The hidden price of health care

How much do you spend on health care every year? Trick question, right? This is Canada. Apart from hours lost in waiting rooms and the emergency ward, you don’t spend anything on health care. Compare that with the U.S., where this year’s so far fruitless debate on repealing ObamaCare at least served to educate Americans about how many thousands, sometimes tens of thousands of dollars a year people were paying for different types of policies, some of which are in danger of disappearing as insurance companies increasingly lose money on them.

The one saving grace of the U.S. system, even strong Canadian Medicare advocates have to concede, is that people generally do know what their health insurance costs. That’s not the case here, where health insurance is just … free!

Thanks to a recent study from the Fraser Institute (for which I do various kinds of work) we now do have a rough idea of how much Canadians pay for health care — though not necessarily their own health care. The amount varies a lot, depending on who you are.

Canadians at the bottom of the income distribution don’t pay very much — $471 a year (though perhaps that’s more than you’d expect). Those in the middle average $6,000-$7,000 a year while those in the top 10 per cent of the income distribution average a whopping $39,123 a year on health care. If you do it by family type — single person, couple, single mom, two-parent family two kids, and so on — it also varies a lot, from $3,994 to $12,410 a year.

Where do these numbers come from? The Fraser Institute’s researchers — Feixue Ren, Milagros Palacios and Bacchus Barua — looked at how much people paid in taxes each year and then assumed that 23.5 per cent of that money went to health care. How come 23.5 per cent? Because that’s the best available estimate of how much of the tax revenues Canadian governments haul in is spent on health care.

The numbers are surprising in various ways.

The 10 per cent of families (with families including, perhaps a little strangely, unattached individuals) that make the lowest incomes average $14,641 a year in income and pay $2,006 in tax. With income that low, maybe they shouldn’t pay any tax at all. But they do. Take 23.5 per cent of what they pay and you get $471 going to health care. Not necessarily their own health care, of course. It all goes into a government pot and comes out in services. On average, they probably consume health care worth more than $471 per year. But $471 is their contribution.

By contrast, average cash income in the top 10 per cent of families is $292,063, which generates $166,575 in tax payments, with 23.5 per cent of that, $39,123, going to health care. (Note that total taxes are more than half of the cash incomes of people in this income bracket — 57 per cent, to be exact.) Except in bad years, people at the top likely consume a lot less than $39,123 of health care services. In fact, increasingly they probably buy their own care from private sources. So a lot of their health care “spending” is for other people.

Of course, they get zero credit politically or culturally for their high average tax rates and big dollar contributions but instead are widely derided as oligarchs and rip-off artists, sometimes even by the very governments taking 57 per cent of their incomes.

In the two middle deciles, health care spending calculated this way averages $5,789 and $7,570 per year per family, so hardly chump change.

If you break it down by family type, some results are also surprising. For instance, I should have known but was surprised to learn that two-parent families with one child make on average $129,099 a year, a decent income that helps explain why house prices are high.

On the other hand, fully 41 per cent of it goes to taxes, out of which our governments spend $12,410 on health care. Single-parent families average around $60,000 per year but pay roughly 30 per cent of that in taxes, with correspondingly lower flows into the health-care pot.

The ObamaCare conundrum is all about income redistribution. How do you get young, healthy people to pay insurance premiums well above the cost of the health care they can reasonably expect to require so that older, sicker Americans can pay premiums well below the cost of the care they need on average? For the moment, the U.S. political system is stuck on that problem.

As the Fraser data show, Canadian health care also involves major income redistribution. But maybe because no one has known exactly how much that hasn’t been a political problem — so far, at least.