinced the Ontario government that it had no choice but to raise revenues and spend more money on the public health system. It is time Ontario enacted rational reforms, rather than trying to wish away the spiraling costs of our current health care system.

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