Parallel session 6c

1. Does Public Health Care Redistribute from
Me to You, or Just to Myself When I’m Old
On the Lifetime Redistributive Impact of
Publicly Financed Health Care in Canada
Authors: Michael Wolfson and Lisa Corscadden
Presentation: Gerlinde Verbist

2. Research question
• Is Publicly-Funded Health Care mainly about
redistribution across income groups, or across
the life cycle?
“does health care redistribute from me to you,
or just to myself in old age?”

3. Introduction
• Conventional cash income measures of inequality may
be misleading as they omit the value of public services
• Here: estimates of redistributive impact of Canada’s
publicly funded health care system
• Cross-sectional and lifetime estimates
 Lifetime perspective may attenuate distributive impact, or
not (effect of incorporating differential mortality?)
• Additional complexity because of Canada’s federal
state structure
• Data challenge: disaggregation needed by sex, age,
income (feasible for 69% of public expenditures)

4. Valuing Individual Benefits from Publicly-
Funded Health Care (PFHC) Services
• Insurance value approach (instead of actual
consumption of health care): value of benefit
= annual insurance premium
• Five year age intervals are used to capture life
cycle pattern of PFHC utilization
• Valuation at production cost of PFHC (ignoring
differences in quality, efficiency etc.)

5. Estimating the Distribution of
Individual’s Tax Payments
• Redistribution = balance of receipt minus
contribution/tax
• But:
– Non-neutral fiscal position of government
(deficit/surplus)
– Issue of incidence (tax payer vs tax bearer)
• Here: only first-round impact estimates

6. Taking Account of Canada’s Fiscal
Federalism
Figure 1 – Federal-Provincial Fiscal Arrangements and the “Taxes Paid” for Publicly Funded Health
Care (PFHC) in Canada, 2011 ($ billions)

7. Cross-Sectional Distributions of PFHC
and Taxes, 2011
PFHC Spending by Income Decile, both sexes, all ages, 2011
Aggregate ($ billions) Per Capita ($)
Hospitals Physicians Drugs Total Hospitals Physicians Drugs Total
D1 (Lowest) 6.39 3.66 2.29 12.34 2,193 997 787 3,978
D2 5.79 3.53 1.60 10.92 1,967 970 546 3,483
D3 5.51 3.10 1.79 10.40 1,812 880 589 3,282
D4 5.28 2.70 1.14 9.12 1,655 772 357 2,784
D5 5.18 2.56 0.73 8.48 1,565 731 221 2,516
D6 5.10 2.57 0.72 8.40 1,458 745 206 2,409
D7 4.94 2.41 0.75 8.10 1,356 708 205 2,269
D8 4.92 2.36 0.57 7.85 1,280 690 149 2,119
D9 4.55 2.28 0.46 7.29 1,122 672 113 1,906
D10 (Highest) 4.40 2.11 0.39 6.90 1,037 666 91 1,794
Total / Overall 52.06 27.29 10.44 89.79 1,501 787 301 2,589

8. Cross-Sectional Distributions of PFHC,
2011
PFHC Spending by Age and Selected Income Decile, 2011, males

9. Cross-Sectional Distributions of PFHC,
2011
PFHC Spending by Age and Selected Income Decile, 2011, females

10. Cross-Sectional Distributions of PFHC
and Taxes, 2011
Federal and Provincial Tax Revenues, 2011
Aggregate ($ billions) Per Capita ($)
Federal
Income
Taxes
Federal
Commod.
Taxes
Provincia
l Income
Taxes
Provinc.
Commod.
Taxes
Provinc.
Health
tax
Federal
Income
Taxes
Federal
Commod.
Taxes
Provinc.
Income
Taxes
Provinc.
Commod.
Taxes
Provinc.
Health
tax
D1 (Lowest) 0.34 1.86 0.21 3.00 0.03 101 545 63 881 7
D2 1.14 2.34 0.73 3.70 0.14 331 541 213 1,078 41
D3 2.91 2.69 1.97 4.12 0.27 856 689 579 1,212 80
D4 4.48 2.95 2.99 4.50 0.41 1,314 790 878 1,320 119
D5 6.02 3.18 3.96 4.74 0.47 1,759 861 1,158 1,385 138
D6 8.16 3.51 5.38 5.27 0.52 2,398 934 1,582 1,548 152
D7 10.44 3.84 6.84 5.82 0.60 3,042 1,023 1,992 1,696 175
D8 13.22 4.02 8.27 5.94 0.64 3,874 1,126 2,424 1,741 186
D9 18.38 4.52 11.25 6.60 0.73 5,390 1,177 3,298 1,936 215
D10
(Highest) 50.49 6.23 29.99 8.63 0.85 14,752 1,320 8,761 2,522 247
Total /
Overall 115.58 35.13 71.59 52.32 4.65 3,384 1,029 2,096 1,532 136

11. Cross-Sectional Distributions of Taxes,
Provincial and Federal Taxes by Age and Selected Income
Decile, 2011, males
2011
Provincial and Federal Taxes by Age and Selected Income
Decile, 2011, females

12. Simulating Lifetime Distributional Impacts
• Construction of synthetic dataset of 50,000 individuals using
MODGEN (2,500 men & 2,500 women in each decile)
• Note: assumption of no income mobility between income deciles
Simulating an individual biography Simulating a population sample of
individuals

13. Lifetime results
• Take account of mortality differentials
Percent Alive at Age Life Expectancy at birth
65 75 85 males females
D1 (Lowest) 80% 64% 38% 73.8 79.8
D2 84% 68% 40% 75.5 80.9
D3 86% 71% 44% 76.9 82.3
D4 87% 72% 46% 77.7 82.6
D5 89% 74% 46% 78.7 83.2
D6 90% 76% 48% 79.4 83.1
D7 89% 76% 49% 79.2 83.5
D8 90% 77% 49% 79.7 83.3
D9 91% 79% 50% 80.5 83.7
D10 (Highest) 92% 80% 53% 80.8 83.9
All 88% 74% 46% 78.2 82.6

14. Cross-Sectional and Lifetime Health Cost
Distributions
Cross-Section, 2011
Lifetime (Equal Mortality by
Income)
Lifetime (Observed Mortality by
Income)
Annual PFHC
Cost per capita
Percentage of
Annual Costs
Annualized
PFHC Cost per
capita
Percentage of
Lifetime Costs
Annualized
PFHC Cost per
capita
Percentage of
Lifetime Costs
D1 (Lowest) 3,978 15.4% 4,728 14.6% 4,457 13.3%
D2 3,483 13.5% 3,880 11.9% 3,716 11.3%
D3 3,282 12.7% 3,713 11.4% 3,638 11.2%
D4 2,784 10.8% 3,252 10.0% 3,220 10.0%
D5 2,516 9.7% 3,075 9.5% 3,075 9.7%
D6 2,409 9.3% 3,021 9.3% 3,034 9.6%
D7 2,269 8.8% 2,920 9.0% 2,956 9.3%
D8 2,119 8.2% 2,863 8.8% 2,907 9.2%
D9 1,906 7.4% 2,617 8.1% 2,667 8.5%
D10 (Highest) 1,794 6.9% 2,415 7.4% 2,510 8.0%
All 2,589 100.0% 3,249 100.0% 3,207 100.0%
Ratio D1/D10 2.22 2.22 1.96 1.97 1.78 1.65
Ratio D2/D9 1.83 1.83 1.48 1.48 1.39 1.33

15. 2011 Observed Population by Age and
Simulated Population Age Structure

16. Taxes
• Lifetime perspective does not change much in
terms of progressivity (indication of slight
increase)

17. Annualized Lifetime Income, PFHC Costs, and Taxes Paid
Toward PFHC
(Observed Mortality by Income)
Household
Adjusted
Income
Disposable
Income
PFHC
Annual
Costs
PFHC as %
of
Disposable
Income
Taxes Paid for
PFHC Costs
Taxes to PFHC
as % of
Disposable
Income
Net
Gain/Loss
Disposable
Income +
PFHC
D1 (Lowest) 13,045 13,418 4,457 33.2% 731 5.4% 3,727 17,875
D2 21,371 20,811 3,716 17.9% 1,033 5.0% 2,683 24,527
D3 27,558 25,522 3,638 14.3% 1,448 5.7% 2,190 29,160
D4 33,531 29,716 3,220 10.8% 1,818 6.1% 1,402 32,935
D5 39,549 34,233 3,075 9.0% 2,154 6.3% 921 37,309
D6 46,148 39,339 3,034 7.7% 2,641 6.7% 393 42,373
D7 53,928 44,778 2,956 6.6% 3,190 7.1% -235 47,734
D8 63,570 52,019 2,907 5.6% 3,646 7.0% -739 54,926
D9 77,991 62,355 2,667 4.3% 4,687 7.5% -2,020 65,021
D10 (Highest) 148,050 112,601 2,510 2.2% 10,330 9.2% -7,819 115,111
All 53,057 43,910 3,207 7.3% 3,207 7.3% 0 47,117
Ratio D10/D1 11.35 8.39 0.56 14.13 6.44
Ratio D9/D2 3.65 3.00 0.72 4.54 2.65

18. Discounting
• Previous analysis performed with discount rate zero
• What is appropriate discount rate?
– Here: 1.5%, 2% and 3%
• Discounting leads to proportional reduction in dollar
amounts, but shape of curves does not change
Per Capita Lifetime PFHC and Taxes to Finance
PFHC at Zero and 1.5% Discount Rates (r)
Per Capita Lifetime PFHC minus Taxes to
Finance PFHC at Four Discount Rates (r)

19. Concluding Comments
• Estimates of lifetime redistributive impact of
publicly funded health care to disentangle
income and lifecycle redistribution
• PFHC does both:
“Roughly speaking, PFHC costs generate about one-third of
their redistribution over individuals’ lifecycles, and about
two-thirds between income deciles”
Little effect of differential mortality by income group

20. Discussion
• Interesting paper and topic. Indeed, life-cycle
redistribution is very relevant, especially for
health care
• A question: can this approach really
distinguish between income and lifecycle
redistribution (given non-mobility across
income deciles, part of reranking is not
captured)

21. Discussion (2): other issues
• Would it be possible to incorporate the differences
between the simulated and the observed population in
the results?
• On the basis of which income are deciles constructed?
• Do you only calculate life-cycle PFHC or life cycle
income?
• How do you assign taxes to individuals?
• Why not add measures of progressivity (like Kakwani)?
• Some extra clarifications and more discussion of results
in the text would be welcome