Health Care: Beware of Bargains


Recent publicity about the problems of Americans who lack health insurance has renewed calls for universal coverage guaranteeing free medical care. But with the British model in disrepute, American proponents of socialized medicine increasingly cite the example of Canada.

In particular, they argue that Canada's apparent success in controlling health-care costs demonstrates the superiority of its system, under which the government regulates and pays virtually all medical fees. On closer examination, however, this interpretation proves shaky.

True, Canada spends 8½ cents per dollar of GNP on health care, a level that has remained basically unchanged since 1978, while medical expenditures have risen to 11 cents per dollar in the United States. But even on its face, this fact does not indicate that Canada's health-care system is preferable to a more market-oriented approach. After all, high fractions of income devoted to housing, recreation, and travel are considered signs of an affluent society. Why shouldn't health-care spending be viewed similarly?

Further, the experts bemoan the low share of GNP spent on education in this country. Does it make sense to invest a large percentage of GNP in education—in improving human capital—but not in health care to ensure the proper maintenance of that capital?

Contrary to advocates of the Canadian model, it is by no means clear that spending less on health care is a priori a good thing. Indeed, although the United Kingdom spends about half as much per capita on health care as Canada does, no one therefore infers that British patients are better off. (In fact, the reverse is true.)

So we cannot safely conclude that Canada's health-care system works better than its American counterpart based merely on the difference in cost. To determine whether American patients are truly being bilked in comparison to their northern neighbors, it is necessary to measure performance more directly.

That is the aim of an ongoing study by the Fraser Institute, a public policy think tank in Vancouver. Although the final results are not in, the evidence so far suggests that Canadian health-care consumers get what they pay for: fewer facilities and longer waits for diagnostic services and surgical procedures.

The study's preliminary findings indicate that Canada's lower health-care costs are accompanied by a lower level of service. For example:

• The entire province of British Columbia has fewer CAT scanners than the city of Seattle.
• There are more magnetic-resonance imaging machines in Michigan than in all of Canada.
• With a population of 570,000, the province of Newfoundland has only one functioning CAT-scanner team, so patients must wait two months for a scan. Pap-smear tests also take two months or longer. The waiting period for mammograms is two-and-a-half months; for bone scans, 90 days; and for myelograms, three to four months.
• Throughout Canada, there are long delays for hip replacement (6 to 10 months), cataract removal (2 months or more), and coronary bypass surgery (up to a year).
• According to a February 13 cover story in Maclean's magazine, six heart patients died last year waiting for surgery at Winnipeg's Health Sciences Centre. The article reported that about 1,000 people in Toronto were being compelled to wait as long as a year for bypass operations and that two had died since December. Delays at the city's Hospital for Sick Children are so bad that in January the facility sent home 40 children in need of heart surgery.
• Administrators at a major metropolitan hospital in British Columbia estimate average waiting periods of six weeks for orthopedic surgery and four weeks for both elective and urgent general surgery.

By contrast, critics of the U.S. health-care system complain not of shortages but of excess capacity. For insured American patients, waiting lists are virtually unheard of.

The types of problems brought to light by the Fraser Institute may not be apparent to most Canadians, since the waiting lists are confined to services beyond those provided by general practitioners. But the shortcomings found by the study should nevertheless give pause to those inclined to imitate Canada's health-care system.

In the absence of market-set prices, waiting lists have emerged as a means of allocating services. By mandating fees, Canada's universal, government-provided health insurance in effect restricts the supply of medical care. Moreover, health-care costs are covered primarily with general tax revenue; there is little connection between insurance premiums and actual expenditures. Because the consumers are not the buyers, their influence on the service providers is limited.

Indeed, the Canadian government discourages physicians from accommodating patients dissatisfied by service under the state-funded system. User fees and extra billing are prohibited, and doctors are not permitted to serve both publicly insured and private patients.

In the United States, because government plays a smaller role, patients have more options. And since the buyers of insurance bear the burden of rising costs, there is a strong incentive for innovations such as health-maintenance organizations, which help control general medical costs by increasing competition.

Under the U.S. system, of course, not everyone has equal access to health care, since millions of Americans are uninsured. A closer look at Canada's system, however, reveals that it does not provide equal access, either, since waiting periods for medical services vary from one part of the country to another.

In any case, the issue of uninsured citizens should be dealt with as an income problem rather than a deficiency in the health-care system. People who have difficulty paying health-insurance premiums may also have difficulty buying food. We do not therefore conclude that something is wrong with the food-distribution system, nor do we heavy-handedly interfere with industry to solve the problem.

While government may choose to supplement the incomes of the poor so they can afford a minimum level of health care, it is folly to insist on the same standard for all, regardless of their means. In Canada, those with higher incomes are effectively prevented from obtaining better health care by paying more for it. The rationale is that enforcing one standard gives everyone an interest in resisting attempts to cut back funding for the system. But because the best cannot be made available to everyone, such an arrangement results in a lower quality of health care overall. Rather than throw a group of drowning people life preservers, the government sinks a yacht so they can cling to the wreckage.

Michael Walker is executive director of the Fraser Institute in Vancouver.