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Commentary

Canada’s “Free” Health Care Has Hidden Costs


     
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John Kerry’s health insurance proposals amount to a “sweeping socialization of [the U.S.] health care system,” writes Michael Cannon, director of health policy studies at the Cato Institute in a recent Daily Commentary on the Cato Web site. Although Mr. Kerry’s proposals do not echo the frequent calls for imitating the Canadian model, they would keep the U.S. heading down that slippery slope. This ought to alarm Americans. The Canadian system is much more costly than advertised because it is highly efficient in hiding costs.

Proponents of the Canadian model praise its universal coverage and its apparent low cost. Total (private and public) health expenditures are only 10% of gross domestic product in Canada, compared to 14% in the U.S. A study published last August in the New England Journal of Medicine claimed that a third of this difference is explained by lower administrative costs in the Canadian system. But, among its other faults, this accounting ignores the hidden economic costs of Canadian health care.

The Canadian system is built around a compulsory public-insurance regime that provides most medical and hospital services free. Of course, it is not free for the taxpayer, who finances the system at a rate of 22% of all taxes raised in Canada. The Canadian government pays about 71% of total Canadian health care expenditures, compared to 44% paid by the government in the U.S. This translates into public health expenditures of 7% of GDP in Canada and 6% in the U.S.—a rather small difference. The difference in total expenditures is due to higher private expenditures in the U.S. Why are private health expenditures so low in Canada? The main reason is that they are illegal, which gets us to the heart of the system’s hidden costs.

Canadian public health insurance is not only compulsory, it is also monopolistic. The system is administered by provincial governments under strict guidelines imposed by federal law and federal subsidies. Private insurance covering publicly insured services is illegal. Physicians are forbidden to accept private payments above the fees billed to the government. Hospitals are public or non-profit, and tightly regulated. Physicians’ fees are determined—or “negotiated”—by provincial agencies. Prices of drugs are controlled. In short, the public supply of medical services is rationed, and there is little private alternative. Hence the apparent low cost of the system.

The hidden costs include the poor quality of services, and the costs imposed on customers (aptly called “patients” in this case) who have to wait in queues.

Quality is subjective and can only be evaluated through consumer choices, but the government won’t let consumers make choices and vote with their feet if they are not satisfied. Anecdotal evidence of questionable quality is everywhere. In a recent piece in Montreal’s Gazette, a Canadian related her own experience, and contrasted the “kindness, discretion and professionalism” of staff in U.S. hospitals, with the frequent rudeness of unionized personnel in the Canadian system.

Long waiting lines are a fixture of the system. The Fraser Institute, a Vancouver think tank, has calculated that in 2003, the average waiting time from referral by a general practitioner to actual treatment was more than four months. Waiting times vary among specialties (and, less wildly, among provinces), but remain high even for critical diseases: The shortest median wait is 6.1 weeks for oncology treatment; excluding radiation, which is longer. Extreme cases include more than a year’s median wait for neurosurgery in New Brunswick. The median wait for an MRI is three months. Since 1993, waiting times have increased by 90%.

Waiting lines impose a real cost, which is approximated by what individuals would be willing to pay to avoid them. Waiting costs include health risk, lost time (especially for individuals whose time is most valuable), pain and anguish. Socialist systems are notoriously oblivious to anguish, discomfort, humiliation and other subjective factors which bureaucrats cannot measure or don’t value the same way as the patient does.

A Québec physician, Dr. Jacques Chaoulli, is suing the government for not allowing patients to pay for better care. The Supreme Court of Canada will hear his appeal of lower-court rebuttals in June. Last month, a class-action case was launched against Québec hospitals on behalf of 10,000 breast cancer patients who, since October 1997, have had to wait more than eight weeks each for post-surgery radiation therapy.

Liberalization proposals are met by the “two-tier system” bogey man—that if choice is allowed an unequal system will develop. But if directly paying a doctor is illegal, there are legal ways to jump the queues. As pointed out by Professor Livio Di Matteo of Lakehead University in Ontario, what now exists is a three-tier system. The very rich (like Robert Bourassa, the late Premier of Québec) go to the U.S. for rapid, personalized, high-tech treatments. The second tier is made of “the well informed and aggressive, who can push their way to the front of the treatment line.” The poor and those with no connections get stuck in the queue.

At least two Indian groups are now considering building private clinics or hospitals on their land—just as other sorts of illegal-elsewhere trade thrive on Indian reserves. Yet, Canadians who patronized such clinics would still be prohibited from purchasing private insurance to cover the service, leaving the opportunity only to the wealthiest.

As noted by Wharton professor Patricia Danzon, another hidden cost of the Canadian system comes “from forcing everyone to have the same level and type of insurance,” whatever their individual preferences are.

One last cost should not be ignored: the loss of personal responsibility and the habit of dependence on the state. Opinion polls show that Canadians are generally proud of their public health insurance. Indeed, for most people, any basis for comparison has been made illegal. Auberon Herbert, a libertarian Member of Parliament in late 19th century England wrote, “If government half a century ago had provided us all with dinners and breakfasts, it would be the practice of our orators today to assume the impossibility of our providing for ourselves.”


Pierre Lemieux is a Research Fellow at The Independent Institute in Oakland, California, and Associate Professor of Economics at the University of Quebec at Outaouais in Canada.






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