False Choices

Should Canadians be able to use after-tax dollars to purchase health services that are already covered under the provincial health plans schedule of benefits?

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f health services are a market commodity, the answer to the above question that I was asked to address is obvious. Canadians should be able to use their money to purchase any legal service. Why discriminate against health services, whether they are covered by another payer or not? But my reaction – and one supported by considerable evidence – is that the assumptions underlying this question are debatable. I therefore suggest substituting a few alternate questions, which in turn might yield somewhat different answers.

The first alternate question is this: Why would Canadians want to use their money to purchase health services, if they could get them without charge from the provincial health plan? The logical response is that what they would be able to get from the government-paid plan would be somehow inferior. If they could get high quality, timely care, there would be no such market. Most individuals confronted with the choice between “your money or your life” would indeed agree to pay whatever was demanded, but that hardly seems to represent a fair choice. So one is left with the question of why, as a matter of public policy, one would want to encourage publicly-paid services to be so bad that there would be a market for privately purchased care?

In some places, and for some services, we have indeed done just that. In the 1980s, cost control was pursued enthusiastically. Hospitals with limited budgets fired nurses, closed operating rooms, and otherwise restricted the availability of services in order to avoid running deficits. Most tried to priorize and ensure that the sickest received care. Elective procedures often took the brunt of the constraints; accordingly, surgeons providing elective care often lost out in the competition for operating room time. One possible response would indeed be to say to their potential patients – “pay for it yourself.” Another, of course, would be to ensure that the publicly-paid services were good enough to meet needs. How best to do this would appear to be a practical, and empirical question, which would probably differ by location and service. Unfortunately, ideology often intrudes, aided by enormous confusion as to what we are actually talking about.

It is probably worth a short digression to clarify that there is already considerable private financing of Canadian healthcare. About 30% of health spending already comes from private sector sources, among the higher proportions among industrialized countries. The Organisation for Economic Cooperation and Development (OECD) assembles comparable international data. Both the UK and Sweden, for example, are over 85% publicly funded. However, Canadian spending is unusually skewed by sub-sector; the universality provisions of the Canada Health Act require coverage for ‘insured services’ but for historical reasons these are defined as referring to hospitals and physicians only. Accordingly, about 90% of hospital costs, and 99% of physician costs come from public sector sources, whereas home care, long-term care, pharmaceuticals, and dentistry draws on both public and private sources of payment. It is also worth noting that cost control is far better in the publicly-funded sectors. Similarly, the international evidence is very clear that multiple payers make it far more difficult to achieve cost control.

An additional source of confusion is that public funding does not mean public delivery. The Canada Health Act says nothing about delivery, and provinces for the most part fund, but do not deliver, services. They are able to fund services in multiple settings, and indeed Canadian care is largely delivered by private providers, with the major players being private not-for-profit (e.g., hospitals) and small-business for-profit (e.g., physicians).

The reader will note that the previous paragraph carefully spoke of meeting needs. But markets are about meeting demands. Which leads us to the second alternate question: Are health services really a market commodity? Do they fit the assumptions of a market? Markets assume that we have supply and demand, with price serving as the signal to balance them. If there is a fixed supply, then prices rise until those less willing (or able) to pay are priced out of the market; supply and demand are balanced at this new, higher price. On the other hand, if prices fall, then demand should increase; free services will be over-consumed. Economists speak of ‘moral hazard’ and argue that user fees are necessary to discourage frivolous use.

But some – admittedly not all – health services do not seem to fit either of these market-based assumptions. Consider using prices to balance supply and demand. If someone comes to the hospital with a ruptured appendix, most Canadians believe that they should be treated, even if they could not pay. But if we are not willing to let them be priced out of the market, efforts to employ market forces mean that we have a floor price (whatever government/charity is willing to pay), but no ceiling price. Under those circumstances, markets cannot enforce cost control.

Similarly, consider over-use of free care. In general, we are not interested in rapid access to potentially harmful care unless we need it. Few people would be interested in receiving free open heart surgery unless they needed it. An unnecessary pair of shoes may languish in the back of a closet, but an unnecessary surgery, or medication, can cause harm. Indeed, professionals are expected to refrain from the temptation to ‘increase sales’ and to recognize that they should not perform procedures unless benefits can be expected to outweigh harms. Indeed, health professionals in most countries are placing considerable emphasis on developing practice guidelines to define the situations under which procedures are clinically appropriate. At the very least, it would seem important to clarify whether these covered health services are needed. When need enters the picture, the assumptions underlying markets do not appear to apply. We are not willing to deny care that is needed; we are not supportive of providing care that is not needed. Economists have documented a host of other violations of neo-classical economics that apply to “needed” health care.

Which leads to the third alternate question: Who would pay? Is there a role for insurance, or are we assuming that individuals are paying with their own money? Certainly,insurers would not willingly cover people who already know they will need care. The private insurance plans in Europe are heavily regulated, and still run into problems. Health expenditures are heavily skewed. In every age-sex group, most people need very little care. The economic incentive for insurers is to avoid including the most costly individuals in their risk pools, meaning that those who most need insurance are the least able to be able to buy it. Although the Supreme Court of Canada appeared to believe that people needing hip surgery would be able to purchase private insurance, in a competitive market, it is difficult to see why companies would be willing to sell it to them. No one on the waiting list for surgery would be able to purchase insurance for care they would be certain to obtain, unless the premium was higher than the expected costs of care. Again, there would be no market unless healthy people were convinced that the publicly funded system would not be there for them in the future, should they need care. If private insurance is paid for through the workplace, this also places a higher burden on employers and erodes their competitive advantage. It is noteworthy to further analyze that international data collected by the OECD. In 2005, 45.1% of US health spending came from public sources, as opposed to 70.3% in Canada. But the US spending accounted for 15.3% of their Gross National Product, compared to 9.8% in Canada. Doing the math reveals that the US spent a slightly greater proportion of its national wealth (6.9) on publicly-funded health care than did Canada (6.89), even while their mixed funding system gave such poor cost control that this vastly larger expenditure gave them worse health outcomes, and more people without insurance than the entire population of Canada. To the extent that other countries have relaxed regulation, and the ability to control costs and access, similar problems have arisen.

Which leads to the fourth alternate question: Why do we want to go down a path which makes it more difficult for sick people to get care, erodes cost control, leads to higher burdens on the economy, reduces the economic competitiveness of the Canadian economy, and gives providers economic incentives to reduce the quality of publicly-funded care? The simple answer is that over the past decades, we were somewhat overenthusiastic in controlling costs, and gave an incentive to providers to find alternate streams of income. But the solution would seem to be a combination of emphasizing appropriateness, streamlining processes to improve efficiency, and selectively adding back resources where they are needed. This process is well underway, although improvements are always both possible and necessary.

My final answer to the question being asked, then, is no, not if the care to be purchased is necessary. In fact, it would seem to be a very bad idea. However, I would add that, in return it behooves Canadians to ensure that everyone can receive high quality, timely needed care, and to ensure that providers are treated fairly. The evidence suggests that this can be done most fairly – and most cost efficiently – within a strong publicly-funded system.

references

• Deber, Raisa (2004): Delivering health care services: Public, not-for-profit, or private? Chap. 7. In: The fiscal sustainability of health care in Canada: Romanow Papers, Volume 1. (Marchildon, Gregory P; McIntosh, Tom; Forest, Pierre-Gerlier, eds.) University of Toronto Press, Toronto, 233-296.
• Deber, Raisa (2000): Getting what we pay for: Myths and realities about financing Canada's health care system. Health Law Can. 21(2), 9-56.
• Deber, Raisa; Forget, Evelyn; Roos, Leslie (2004): Medical savings accounts in a universal system: Wishful thinking meets evidence. Health Policy 70(1, Oct), 49-66.
• Forget, Evelyn L; Deber, Raisa; Roos, Leslie L (2002): Medical savings accounts: Will they reduce costs? Can. Med. Assoc. J. 167(2, 23 Jul), 143-147.
• Canadian Institute for Health Information (2005): Exploring the 70/30 split: How Canada's health care system is financed. CIHI, Ottawa, Ontario. Marchildon GP. Health Systems in Transition: Canada.
• OECD health data 2007: How does Canada compare. Paris, France: Organisation for Economic Co-operation and Development.
• Colombo, Francesca; Tapay, Nicole (2004): Private health insurance in OECD countries: The benefits and costs for individuals and health systems. OECD Health Working Papers, No. 15, Paris, France: OECD.
• Donaldson, Cam; Gerard, Karen; Jan, Stephen; Mitton, Craig; Wiseman, Virginia (2005): Economics of health care financing: the visible hand. 2nd ed. London: Palgrave/Macmillan, Basingstoke.
• Evans, Robert G (2004): Financing health care: Options, consequences, and objectives. Chap. 5. In: The fiscal sustainability of health care in Canada: Romanow papers, Volume 1. (Marchildon,Gregory P; McIntosh,Tom; Forest,Pierre-Gerlier, eds.) University of Toronto Press, Toronto, 139-196.
• Flood, Colleen M; Roach, Kent; Sossin, Lorne (eds.) (2005): Access to care, access to justice: The legal debate over private health insurance in Canada. University of Toronto Press, Toronto, ON.
• Mossialos, Elias; Dixon, Anna; Figueras, Josep; Kutzin, Joe (eds.) (2002): Funding Health Care: Options for Europe. Open University Press,

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