Diagnosing problems with the Canadian health care system
by Robert Chernomas
To help clear away obstacles standing in the way of efforts by corporations to raise the rate of profit, in the 1980s and 1990s capitalist governments introduced policies that deregulated key economic sectors and allowed for the privatisation of publicly-owned assets.
The advantages to capital of these policy changes are significant. For one, new sectors are opened up for private-sector investment. In addition, labour and the public in general become more subject to greater control by market forces. The result is a transfer of wealth and power from the public to the private sector.
The health sector in Canada is an illustration of both deregulation and privatisation. The hope that the recent Health Accord between the provinces and a more generous federal government would stem this tide in the public interest must be seen as a disappointment.
The Health Accord
Paul Martin was elected on a promise to fix health care for a generation. The Medicare deal struck between the premiers and the Martin government stipulates that over the next 10 years there will be $41 billion in new federal cash transfers. It is highly unlikely, however, that this deal will fulfill his promise or that it will provide needed and promised access to cost-effective and timely surgery, drugs and homecare. Why?
First, there is no mechanism in the agreement that ties the money to results. As recently as 2002, the federal auditor general told Canadians that the provinces were breaking the Canadian Health Act because federal money that should have been earmarked for health care has been used for everything from tax cuts to lawn mowers. With few strings attached to the $41 billion, much-needed health care improvements such as reduced wait times for cancer surgery or home care cannot be guaranteed.
Second, there is nothing in the agreement that stems the tide of for-profit health care. Indeed, the absence of mechanisms linking money to results opens the way for for-profit (multi-payer) health care to rise because the latter is more costly and less effective than public (single-payer) health care. This becomes clear once we consider two issues that must be at the forefront of the discussion around the “Medicare Deal”: sustainability and cost-drivers.
A nation’s capacity to finance its public health expenditures can properly be measured by the share of public health expenditures in its GDP. Canada spends about the same percentage of GDP (10%) as the Germans and French and significantly less that the US (14%). That 10% is about the same amount we spent a decade ago. Part of that 10% is public and part is private (insurance and out-of pocket). The public share (out of taxes) is about the same for Canada (6.8%) as the rest of the G7 and interestingly, approximately the same as the Americans.
Implicit in the question as to whether we can afford our single-payer health care system is the assumption that what matters to a nation’s capacity to maintain its health care spending is, everything else being equal, not who pays, but rather how much is spent. However, everything else is not equal if a single-payer public system such as Canadian Medicare can raise financing, administer claims, and spread risks over the population more efficiently than a multi-payer private system can. There are no marketing expenses, no cost of estimating risk status in order to set differential premiums or decide whom to cover, and no allocations for shareholder profits.
Indeed, the larger the private share of health care financing, the more difficult it is to control health care expenditures. The overhead cost of administrating a multi-payer system, for both reimbursing agencies and providers, is generally much larger than a single-payer public system. In 1999, the estimated cost of prepayment and administration accounted for 13.6 percent of total payments to private insurers in Canada versus only one percent in the public sector. Thus, it is no surprise that administrative costs count for nearly half of the difference between the share of resources allocated to the health sector in Canada and the US.
What’s more, in a 1999 article in the New England Journal of Medicine the authors argue that no peer-reviewed study has found that for-profit hospitals are less expensive than not-for-profit hospitals. And not only is for-profit health care less efficient, it delivers lower quality care. A Journal of the American Medical Association article in 1999 found that an examination of the quality of care, for everything from heart attacks to diabetes to eye examinations, showed that investor-owned Health Maintenance Organizations deliver a lower quality of care than not-for-profit plans. A June 8, 2004 study in the Canadian Medical Association Journal concludes that for-profit hospitals result in both higher mortality rates and greater payments for care than not-for-profit hospitals (June 8, 2004).
Cost-drivers
The Canadian health system is mandated by the Canada Health Act (CHA) to control three sub-sectors: hospitals, physicians and administration and not other sub-sectors such as dental care, pharmaceuticals, long-term care, hi tech equipment and so forth. (The former is hereafter referred to as CHA services and the latter as non-CHA services).
While overall health care costs rose as a proportion of the economy in the 1980s and the second half of 1990s, the share of resources allocated to CHA services were stable or declining. Thus, the increase in cost reflects the rising costs of non-CHA services. Research from the Canadian Institute for Health Information demonstrates that government spending on hospitals and on physician services has declined as a share of total health expenditures over time. In 2003, 30 per cent of total health expenditures went to hospitals (down from 45.2 percent in 1976), and 12.9 per cent of expenditures went to physician services (down from 15.4 per cent in 1991).
While there is no indication that spending on CHA services are getting out of control, the non-CHA costs have been growing. Expenditures on the non-CHA services accounted for 37 percent of the total health spending by the provincial and territorial governments in 2001, up from 23 percent in 1975. The increase in the cost of non-CHA services has become particularly pronounced in the case of prescription drugs whose share of health care costs almost doubled, from 7 percent in 1987 to 12 percent in 2001. The disproportionate rise in prescription drug costs among all items of health care expenditures over the period 1987-2001 alone accounted for about 53 percent of the rise in the share of resources allocated to the health care sector. Since 1997, drug costs (prescription and non-prescriptions) have exceeded expenditures on physicians by a growing margin. In 2003, spending on drugs represented 16.2 per cent of the total health expenditures in the country, up from 9 per cent in 1984.
It is often argued that higher drug costs pay for themselves because they provide hospitals with more effective therapy. However, according to a recent of study of 1035 new drug applications that received approval by the Food and Drug Administration in the United States for the twelve year period from 1989 to 2000, in 85 percent of the cases the new drugs do not provide significant improvement over current therapies. According to the National Institute for Health Care Management, drug manufacturers have capitalized on perverse incentives in new patent laws and advertising regulations to flood the market with new products (known as “evergreening” in the industry). Joel Lexchin tells us that of the 455 new patented drugs introduced into Canada from 1996-2000, only 25 (just over 5%) were major improvements.
Successive Tory and Liberal administrations have rewritten patent laws and regulations extending the period of patent protection and restricting access to lower priced generic drugs. The extension of patent protection was justified on the grounds that we needed to encourage the multinational drug companies to do more of their research and development in Canada. In other words, the cost of higher drugs would be offset by the multinationals’ willingness to increase Canada’s role in the “knowledge” economy. But if these new drugs drive costs up without improving our health or saving resources, this is the equivalent of paying corporations to dig holes and fill them in again.
Conclusion
Analysis of the recent for-profit health care experience of the US suggests it is more expensive, of relatively poorer quality and less accessible than are single payer, non-profit systems like Canada’s. It is therefore unlikely to reduce waiting lists for surgery or the number of patients lying in beds in the halls of our hospitals. Spending a dollar on the less efficient for-profit sector means we get less service for the same dollar.
Furthermore, an increasingly wasteful healthcare system undercuts the capacity to properly fund a range of other services. In a speech before the Canadian Medical Association on August 19, 2004, Roy Romanow noted that since 1996 spending on health care has increased by $108-billion while during the same period federal and provincial governments cut taxes by $250-billion. Tax cuts plus rising health care costs could result in a fiscal crisis for other areas of the public sector.
The only way to begin reversing this trend is to stem the tide of privatisation. By failing to do this, the federal government’s recent deal with the provinces fails to solve the real problems in the Canadian health care system.
Robert Chernomas is a Professor of Economics at the University of Manitoba and a member of the Board of the Council of Canadians.