Challenges of Health Care Levies

It’s no secret that health care related claims costs in the auto insurance system are rising. We’ve all seen rising personal injury costs on both the bodily injury and accident benefits sides of loss costs. One cost pressure that doesn’t get a lot of attention, but is, nevertheless, a very real issue for insurers and their policyholders is health care levies.

Health care levies are payments made to the provinces to compensate for the use of the public health system for acute care services to motor vehicle crash injury victims. When provincial governments introduced levies in the 1980s to replace the costly and inefficient process of subrogation on a case by case basis, the industry agreed the move was a positive one. However, since their inception, health care levies have been a challenge, and we need to continue to ensure these levies do not cause undue or destabilizing cost pressures. Levies are reflected in the premiums drivers pay, so they need to be calculated appropriately in order to maintain stability and predictability in the market.

Insurance Bureau of Canada (IBC), on behalf of the auto insurance industry, has been addressing these issues with governments in Alberta and Ontario in order to ensure health care levies accurately reflect the actual financial environments.

Connecting levies to costs

If levies are to be fair to both insurers and drivers, they ought to be based on solid data tied directly to actual health care costs in a province. In Alberta, for instance, between 2005 and 2007, health levies were increased by 33 per cent, and recently, the Alberta Ministry of Health and Wellness proposed to increase the health care levy again to $85 million in 2008.

The rationale behind raising the health levy every year is the assumption health care costs to the public system from motor vehicle collisions will increase each year. However, the actual data tell a different story, in part, because the roads have been getting safer. For example, between 2000 to 2005, despite a rapidly growing population, the actual number of people killed or injured on Alberta’s roads fell seven per cent.

Equally important are the enormous efficiency improvements the public health system has been achieving in treating the kinds of injuries typically suffered in crashes. To illustrate, the average costs of care for trauma patients in Alberta declined by 27.7 per cent between 2000 and 2001 and 2004 and 2005 — this being largely the result of less use of hospital inpatient resources to treat injuries from trauma.

Based on these numbers, IBC believes the burden to the public health system of caring for motor vehicle crash victims has not been growing near the degree suggested by recent and proposed increases to the health levy.

Clearly, the industry and provincial governments need to work together toward systems for determining the level and increases to levies that will promote stability and predictability for insurers and policyholders alike.

Finding a working system

Recent experience with the Ontario government on this issue suggests such a happy outcome is possible. In 2006, the Ontario health care levy was adjusted after 10 years of remaining constant at $80 million. The Ontario government initially proposed a two-fold increase to the levy, bringing the cost to about $160 million for Ontario drivers. While the insurance industry was not opposed to adjusting the levy after a 10-year gap, we were concerned the proposed adjustment was not tied to the actual health care resources used by motor vehicle crash victims.

Virtually all indicators of the contribution of motor vehicle injuries to public health care expenditures were significantly lower than they were ten years prior. For the period of 1996 to 2003, the absolute number of motor vehicle crashes causing injury decreased 21 per cent, the number of hospital admissions from car crashes dropped 29 per cent and the average length of stay for a cluster of conditions most commonly associated with traffic injuries declined by 50 per cent.

Since the number of insured vehicles in Ontario had risen by 23 per cent, it was clear these reductions in expenditures resulted in part from improved traffic safety. They were also a result of some medical rehabilitation costs shifting from the public system to private automobile insurers. These included the government’s de-listing of chiropractic and most outpatient physiotherapy and psychological services. The effects of hospital restructuring also moved significant responsibilities for recovery, particularly for seriously injured people, to private automobile insurers.

Fundamentally, IBC pointed out to the Ontario government, the factors most responsible for driving provincial health expenditures (population growth and the health complexities of an ageing population) simply do not apply in the case of traffic injuries. There are more cars on Ontario roads, but the number of traffic-related injuries fell over the 10 year span leading up to the levy readjustment, and the most common victim of these injuries was a young or middle-aged, and otherwise healthy, adult.

As such, the insurance industry stressed it would be unfair to require Ontario drivers to pay for a rate of health cost escalation so obviously unrelated to their true contribution to public health system costs.

The Ontario government eventually adjusted the levy, but instead of doubling the levy as was initially proposed, they raised it to $142 million, which will be adjusted annually by the provincial consumer price index (CPI). Tying health care levies to the CPI ensures levies will be adjusted at a rate that reflects the inflation drivers are experiencing in other aspects of their lives. Most importantly, this approach promotes stability in the insurance industry, as it can be predicted and planned.

Going forward

Health care levies are a shared concern between provincial governments and insurers, and, as such, the two parties need to work together to ensure the levies are adjusted and administered fairly. IBC will continue to work on behalf of insurers, speaking to governments in order to achieve health care levy solutions that will be stable and predictable.

Jane Voll is the vice-president Policy Development and Chief Economist with Insurance Bureau of Canada.