Paying More, Getting Less 2004

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The new Ontario Health Premium as described in the 2004 Ontario budget is not structured like a true insurance premium. Normal health-insurance premiums, like those used to finance life, automobile, and home insurance, are designed to cover the cost of all expected future benefit payments to members of an insurance plan. Insurance premiums, therefore, are designed to link the expected use of insurance benefits to the future cost of providing those benefits and, thereby, partially create a financial incentive for the insured to avoid making claims unless absolutely necessary.

But Ontario's new Health Premium does not link health-care costs to a person's potential use of the system. Instead, the new premium is partially linked to a person's income level and capped at a maximum dollar amount within selected income groups. In fact, it is estimated that nearly 4 million people will not have to pay it all. The new premium will have no effect on making health-care consumers more responsible about their demands for medical services in Ontario because it will not link the cost of care to an individual's use of care prospectively, retrospectively, or at the point of service. Therefore, it will have no impact on controlling the demonstrably unsustainable growth in the costs of the health system. Furthermore, because the new premium is not fully indexed to the expected growth in government spending on health care, it will not cover the additional future costs of health care and is, therefore, an inadequate means of making public financing more sustainable over the long term.

If the new premium is expected to make an effective contribution to the sustainability of public health-care financing, the structure of the premium will have to be changed in the future. The new premium could be linked to an individual's potential use (risk rating) or actual use (experience rating) of the system as is done with all other types of insurance premiums. However, both of these approaches to health-care financing will be politically unacceptable as long as the public favours the redistribution of costs on the basis of income instead of use. Furthermore, on their own, these types of measures are not fully capable of reducing the over-use of healthcare. As private-sector insurers have discovered, a combination of risk- and experience-rated premiums as well as front-end deductibles or other forms of user charges and co-payments are necessary to make the insured behave responsibly when demanding the benefits of insurance.

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