The Liberal-NDP Confidence and Supply Agreement (CASA), now in its second edition, has been rich in case studies for students of micro-economics.
Recently, we looked at CASA’s moves on rent control and free public transit. Today, let’s review the new Yukon Dental Program.
It is rare that the people who run our government get to design a brand-new program. Yukon Dental includes some innovative moves in Yukon terms, as well as some classic topics for next year’s Econ 100 students at Yukon University.
Yukon Dental launched in January. The government press release said that it provides $1300 per year in dental coverage to lower-income Yukoners without existing dental coverage. The income cut off is $60,000 for individuals, rising with the number of children. Individuals with two children, for example, lose coverage if they make more than $90,000. The government thinks up to 8000 Yukoners, about a fifth of the population, will be eligible.
The government budgeted $3.6 million for the new fiscal year, or $450 including administrative costs for each of those 8000 Yukoners. Estimating the cost of new programs is difficult. How many of the 8000 will actually apply? For those that do, how much dental work will they need? In the first years of the program, costs could be high due to the backlog of people who have been unable to afford dental appointments. On the other hand, costs may be lower since not everyone who is eligible will hear about the program and get on the government website to sign up.
In the longer run, costs may rise if employers cut the dental coverage they provide employees since the government now has a program.
One innovative thing about the program is that the government is outsourcing administration to an Outside insurance company called Pacific Blue Cross. This will result in significant cost savings compared to setting up a new, sub-scale insurance department in Whitehorse.
It also allows Yukon Dental beneficiaries to get care without having to pay upfront. Traditionally government programs required you to get the service in question, then fill out a paper form and submit your crumpled, coffee-stained receipts and wait for a cheque. With Pacific Blue Cross connected to the computer systems in dental offices, Yukon Dental beneficiaries avoid all this.
Outsourcing administration also avoids putting further stress on the red-hot Yukon labour and housing markets. Now would not be a good time to hire a team of dental administration experts from Outside and ask them to compete for scarce Whitehorse housing with nurses and dental technicians.
The fact that the NDP, closely allied with government unions, agreed to outsourcing public services is worth noting. One wonders if cost and labour shortage issues will result in more outsourcing of other programs in the future.
One area where the program is less innovative is in how it signs up beneficiaries. Yukon Dental requires people to hear about the program, find the website, fill in a multi-page form and submit supporting tax documents. For the well-organized and well-informed, the process is not too onerous. But other programs show that many Canadians do not fall into this category.
Professors Jennifer Robson and Saul Schwartz of Carleton, a university in Southern Canada, published a study in 2020 that suggested 10-12 percent of Canadians don’t file tax returns. These individuals are disproportionately lower-income Canadians and, as a result, miss out on social program benefits linked to tax returns. The study estimates the lost benefits were $1.7 billion in 2015.
One way to tackle this is to pay community organizations to hold information sessions and help people who have language or other issues to apply.
Another classic issue with Yukon Dental is around the so-called marginal tax rate. This is the tax rate you pay on the next dollar you earn. For most people, it is higher than their average tax rate since they benefit from the Basic Personal Amount and other exemptions.
The marginal tax rate usually comes up when people talk about the top tax bracket. For example, according to TaxTips.ca, Ontarians earning over $236,000 pay 53 cents in income tax for every extra dollar they earn (and which is not covered by one of the many tax shelters available to the affluent).
Perversely, however, it often ends up that the effective marginal rate is much higher for lower-income Canadians. This is because so many social programs such as Canada Child Benefit (and now Yukon Dental) claw back benefits as incomes rise.
In effect, when these individuals work more hours or get raises, they face a double whammy: higher income taxes and reduced benefits.
Researchers at the Fraser Institute, a free-market think tank based in Vancouver, did a study in 2019 on the topic (and did not include the Yukon, unfortunately). They found that lower-income Canadians often face higher marginal tax rates than those with high incomes. For example, Newfoundland families with $50,000 in job income faced a marginal tax rate of around 70 percent. Families in eight provinces with $40,000 in job income faced marginal rates over 50 percent.
The Yukon Dental application form says eligible applicants without other dental coverage will get $1300 in coverage. This suggests that instead of tapering benefits with rising incomes, program designers have built in a “benefits cliff.” That individual with two children gets full coverage if they make $89,999. But working an extra shift wipes out the insurance coverage, resulting in a loss of $3900 in dental benefits for the individual and their two children ($1300 each).
By having a benefits cliff, Yukon Dental does not worsen the marginal tax rates for people far below the income threshold. But those near the threshold face some perverse short-term incentives. If you qualify this year and are near the threshold, you should definitely max out your dental coverage while you have it. Especially since the program announcement does not mention if the thresholds will increase with inflation.
One thing CASA does not talk about is how to pay for Yukon Dental. Indeed, the agreement’s six chapters are about spending money. There are not chapters on economic growth or sound fiscal policy.
However, in a stroke of good luck, this week’s federal budget announced details on a new $13 billion national dental program. The taxpayers of Southern Canada will cough up a few more millions on top of our transfer payment, although we do not yet know if Ottawa will write a cheque for Yukon Dental or replace it with a centralized national program.
Keith Halliday is a Yukon economist, author of the Aurore of the Yukon youth adventure novels and co-host of the Klondike Gold Rush History podcast. He won the 2022 Canadian Community Newspaper Award for Outstanding Columnist.