Looming Healthcare Costs Threaten Tax Hikes Unless Focus Shifts to a New Approach

Posted on March 31, 2022 in Health Debates

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CDHowe.org – Public-Policy-Research
March 29, 2022.   Don Drummond, Duncan Sinclair,

A serious conversation about fundamental changes required to tackle rising cost pressures in Canadian healthcare is long overdue. A new C.D. Howe Institute study demonstrates the importance of controlling Canada’s healthcare costs and improving its efficiency, unless we are prepared to fund the rapidly increasing cost burden. In Fixing, Funding, and Reforming Health Services, Don Drummond and Duncan Sinclair demonstrate the case for shifting healthcare’s focus to outcomes and cost containment, through greater efficacy and efficiency, to avoid substantial tax hikes.

“We present scenarios easy to understand and to reproduce, based on reasonable assumptions, sufficient to ‘ballpark’ the potential size of the funding challenge,” notes Drummond.

Without significant changes to the approach taken in healthcare, estimates of spending scenarios in the next 15 years peg the possible cost ballooning to $180.7 billion in excess of revenue growth. Even after the COVID-19 related budget impact, signs continue to point to an increase in cost – pharmacare and dental care are prime examples – which requires examining how it will be funded, and how it can be controlled.

Hardest hit will continue to be the provinces and territories. A rise in taxes for an already highly taxed population would be particularly unpalatable; at the provincial level, a 6 percent per annum healthcare spending growth rate would eventually require an almost 20 percent increase in total tax revenue; if it were to be funded by sales taxes alone they would need to double. With a federal pledge to increase transfers to the provinces, Ottawa, too, will be forced to find new sources of revenue to cover these investments. The authors explore the alternatives for raising the needed revenue in the overall tax system (in particular the GST/HST and Carbon Tax) or through user fees, an income-tested tax based on utilization, and/or health premiums.

There are other solutions. For example, focusing on alternatives to institutional long-term care such as improvements to homecare and community-living supports can help reduce costs (in addition to benefiting seniors). Improving Canadians’ overall health and controlling cost pressures will require substantial reform, with a renewed focus on good health promotion in lieu of the historic overemphasis on treating illness.

“This approach has yet to be implemented in any serious way in this country,” says Sinclair. A fundamental shift in approach now may be the antidote needed to ease the healthcare cost squeeze in the future.

Read Full Report:  https://go.pardot.com/e/230862/-and-reforming-health-services/26j9x6/515052641?h=tFAh_iyJWK6IDyNBT7kPDf0QmZdh0kpwBJoVkgfhXFc

For more information contact: Don Drummond, Duncan Sinclair, or Andrew Logan, Communications Officer, Phone: 416-865-1904 Ext. 9997, alogan@cdhowe.org
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada’s most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.



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