Health-care premiums a 'spoonful of sugar' to ease the pain of taxes: expert

For the first time in more than four decades, Manitobans may soon find themselves paying a provincial health premium.

Earlier this week, Premier Brian Pallister suggested the government could introduce a health tax to balance the budget.

If the proposal turns into reality, it will be the first premium of its kind since the province dropped an existing model in 1973.

But as Manitobans are re-introduced to the idea of a premium, taxpayers in some other provinces are saying goodbye to them.

Roughly two million British Columbians learned in February their monthly premium — called the MSP or Medical Services Plan — will be slashed in half starting January 2018, saving some families as much as $900 per year.

In March, Quebec's Liberal government retroactively axed a health premium for all residents earning less than $134,095 per year, who will get refunds on their 2016 contributions ranging between $50 and $175.

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Colin Busby, an associate director of research with the C.D. Howe Institute, said other provinces' recent moves away from premiums shouldn't give Manitobans pause.

"They've just got their fiscal house in order and they're in a strong enough financial position to do so," he said. "Manitoba's not."

So why bring in a premium in the first place?

Premiums are just another form of taxation, Busby said, and governments bring them in and eliminate them to influence budgets.

Creating a premium, as opposed to hiking PST or income tax, is all about the packaging, he said: taxpayers are more likely to support paying more money if they feel like it's going to a benefit they value.

"This is about a spoonful of sugar making the pill go down. That's really what this is. It's selling it to the electorate in a way that makes it as easy as possible," he said. "You put it in place because you really need money, you call it a health premium, and you take it away when you don't need the money anymore."

Administrative costs, potential erosion of trust

In 2002, a national health care report by the Standing Senate Committee on Social Affairs, Science and Technology suggested earmarked taxes like premiums "may reduce public resistance to paying the tax because it is clearly associated with a use that provides benefits to the public," and noted that if the funds truly are used for the stated purpose, they can make health-care funding "more transparent and responsive."

But if funds don't have a designated pot dedicated to one purpose — say, health care — the report said the disconnect can erode public trust.

Busby said that's the case in many Canadian examples, with provinces introducing a so-called health premium that sends funds straight into general revenue.

Raisa Deber, a professor in the department of health policy management and evaluation at the University of Toronto, said any connection between paying, or not paying, a premium and the quality of care received is illegal. The Canada Health Act prohibits governments from enforcing the payment of premiums by withholding care, she said.

"It's slightly misleading, because you're not tying this to the particular services people are using," she said. "It's not like, 'If I don't go to the supermarket and buy something I'm not paying the tax for this.' Because in the case of health care, I will still have that coverage."

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Premiums are also a step back from simplicity, a value prized in tax policy, Busby said. Hiking existing taxes like PST or income tax makes the most of existing systems, but creating something new costs money.

"There are administrative costs associated with introducing, you know, a new style of tax," he said. "And the administrative costs go up to the extent that it deviates from existing structures, right, and from existing taxes."

But the model continues to be popular across the country, he said.

Rise and fall of premiums in Quebec, Alberta

"It seems like it's par for the course in Canada, in spite of the fact that really what we're talking about is different forms of taxation and the political challenges associated with raising additional revenues in Canada," he said.

Alberta, for instance, eliminated its decades-old premium in 2009, when its economy was flush and provincial leadership flirted with the idea of reinstating them before Rachel Notley's NDP government took power in 2015.

"They probably desperately wish that they had it back," Busby said. "They made a very short-sighted move based on temporary, you know, high, high revenues and they could probably use those right about now."

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In Quebec's case, the spectre of premiums was first raised in 2005 — just over a year after Ontario introduced its own, still-standing premium — at a time when Quebec's health department received $20.9 billion per year, or 43 per cent of the provincial budget, according to the Canadian Institute for Health Information.

The premium was one of several measures, including a PST hike, recommended by a committee commissioned by then-premier Jean Charest and chaired by Bank of Montreal executive Jacques Menard.

When it was released, Charest roundly rejected the idea, telling The Canadian Press, "We were not elected to increase Quebecers' tax burden; that's not our mandate."

But in a subsequent term five years later, Charest introduced a premium in 2010 in the form of an annual payment, ranging between $25 and $200 for inidividuals in different income brackets.

Five years after that, a new Liberal government under Premier Philippe Couillard posted a $2.2 billion budget surplus and announced intentions to axe the tax over the following three years. In March of this year, the government began phasing it out earlier than expected with a retroactive abolition that gave all Quebers making less than $134,095 a year a refund on their 2016 contribution.

Busby said the premium played a role in getting the province back on track.

"It helped them get the money they needed to help them get out of what was a really, really bad fiscal situation at the time," Busby said. "Probably not a lot different than [the situation] facing, you know, Manitoba these days, right?"

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Michael Benarroch, provost and vice-president of academics at Toronto's Ryerson University, said premiums in other provinces have often been regressive, allowing exemptions for people below a certain income bracket but imposing a more-or-less flat rate on everyone above that line.

"Who it'll likely hit the hardest are people in the kind of $30-$80,000 income family range. Often what they do is there's a minimum income and after that, the rate is kind of constant," he said.

"If you look at what other provinces did, if you're earning $50, $60, $70,000 you're paying just as much for this as somebody who's earning $200,000."

Benarroch, a former dean of the Asper School of Business at the University of Manitoba, said he was shocked to see the premier suggest a premium.

"I think that now that [the Progressive Conservatives have] been in power for a year and a half, they realize that the financial situation in Manitoba is very, very difficult and in order to balance the budget, there just isn't that much fat you can trim from spending," he said.

After talk of balancing budgets and lowering the PST, Benarroch said the government hasn't left itself many options if it plans to keep its promises.

"They've put themselves in a corner where they just don't have enough funds to move towards a balanced budget given the growth projections for the province and the types of tax cuts that they've already committed to on the table," Benarroch said.