Tuesday, June 21, 2005

Canada's Vaunted Health Care System
There has been some confused discussion lately about the issue of private health care in Canada. Canadians are the most confused about this, and they have been ever since most private medical care was made illegal about 20 years ago. In fact, most of them (based on a survey I've done consisting of frequent chats) don't even know that most private medical care is illegal, and the reason they don't know this is because the language used to discuss the issue is so bizarre and obfuscatory.

Instead of announcing that they were outlawing most private medical care, the Canadian government(s) merely announced that they were eliminating "extra billing". "Extra billing" was the practice of a doctor billing the government health plan for a service, and at the same time billing the patient an additional (usually small) amount. If a doctor charges a patient and does not charge the government then this is completely private medicine and should not be called "extra billing". Nonetheless, under the guise of eliminating extra billing, virtually all private medicine was outlawed in Canada. (Fine Print: private medicine that was not claimed to be covered by the government, such as dental work and cosmetic surgery, remained legal. Also, very recently, some private MRI clinics have been permitted in some provinces.) After being used as a subterfuge for outlawing private medicine, the phrase "extra billing" was never (to my knowledge) used again. Instead, whenever the issue arose, it was described as being about "single-tier versus two-tier health care". "Single-tier" was the good thing, the status quo, where every Canadian (except the rich, the powerful, the well-connected, the ...) had access to the same level of health care. No one discussed why two-tier (which should, of course, be called continuous-tier) is okay when it comes to housing, vacations, etc. Outside of Canada, the term "single payer health care" was used to describe the Canadian system, virtually guaranteeing that almost no one would understand the situation.

This article in the New York Times discusses a recent Quebec court decision that kinda says that the government doesn't have the right to outlaw private medical care. Or maybe it says that the government doesn't have the right to outlaw private medical insurance (implying that private health care is already legal, just not private medical insurance). Or maybe it says that it's okay to outlaw private medicine as long as the government provides good public medical care. Actually, I have no idea exactly what the court decided, and the author of the article clearly couldn't care less.

But he does care to tell us that Canada's health care system is "vaunted" and "is broadly identified with the Canadian national character" and that this decision is a "blow to Canada's health system". The fact that "Canada is the only industrialized county that outlaws privately financed purchases of core medical services" is presented as a positive fact about its national character, and no explanation is given about why the existence of private medical care in England, France, Germany, Sweden, ... has not been a blow to those countries' health care systems.

The article tells us that this vaunted system has long waiting lists for "diagnostic tests and elective surgery", but it omits the fact that patients often wait over two months for cancer treatment. Or the fact that my friend who was unable to move because of sciatica was told that he had to wait over a month -- and risk paralysis -- before he could see the appropriate specialist. (He received faster treatment because of the connections of one of his friends.)

And what -- except for the horror of two tiers -- is the reason for outlawing private medical care? After all, one would think that for any given level of public expenditure, allowing private care would improve the level of medical care for everyone. The only reason given in the article is that "a two-tier system will draw doctors away from the public system, which already has a shortage of doctors ...". This is not the way things work with housing or mail delivery, but I suppose it's possible that the quality and quantity of doctors is fixed and independent of demand. Except that two of the three main Canadian parties -- the Liberal and the NDP -- actually claimed that there were too many doctors! And the NDP government of Ontario actually took positive measures to reduce the number of doctors:
By reducing the number of first-year medical students this fall, the University of Toronto takes a leap toward improving the health-care system.
The fact is that Canada will have as good a health care system as the government is willing to fund, and allowing private health care will only make it better.

I feel that this horrible "too few doctors" argument holds the clue as to why private health care was made illegal and why the public system became so bad. In fact, according to my completely unscientific study, the public health system started to go into sharp decline right around the time that private care was illegalized. The government(s) wanted to reduce public health care expenditures by reducing the quality of health care offered, and my theory is that they felt this would be better accepted by the people if the people had no basis for comparison to see just how bad things were becoming. Of course people knew what was available (for many) in the United States, but this idea still worked for many years and allowed the state of Canadian health care to deteriorate badly.

The argument that became "don't allow private medical care, or else people won't support our crappy public system" started out as "don't allow private medical care, so that people will allow our system to become crappy".


Dan Simon said...

I don't think the deterioration of Canada's health care system dates back to the banning of "extra billing". The rationale for this move at the time was straightforward--it cut costs by reducing doctor incomes. Critics of the ban predicted that doctors would flee en masse for the border. But as it turned out, plenty accepted lower fees rather than pick up and move to a different country (with its own, quite different, health care problems).

The real trouble started in the early nineties, when health care costs started increasing very rapidly in both the US and Canada, for various reasons, including demographic aging, new technology, and increased expectations from a population growing accustomed to having their health care paid for by someone else. In the US, private insurers enacted various forms of "managed care" to counter the cost increases: co-payments, reimbursement reviews, and of course HMOs. These were all, at heart, attempts to contain costs by rationing health care on the basis of need, and they were all at least somewhat successful.

In Canada, however, the government was the sole insurer, and it was terrified of the political consequences of adopting similar rationing schemes. Instead, it "rationed" resources in the crudest, clumsiest, most blame-dodging way possible: by simply squeezing availability, and leaving the system to cope as best it could. Hence, for example, the efforts to reduce the number of doctors, artificially creating the very problem that the extra billing ban failed to produce. Hence the long waiting lists and scarcity of equipment, hospital beds and other resources. It's the perfect political solution: no actual decision is ever made to deny anyone care, charge anyone money, or restrict anyone's choice of doctor or treatment. All that happens is that everybody's care ends up being lousy.

Permitting private care would allow people who can afford it to escape the system, but it wouldn't solve the problem--which exists today in the US--of people who can't afford it getting really crappy health care. I don't know what the solution to that problem is--or even if a solution exists--but if there is a solution, then it's conceivable that it might well work for everyone, not just for the poor. In fact, I believe such a system worked fairly well in Canada for a decade or so, until the health care cost explosion made it unworkable.

LTEC said...

In the absence of good statistics, I will believe my subjective impression about when the sharp decline in Canadian health care began, over Dan's.

As to what to do for poorer people:
As I said, even if we keep the public expenditures fixed, if we allow private health care for those that can afford it, then those people take less from the public system and everybody wins.

Dan Simon said...

I don't think it's that simple. As I said, the ban on "extra billing" was basically a form of price control on physicians' services. The government set prices for those services by defining a reimbursement schedule, and physicians had to accept those prices.

Normally, one would fear that such price controls would lead to shortages of the price-controlled service. That didn't happen, because non-frivolous health care is a very inelastic good--people's demand for it isn't very price-sensitive--and doctors therefore previously had a great deal of pricing power, allowing them to build a lot of profit into their prices. Thus, even with mild price controls, doctors still could make a very good living, ensuring a healthy supply of doctors. (The terrible supply shortages came later, and were artificially created for completely different reasons. The fact that the government explicitly acted to reduce the number of doctors demonstrates that the price controls alone weren't causing any shortage.)

Now, if a private system were allowed, doctors would have an easy alternative to accepting price controls--they could simply defect to the private system en masse. And there'd be no reason for them not to do so, since the inelastic health care market could bear a higher price than the government was offering through its price-controlled reimbursements.

Without a domestic private system, though, doctors can only "defect" by moving abroad--a much more drastic step, which few enough doctors are willing to take that the medical education system is still capable of maintaining a healthy supply of doctors.

Again, I believe the recent shortages are unrelated to the banning of extra billing. They are, in fact, part of a completely separate, and much more objectionable, cost-cutting move--the reduction of health care costs by directly squeezing the supply of medical services. My evidence is that the government took active measures to reduce the supply of doctors, long after extra billing was banned. Hence, the ban was not the cause of today's shortage of medical services.

(By the way, the attempt to reduce the supply of medical care was at least partly an attempt to address a very real problem--the frivolous use of medical services. Of course, the government's solution was an awful one, since it punished frivolous and legitimate use of medical services equally. The right solution would have been a co-payment scheme to discourage frivolous use. But I believe the Canadian system forbids co-payments, for reasons that I suspect are essentially ideological.)

LTEC said...
This comment has been removed by a blog administrator.
LTEC said...

1) I am claiming, without giving any evidence, that just after outlawing private medicine (and banning extra billing in the process) and well before taking active measures to reduce the number of doctors, the Canadian government(s) took other measures (such as reducing the number of available hospital beds) to reduce the quality and cost of medical care. I never meant to imply that reducing the number of doctors was the beginning of the decline; I merely offered it as proof that the government actively engineered the decline, and that the "too few doctors" argument is not very honest.

2) How can the government compete with the private sector for doctors' services?
The same way the government competes with the private sector when building government buildings and housing projects: it either pays market rates or it accepts lower standards of service. In fact, (as far as I know) every modern democracy except for the United States and Canada has both a public health service and private medicine. There's no mystery here. Of course, there are many different alternatives as to what the relationship will be between the two systems.

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