New Tax on Health and Dental Plans Have Major Pros and Cons

Reports that the upcoming federal budget will announce the government’s plan to tax employer-provided health and dental insurance have generated considerable buzz in Ottawa. It would be a significant change that would affect millions of Canadians and involve billions of dollars. But it could be an idea worth supporting, including by free-market proponents.

Here’s the issue. The present tax treatment advantages Canadians who receive health and dental insurance from their employer over those Canadians who do not. In effect, those with such workplace benefits receive a sizeable tax subsidy and those without must purchase insurance with after-tax dollars and minimal government support. This is manifestly arbitrary and unfair.

The result is that a considerable share of the population — roughly four-in-10 — don’t have private health insurance and must pay for non-insured services with out-of-pocket spending. In fact, out-of-pocket spending now totals more than $30 billion per year or roughly 14 per cent of total health-care spending in Canada — more than the share paid by private insurance.

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