Let’s Reinstitute Health-Care Premiums: Tax money raised should replace existing sources dollar for dollar.

The giant hole in the Alberta budget arising from the drop in oil prices and government revenues from non-renewable energy resources has spurred Albertans to think about possible ways of restoring the government’s fiscal health.

Early off the mark with a suggestion was Dr. Richard Johnston, president of the Alberta Medical Association, who wants the province to resurrect health care premiums as a way of providing health care with “a sustainable, predictable source of revenue.” Before they were eliminated by the government in 2008 — following a big increase in oil prices, as it happens — health premiums cost around $1,000 per family and $500 per individual and generated around $1 billion in revenue.

We think Dr. Johnston is on to something. A health-care premium not only raises a good deal of stable, reliable revenue but, if well designed, also has the potential to spur innovation and increase efficiency in the health-care system. It is important to understand what the current way in which sustainability in revenue has been achieved has meant for health care. Since 2001, large annual increases in the health-care budget have seen health spending grow from eating 23 per cent of the government’s revenue to 45 per cent. Predictability appears to have achieved little, other than making whatever health care we have been provided more expensive; there has been little movement on areas of health-care reform that would have potentially restrained the rise in health-care spending and improved health outcomes.

This disappointing result is due to the way in which predictability in health-care funding has been achieved. Since 2000 health care has been increasingly funded by the oil royalties.

In the late 1990s personal income tax revenue, were it all devoted to this one purpose, was nearly sufficient to pay health care costs. Today, income taxes are enough to pay less than 60 per cent of health-care costs. This is exactly the problem Dr. Johnston points to; we are relying far too much on uncertain sources of revenue to pay for something as important as health care.

We support the AMA’s suggestion that sustainable and predictable funding should be achieved with the reintroduction of the health-care premium. However, we would add an important proviso. Tax dollars raised through the premiums should substitute, dollar for dollar, for income tax revenues, oil royalties and borrowed monies currently funding health care. Future increases in spending should be met with increases in the health-care premium.

Research conducted at the School of Public Policy has shown how general tax revenues, federal cash transfers and oil royalties disguise the true price of health spending, leading to an inflation of health-care expenditure. A dedicated health-care premium will let Alberta voters confront the cost of health-care spending, which should presumably encourage them to hold administrators and stewards of the system more accountable for how dollars are used in medical treatment.

To sharpen the focus on encouraging efficiency, the health-care premium could be rebranded a physicians’-services premium. The premium could be set to fully fund the budget for physician services, currently $4 billion in Alberta. While the premiums required would be three to four times greater than those levied in 2008, this would be a source of stable and predictable funding and when the AMA and provincial government negotiate over physician fees and compensation, all stakeholders, especially taxpayers who until now have been absent from the negotiations, will understand where the additional revenue will come from. We expect voters would take more interest in what they get in return for their money.

And we needn’t stop there. It is estimated that while physician compensation is only 15 per cent of total health spending, physicians influence 75 per cent of all health spending. Physicians, not the government, have the power to address inefficiency and wasteful spending in health care; indeed, physicians are adamant that they be recognized as the guardians of what is needed in health care.

So let’s offer the AMA an incentive plan. For every dollar in the non-physician health care budget freed up from improved performance of the health-care system half of the demonstrated savings go to the budget for physician services and half goes to the government for reinvestment in the medical-treatment system or to reducing the deficit.

This final piece of the proposal will not be easy. We will need indicators for system quality, access and cost. But by creating a revenue system and a clear contract for how system improvement will benefit all stakeholders, we will hopefully create the incentive structure to spur the AMA to take a leading role in sustaining the medical-treatment system.