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Poverty Means Higher Health Costs

Aug 09, 2013
Glen Hodgson
Senior Vice-President and Chief Economist
Forecasting and Analysis

Poverty, poor health, and resulting higher costs for the Canadian health care system are all linked together. The sooner we take incessant poverty seriously, with structural policy action—such as a guaranteed annual income (GAI) that provides income support through the income tax system—the more likely it is that Canadian governments can bring their health care costs under control and avoid significant tax increases.

The evidence continues to mount that there is a clear link between poverty and cost pressures on our publicly funded health care system. The most recent input was provided by the Canadian Medical Association (CMA) in a study entitled What Makes Us Sick? This report was based on cross-country consultations held by the CMA and focused on the socio-economic determinants of health, specifically, adequate housing, nutritious food, and proper early childhood development.

Childhood poverty is one particular area where Canada does not stack up well. In the Conference Board’s most recent report card on Canada, How Canada Performs, Canada ranked near the bottom at 15th out of 17 high-income OECD countries in terms of the incidence of childhood poverty. Aboriginal children are particularly susceptible to being born into poverty.

The CMA report offers 10 recommendations for reducing pressures on the health care system by directly addressing these socio-economic determinants of health, factors like inadequate income, which contributes to a poor diet and limited lifestyle choices, and poor-quality housing. Addressing the root drivers of poverty directly is one way to help improve the health of all Canadians and reduce the demand for health care.

The CMA study is consistent with evidence-based research. For example, Evelyn Forget examined Manitoba’s experiment with guaranteed incomes (called MINCOME) in the 1970s and found that hospitalization rates fell by 8.5 per cent for recipients under the program compared with similar non-recipients.1 Visits to doctors declined, especially for mental health concerns, and other social indicators like school attendance and marital stability were maintained or even improved. The MINCOME experiment—which was not repeated elsewhere or scaled-up in Manitoba—appears to have had success in improving population health and reducing health costs, with few negative social costs.

So, if the link between poverty and added health costs is confirmed by the evidence, what can be done about it? The creation of a guaranteed annual income (GAI) program, administered as part of the income tax system (and replacing the existing social welfare systems that all provinces administer) could be a highly efficient and effective way to ensure that all Canadians have access to adequate income. A GAI would provide a minimum level of income for every individual or family in the country, delivered without condition through the existing income tax system. Earned income above the GAI could be taxed at a relatively low marginal rate, raising the net income for individuals and encouraging them to work.

It is therefore not a surprise that establishing a GAI is the second of the CMA's 10 recommendations for action in addressing the socio-economic drivers of poor health. As we proposed to the Finance Committee of the Ontario legislature this past spring, a guaranteed annual income pilot project in one or more provinces would help to demonstrate whether budgetary savings on health care can actually be realized. A GAI pilot project would also show whether labour force engagement is improved for recipients, and savings achieved on public administration.

What if Canadian governments do nothing new or innovative to address poverty? Health care funding now absorbs up to half of provincial budgets and the pressure will continue to grow. All provincial governments are scrambling to bring health care spending growth under control, while searching for additional revenues. Quebec has already raised provincial sales taxes by two percentage points, and it won’t be the last province to do so. Without more creative thinking on how to reduce pressure on provincial health budgets—such as by addressing poverty head-on—taxpayers will end up paying more to finance health care. So we can either let the status quo unfold, or get creative in the design and implementation of public policy to create a healthier population in Canada.

1  Evelyn L. Forget, "The Town with No Poverty," Canadian Public Policy 37, no. 3 (September 2011), 283–305.

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A Big Idea Whose Time Has Yet to Arrive: A Guaranteed Annual Income