Higher Income Earners Claim Considerably More On Medical Expense Tax Credit

OTTAWA, May 26, 2016 /CNW/ - High-income earners claim considerably more on average using the Medical Expense Tax Credit (METC) than low- or mid-income earners. A new report by The Conference Board of Canada's Canadian Alliance for Sustainable Health Care finds that Canadians earning over $250,000 claimed close to $8,300 in medical expenses, while those earning under $10,000 claimed on average $995.

Many Canadians who lack supplemental health coverage, such as low-income families, seniors, and the self-employed, still face significant financial burdens when accessing health services that are paid for out of pocket, such as dental care and prescription drugs. Out-of-pocket spending on health care is approximately $32 billion annually—an average of $910 per person.

"Tax policies have the potential to help alleviate the burden of out-of-pocket health care costs for Canadians," said Louis Thériault, Vice-President, Public Policy. "However, it is unclear whether current tax policies actually help lessen costs and improve access to health care for lower-income Canadians."  

HIGHLIGHTS

• Out-of-pocket spending on health care amounts to approximately $32 billion annually.
• Current tax measures provide greater benefits to high income earners.
• Restructuring health-related tax credits to better assist low-income families could cost approximately $3.3 billion annually.

The report, Improving Access to Canadian Health Care: The Role of Tax Policies, examines usage of current and proposed health-related fiscal incentives. It finds that non-refundable tax credits (which reduce income tax owed), such as the Medical Expense Tax Credit, provide limited assistance to low-income households, compared to refundable tax credits (which can be used to obtain a tax refund from the government). However, refundable tax credits are more costly to the government.

Under the METC individuals can claim eligible medical expenses in excess of 3 per cent of their annual income or $2,208 (whichever is less) on their tax returns. This tax credit is most used by seniors, those earning $15,000 - $45,000 annually, and by Canadians deriving income from pensions.

Since the METC does not apply from the first dollar spent, low-income Canadians must still face significant out-of-pocket expenses before filing a claim.  While the tax return can be higher for a lower-income family, the out-of-pocket expenses still account for a much larger proportion of their annual income than for a higher-income family.

"The financial burden of out-of-pocket medical expenses is much greater for low-income individuals, leading to inequitable access to health care," added Thériault.

The report also analyzed the impact of a hypothetical refundable health tax credit applying from the first dollar spent. Although a refundable credit would likely be effective at improving access to health care among low-income households, it would be quite costly to government. The costs would amount to approximately $3.3 billion annually, about $1.6 billion more compared with the existing METC and refundable supplement.

As suggested by the Advisory Panel on Healthcare Innovation, the higher cost of a refundable health tax credit could be offset by taxing employer-provided supplemental health benefits. However, the Conference Board report finds that this could lead to a decrease in employer-provided coverage, especially among smaller firms.

Launched in 2011, CASHC is a program of research and dialogue, investigating various aspects of Canada's health care challenge, including the financial, workplace, and institutional dimensions, in an effort to develop forward-looking qualitative and quantitative analysis and solutions to make the system sustainable.

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SOURCE Conference Board of Canada

Yvonne Squires, Media Relations, The Conference Board of Canada, Tel.: [phone] ext. 221, E-mail: [email protected]; or, Juline Ranger, Director of Communications, The Conference Board of Canada, Tel.: [phone] ext. 431, E-mail: [email protected]