OTTAWA/Troy Media – Canadian Institute of Health Information (CIHI) recently released a 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.
The CIHI study breaks down healthcare spending and the taxes used to finance it by income groups.
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. Looking at 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 CIHI study 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. Those in the bottom fifth not only have shorter lifetimes, they also have more illness. 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 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.
– Michael Wolfson is an expert adviser with EvidenceNetwork.ca, and Canada Research Chair in population health modelling/populomics at the University of Ottawa.
