18.5 SUMMARY

1. The welfare state absorbs a large share of government spending in all wealthy countries. Government transfers are the payments made by the government to individuals and families. Social welfare programs alleviate income inequality by helping those in need; social insurance programs alleviate economic insecurity. Welfare state programs also deliver external benefits to society through poverty reduction and improved access to health care, particularly for children.

2. The poverty line (or poverty threshold) is not officially defined in Canada. The most commonly used criteria to measure poverty in Canada are the low income cut-offs (LICOs), a relative measure. The low-income measure (LIM), another relative measure, and the market basket measure (MBM), an absolute measure, are also used to measure poverty. In Canada, the poverty rate, the percentage of the population with an income below the poverty threshold, fluctuates over time. There are various causes of poverty: lack of education, the legacy of discrimination, and bad luck. The consequences of poverty are particularly harmful for children, resulting in more chronic disease, lower lifetime earnings, and higher rates of criminality.

3. Median household income, the income of a family at the centre of the income distribution, is a better indicator of the income of the typical household than mean household income because it is not distorted by the inclusion of a small number of very wealthy households. The Gini coefficient, a number that summarizes a country’s level of income inequality based on how unequally income is distributed across quintiles, is used to compare income inequality across countries.

4. Both means-tested and non-means-tested programs reduce poverty. The largest means-tested programs in Canada include social services, Old Age Security, the Canada Child Tax Benefit, and the National Child Benefit Supplement. The major in-kind benefits program is health care. Some countries also have negative income tax programs that supplement the income of the working poor.

5. Canada’s health care system is universal (a single-payer system paid for by provincial/territorial governments) and guarantees free access to all Canadians for all insured services.

6. Compared to other countries, the United States relies more heavily on private health insurance and has substantially higher health care costs per person without clearly providing better care. Throughout the developed world health care costs are rising, largely due to advances in technology. The U.S. Patient Protection and Affordable Care Act (ACA, sometimes called “ObamaCare”) was passed in 2010 with the objectives of reducing the number of uninsured Americans and reducing the rate of growth of U.S. health care costs.

7. In the United States, health insurance satisfies an important need because most families cannot afford expensive medical treatment. Private health insurance, unless it is employment-based or carefully screens applicants, has the potential to fall into an adverse selection death spiral. Most Americans are covered by employment-based private health insurance; the majority of the remaining are covered by Medicare (for those over 65) or Medicaid (for those with low incomes). Prior to the ACA coming into effect in 2014 the percentage of Americans who were uninsured had been rising.

8. Debates over the size of the welfare state are based on philosophical and equity-versus-efficiency considerations. Although high marginal tax rates needed to finance an extensive welfare state can reduce the incentive to work, means-testing of programs in order to reduce the cost of the welfare state can also reduce the incentive to work unless carefully designed to avoid notches.

9. Politicians on the left tend to favour a bigger welfare state and those on the right to oppose it. This left–right distinction is central to today’s politics. Canada’s three major federal political parties have become more polarized in recent decades, with a much clearer distinction than in the past about where their members stand on the left–right spectrum.