A version of this commentary appeared in the Globe and Mail and Calgary Beacon

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New healthcare tax needs to be tied to health spending


The Prentice government announced that it will restore the use of healthcare taxes so that Albertans can directly contribute to the healthcare system.  On the surface, levying up to $1000 per person earning over $50,000 per year to contribute approximately $0.5 billion over two years towards an $18 billion medical treatment system sounds reasonable.  But dig a little deeper and the tax looks less a cure for the health system and more of what ails it already.

Prior to the budget, the government indicated that it was considering the use of visible healthcare premiums that would contribute directly to healthcare spending — a transparent mechanism.  What Albertans are actually getting instead is a new tax purported to be for health that will merely be absorbed into general revenues. A health-specific tax tied to health spending would at least offer the hope of introducing government accountability by shedding light on perpetually rising healthcare costs.  What we get instead is nothing more than an open ended commitment to pay a tax should the government fail to “bend the healthcare cost curve.”

In work published through the School of Public Policy at the University of Calgary, we have shown the sizeable inflationary impacts on health spending when voters do not face a clear tax linked to the price of the spending. The “fiscal illusion” created by obscuring how healthcare spending is financed is estimated to have added $6.75 billion to public healthcare spending in Canada from 2001 to 2008.

Where government spending is more clearly tied to tax prices or out-of-pocket costs, such as in education, we have seen greater public demand for spending restraint, particularly for teacher incomes, and calls for accountability in education outcomes. In the context of the payroll tax financed Canada Pension Plan, concerns over the rate of increase in the contribution levels resulted in dramatic reforms to the plan in the late 1990s that included pre-funding some of the plan’s future liabilities.

Since the Premier has not tied the new healthcare levy to any specific expenditures in the healthcare system, such as physician billings or patient use of the system, the levy should be interpreted as just another tax with no purpose other than to raise revenue for a government interested in perpetuating the Canadian tradition in healthcare of avoiding tough choices. This is unfortunate since Alberta needs to make some tough choices if the publicly funded medical system is to be sustained and the province is to address its deficit.

Government healthcare spending in Alberta is approaching half of all government expenditure.  Stephen Duckett was one of the earliest commentators to point out that when it comes to healthcare, compared to other provinces, Alberta spends a lot per person and achieves middle of the pack health outcomes and access to necessary services.  By definition, this defines Alberta’s as an inefficient healthcare system.

But there’s room for hope.  The Prentice health care levies could change the health system for the better if it was implemented as a measure of accountability for healthcare system performance. Wouldn’t it be great to see a government with the incentive to change from a passive bill payer to fulfilling its actual role of being an effective purchaser of healthcare services?

A transparent health levy tied directly to health expenditures could make this a real possibility.

Imagine a “Prentice Premium” that would limit taxpayer tolerance for inefficient and unnecessarily costly provision of medical treatment. Studies have shown enormous costs linked to inappropriate health services, unnecessary referrals and an unwillingness to resource the health system appropriately beyond the scope of hospitals and doctors.

Imagine a “Prentice Premium” that would activate voter demands for a patient oriented medical treatment system that operates beyond the 9 to 5, five day a week schedule when healthcare needs don’t follow a regular work week. And, after 75 years of talking about it, voters may demand the government make the prevention of chronic disease a priority.

I applaud the Premier’s new health premium only if it will introduce meaningful accountability into healthcare spending. Because if this government cannot manage its responsibility to procure high quality, patient oriented and cost-effective health services in return for Albertan’s high level of public spending, then voters might feel it is time to let a new government give it a try.

Herb Emery is an expert advisor with EvidenceNetwork.ca and the Director for Health Policy, School of Public Policy, University of Calgary.  

April 2015

This work is licensed under a Creative Commons Attribution 4.0 International License.