Private Healthcare and Market Failure - Why Single-Payer is the most effiecient
With Ralph Klein's recent pronouncements, a new CPC government and the Healthcare Debate up over at BPOC, the issue of healthcare is back on national agenda. There is a growing push for more privatization and the indroduction of private insurance to "fix" the perceived shortcomings of the system. Problem is, most of the people making these assertions fail to understand the nature of our system and the nature of market failure.
First, despite what many of the more vocal pundits on the right would have you believe, we do not have a "socialist" or purely socialized medical system. In Canada, the vast majority of health services are delivered through the private sector. What we have is a monopoly on health insurance - that is, your provincial government is your health insurance company and your doctor, or diagnostic clinic, which are private businesses, bills them for the services rendered. Our goverment provides such insurance services to its citizens because left to market, private insurance would result in a condition of market failure - high costs for services that are not needed while services that are needed are unfufilled (people unable to get medical treatment). This is what truly differs us from the US and also what differs us from Europe. Ironically, Europe, oft cited by conservatives as the model we should follow, is more socialist than we are - they deliver healthcare directly to citizens, rather than via public insurance, and doctors and medical professionals are employees of the state.
Insurance is a curious business, prone to market failure and plagued by the twin demons of "moral hazzard" and "adverse selection." Insurance often attracts customers that most need the insurance and who think that they will get more out of the insurance than they pay in via premiums and deductables. These are the last customers an insurance company wants because they will lose money servicing them. The customers they want are those that don't need their insurance. This is adverse selection - automatically attracting the type of customer you don't want.
"Moral hazzard" occurs even after the insurance company attracts the "right" kind of customer. Now that they are covered, formerly careful people have no incentive to remain careful because they can externalize the costs rather than pay it themselves. They become more reckless, causing more "accidents" to happen, resulting in more claims and payouts, driving up premiums and rates.
Insurance companies try to mitigate these issues and remain profitable by refusing to ensure certain people, raising premiums or simply not entering into insurance for an entire class of risks. In health, that means things like pre-existing conditions, age, or sex can be used to refuse coverage, pay only partially or charge much higher rates. It is this that produced one of the bitterest ironies of the Chaoulli case - George Zeliotis, the plantiff in the case that sought private insurance for his hip replacement, would not have qualified for the coverage he sought. The only winners in that case would have been the insurance companies, who would make profit selling insurance and collecting premiums, and Dr. Chaoulli, who would get the money. In the US this has led directly to the market failure in private insurance - very few people get coverage and procedures cost too much. For instance, a colonoscopy in 2001 cost $150 in doctor's fees in Canada, while in the US the same operation cost $475 for the government and $885 through private insurance. This is from both the higher administrative overhead in the private system and the fact doctors can charge insurance companies any rate they choose and for sometimes unnescesary procedures. Health consumers in this system are further encouraged to go along with this because of the "use it or lose it" prisoner's dilemna they find themselves in. The result is an innefficient and expensive system that benefits very few consumers yet generates profit and wealth for doctors and insurers - a market failure.
In Canada, we mitigate these issues by having a single insurer, with a single bureaucracy to reduce administrative overhead and reduce purchasing costs (for instance, vaccines cost less when purchased in bulk by a government, either federal or provincial, and given out to anyone, rather than by smaller firms or clinics that have the overhead of needing to track each dose for billing purposes). Our system removes the insurer's profit motive, allowing coverage to be universal and accssible to those that actually need it. Costs are kept down by negotiation fee schedules with medical associations, where they must justify the need to raise fees. Doctors are still paid on a "fee for service" but the government is able to provide much better supervison and auditing than private insurers, preventing much or the above mention moral hazzard problems. Even in the US, the idea of a central bureaucracy along these lines is quite popular - the HMO is the US corporate version of this bureaucracy. The HMO is even more bureaucratic than the government though, because they still need to account for the extended overhead of billing. For instance, Kiaser Pernmanete has a health care bureacracy larger than most of Canadian government run healthcare systems for its 6 million subscribers in California alone. And it is only one of the providers. Also, it has a single monolithic, centralized bureaucracy rather than a decentrialized one as we do in Canada.
Clearly then, our single-payer system is more efficient and delivers quality healthcare at lest cost than a private system. But what of a mixed system? Won't allowing private insurance along side the public system help?
The biggest problem with this is the shortage of doctors, especially GPs. If doctors are forbidden to practice in both a public and private system, many will move to the higher paying private system, leaving the doctor shortage more acute in the public system further makeing wait times grow.. If doctors are allowed to practice in both systems, they will be "perversely incented" to keep wait times long in the public system in order to move patients to the private system, where they can charge more and earn more. This is actually what happened in England and Australia .
Those who need faster service, like Mr. Zeliotis, or specialized services, or long-term care, will not receive coverage or make the wait times any faster. Insurance companies will make profits, doctors in the private system will make profits. Private clinics like the Copeman will make a great deal of money off of the "low hanging fruit" of easy to perform procedures that only the wealthy can afford, leaving the public system to care for the high-risk, expensive procedures. But Canadians in general will not be any better off and indeed, there is a case to be made that they will find themselves in a far worse situation.
That is not to say our system is perfect, far from it. But private insurance and for-profit private delivery are not the answer. Clearly some of the organizational efficiencies of the private system can help when applied to the public system - specialized clinics, case management, better queue management. The study from Alberta in December shows what is possible. GP's are facing higher costs and thus lower wages. These can be mitigated by sharing adminsitrative resources in a walk-in clinic like setting, as Ontario is in the process of implementing.
Our single-payer system is the most efficient and fair system in healthcare, but as the Chaoulli descision shows, it requires proper stewardship and cannot be subjected to haphazard cuts in funding. It works when properly funded. Combining better funding with better organizational effiecincies, it is possible that our system can once again be on of our points of pride. The system can be fixed without resorting to privatization and private insurance. All that is needed is real political will.
Beyond the links above, please read "The Efficient Society" by Joseph Heath, the The Canadian Health Sciences Reseach Foundation Mythbuster page, the testimoiny of Dr. Arnold Relman and the video series from CBC about the birth of our health care system.