February 13, 2002

Medical Services Commission Finances and the Premium Tax Increase

With the 50% increase in the MSP premium tax and unsupported claims that 230,000 British Columbians will actually pay less, serious students of public policy will want to consult the Commission's financial statements. For the fiscal year ending March 31, 2001, those statements show that premiums paid by "subscribers" or group administrators (individuals or employers) amount to $896 million. That compares to $925 million estimated as total premium tax revenue for the fiscal year ending March 31, 2002 (source: Second Quarter Financial Report).

The $895 million in premium income was topped up by government paying $358 million to the Commission to cover premium assistance plus a further $865 million to cover the balance of the Commission's expenses. In fiscal 2000-01 those expenses were $1.966 billion for payments to physicians, $128 million for supplementary benefits (now eliminated as part of the Campbell cutbacks) and $25 million for administration.

This suggests that 29% of British Columbians receive 20% or more off of their premiums in the form of premium assistance. It could be argued that all British Columbians receive a subsidy since over 40% of MSP costs are covered from payments out of general revenue (the $865 million) but then that is just another reason why the "premium" is really a tax and not anything remotely similar to an insurance premium. In fact that math suggests that the 50% increase was really calculated so as to eliminate the general 40% subsidy!

Since the government has said that the increase in the MSP premium tax will be used to pay wage increases in BC's hospitals, it is not at all clear how the Medical Service Commission's financial statements will change as the result of higher premiums. Nevertheless a few hints are provided in a Ministry of Finance background paper (pdf). The Finance Ministry estimates that the 50% increase will not raise $462 million (half of the $925 million current revenue estimate) but $392 million net of premium assistance "enhancements". From that we might conclude that means $70 million will go to increased premium assistance but that would be an increase of less than 20% for premium assistance at the time the premiums are increasing by 50%. It is very hard to see how 230,000 people would pay lower premiums with that change. Premium assistance moves in 20% steps. It looks like those receiving 20% or 40% assistance will be paying more when the 50% premium increase goes through on April 1, 2002.

The Ministry of Finance backgrounder also reveals a never before seen number. It estimates that "The cost for businesses that pay on behalf of their employees will be about $180 million on a full-year basis." The paper tries to minimize that cost shift by arguing the increase will be deductible for corporate income tax purposes (kind of like the capital tax was). Employers who paid premiums include most of the public sector. The Ministry of Finance background paper reports that the 50% increase will cost the health sector $25 million, K-12 education $18.3 million, colleges $5 million, universities $3.3 million and other direct government and public sector agencies $23 million. The paper does not estimate how much of an impact the increase will have on municipalities.

This means that 54% of British Columbians pay their own premiums. The Premier, members of Cabinet and other MLAs are not part of that 54% - the taxpayers pay the increase for those folks.

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February 9, 2002

Unraveling User Fees and Premium Taxes

Some seniors have reported that their Pharmacare user fee is $26.20 rather than the $25.00 announced by government. It turns out the extra $1.20 (or more) is going to the drug store for its dispensing fee. Last year the user fee was equal to the dispensing fee. This year the user fee is $25 for seniors who do not receive MSP premium tax subsidy and $10 for those that do. ON TOP of that user fee pharmacies can charge the amount that their dispensing fee exceeds the maximum dispensing fee allowed by Pharmacare ($7.80 previously $7.60). In calculating the $275 annual maximum for user fees the excess dispensing fees DO NOT COUNT (are not an eligible expense). Think of the extra $1.20 or whatever it could be as an extra bill from the drug store. Shop around because $25 should be the maximum - anything above that is gouging by the pharmacy!

A lot of confusion was created by the Campbell government as a result of the sneaky way it announced the 50% increase in the MSP premium tax. In addition to increasing the premium tax by 50%, government claimed that 230,000 people will actually pay less due to changes in the subsidy program. The current subsidy program has five steps offering premium tax reductions of 20%, 40% and so on to a full 100% subsidy. The government forgot to mention that even those on step one subsidy will pay an extra $86.20 per year as a young single person or an extra $153.60 per year as a retired couple. I guess those folks are not part of the 230,000 paying less.

The Ministry of Finance has produced a table illustrating some of the changes in the subsidy program although it has not produced the actual formula. From the examples provided it appears that the former 5 step program is being replaced with a 7 step program - some would say the government needs a 12 step program but they aren't quite to Alberta yet.

Under the new 7 steps, the bottom 3 all offer full premium subsidy so you can think of it as simply moving the table so more people will receive full premium subsidy and the 20% steps start slightly earlier - very slightly earlier. From the examples given by government, it appears that the subsidy will start $1,000 sooner (for a young single person at an income level over $24,000 rather than $23,000; and for a retired couple at an income level of $33,000 rather than $32,000). Keep in mind that the starting point for any subsidy is just 20% off - at that level the 50% increase still means the poor will pay more.

If you think this is complicated, you should have seen the background paper from the Minister of Finance news release where it carried the stern warning that the paper was a draft with the numbers subject to change. The pdf file that is now available no longer carries that warning.

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February 7, 2002

$462 million Regressive Tax Grab

During an hour and a half of attacks on the former government paid by the public for TV broadcast throughout the province, the Campbell government snuck in an announcement for a $462 million tax grab.

The Premier and Minister of Finance did everything they could to try to link the 50% increase in Medical Services Plan premiums to wage increases in health care but there is nothing in law or past practice that links premiums to health costs. The MSP premium is nothing but a head tax - the same amount regardless of income - that is the most regressive form of taxation in BC. The Campbell government is in the midst of shifting its collection to the Minister of Revenue and assigning new collection agencies to further demonstrate its role as a tax not a premium. If you don't pay a premium, you lose coverage. If you don't pay the MSP tax, they go after you for back payments even if you didn't go to the doctor! That is a tax.

The Second Quarter Financial report estimated Medical Services Plan premium tax income as $925 million for fiscal year 2001-02. A 50% increase will give the government $462 million. They mentioned putting an additional 200,000 people on premium assistance but did not mention which level of premium assistance would apply. If 200,000 people moved to 20% premium assistance, that would only take $4 million from the $462 million tax grab.

I am not aware of any data on how many people benefit from employer paid premiums, but the Premier should know that he and his caucus are in that group. Like other public sector employees, as an MLA the Premier's MSP premium is picked up by the employer - in this case the taxpayer. So a pensioner living on $25,000 pays tax to subsidize the Premier's personal premium tax increase!

School boards and health authorities will all get hit with additional cost increases as they now have to pay increased MSP premium taxes for their staff. Keep your eye open to see on Budget Day whether all or just a part of the $462 million premium tax increase is put towards an increase in the health budget.

Gross Earnings	Income Tax Reduction	Annual MSP tax increase (3 person family under age 65) ($72 per month increasing to $108)	Tax Reduction or Increase After MSP (family)
$12,000	-$49	0	-$49
$20,000	-$236	0	-$236
$30,000	-$430	+$432	+$2
$40,000	-$644	+$432	-$208
$50,000	-$905	+$432	-$473
$60,000	-$1,155	+$432	-$732
$70,000	-$1,483	+$432	-$1051
$80,000	-$1,947	+$432	-$1515
$125,000	-$3,460	+$432	-$3028
$200,000	-$6,672	+$432	-$6240

NOTE: The premium subsidy calculated above is based on the current rules. Click here for those rules. The Ministry of Finance has published a different analysis but has not revealed the new rules. The Ministry's "factsheet" carries the warning - these are preliminary figures yet to be finalized. Get that - they do a $462 million tax grab but haven't finalized their numbers! Having said that, the above table was revised after first posting it (blush).