For over thirty years Canada has taken pride in its universal health care program, Medicare. This experiment in health care systems is founded on the principal that every citizen should have equal access to high quality health care. But what was the nation’s pride has become nation’s most controversial program. Skyrocketing costs and plummeting satisfaction levels forecast a dire future for Canadian Medicare. Public consensus calls for fundamental changes to the system. An eighteen-month study ending in Roy Romanow’s report, Building on Values: The Future of Health Care in Canada, attempts to answer the calls for reform by making a comprehensive series of suggestions for the renewal of the Medicare system. A group of medical economists are advising that Canada should introduce a Catastrophe Insurance/Medical Savings Account model into the health care system. This dynamic time in the Canadian health care system is yielding important lessons for the other nations of the world, who for many years have looked to the Canadian model for health care.
The Canadian Medicare System
“Our proudest achievement in the well-being of Canadians has been in asserting that illness is burden enough in itself. Financial ruin must not compound it. That is why Medicare has been called a sacred trust and we must not allow that trust to be betrayed.”
--Canadian Justice Emmett Hall
In Canada, health is viewed as a human right. Using this philosophy as their guide, the Canadian government has developed a socialized health care system that evolved from a small experiment in Saskatchewan in the 30’s and 40’s, to the current Medicare system.[i] This system provides almost 32 million people spread out over 10 million square kilometers with equal access to government-funded health services.[ii]
The policy of a universal health care system was solidified in the 1960’s with the passage of two key acts. “The Hospital Insurance and Diagnostic Services Act (1957)” and the “Medical Care Act (1968)” dictated the terms for the Medicare system. However, due to low compensation and a lack of incentives, medical service providers, such as doctors and nurses, manipulated loopholes in the legislation to increase their salaries. Some providers introduced extra-billing, which was the direct charging of extra fees to patients for insured services. User charges were another exploitation of the system. These were fees charged to the patients, which were not covered by insurance. For example, a patient could have been charged a user fee before being given access to care by a doctor. The problems of extra-billing and user charges were addressed by the “Canada Health Act (1984).” This legislation penalized such behaviors by allowing the national government to withhold payments to provincial health departments equal to the amounts predicted that were charged in extra billing and user charges. Once the providers paid the provincial health ministers back the extra charges, then the Government would release the withheld funds. This alleviated the problems of extra-billing and user-fees.
The hierarchy of the Canadian Medicare System cascades as such: House and Senate, Governor in Council, Minister of Health, Provincial Health Ministers, Provincial Health Insurance Nonprofit, Provider, Consumer. As a means of understanding this mechanism, consider the following profile:
Philip Brodeur, of Quebec, breaks his arm. He reports to the ER, which, unfortunately is crowded. Eventually he is treated, his paperwork is filed, and he goes home. His paperwork is then processed by the hospital, and sent to the public provincial nonprofit health insurance agency, called the Ministere de la Sante et des Services Sociaux (Ministry of Health and Social Services). The insurance agency then sends a payment to the doctor, and a payment to the hospital. The amount payable to the doctor is based on the service provided, and the hospital is reimbursed for the materials used. At the end of the year, the public insurance agency reports the annual provincial health costs to the national Ministry of Health. The Ministry of Health then sponsors an audit of the provincial health insurance nonprofit. If all information reported is accurate, then the Minister of Health, under the authority of the Governor in Council, reimburses the provincial health nonprofit for all of the publicly insured health care expenses incurred in the province that year. The Governor in Council then reports the national annual spending on health care to the House of Parliament and the Senate, which determines the national budget for the Medicare system and the tax rate for health care. The system’s greatest achievement is that Philip LaFayette would have ideally received the same high level of medical care if he were a businessman in Toronto, or a commercial fisherman in British Columbia.
The treatment of health care as a basic right is responsible for the high standard of health in Canada, as shown by the following indicators from 1999: The life expectancy at birth was 78.2 years; the fertility rate was 1.6 births per woman, the infant mortality rate was 6.1 per 1,000 live births, and there was negligible malnutrition for children under 5 years.[iii] But despite these signs of a healthy population, the health care system is ailing.
Challenges to the Medicare System
“The fundamental flaw of the [Canadian] Medicare system is that patients bear no direct costs for the medical services they receive.”
--David Gratzer
The state of the Canadian Medicare system has become the nation’s foremost political issue. Despite the successes of the system complaints, flaws, and suggestions are procuring the most attention. The system is founded on humanistic principals, but is plagued by a flaw of human nature: in a free-care system, there is virtually no personal accountability.
The increasing level of national dissatisfaction in the Canadian Medicare system is alarming to health care professionals and policy makers. In 2001, only one in five Canadians thought the Medicare system was working well. In 1998, 80% of Canadians thought the system needed at least fundamental changes; and three years later, 18% believed the system required complete rebuilding. Also in 2001, 26% of Canadians claimed that their access to health care had deteriorated over the previous two years.[iv]
The primary cause for dissatisfaction is the pattern of extensive queuing in the health care system. Long waits for medical attention result from overuse of the health care system. Consider the following queuing estimates to see the source of dissatisfaction:
“It takes nearly 25 weeks to get an appointment with an ophthalmologist in Canada, almost 21 weeks to receive orthopedic care, more than 18 weeks to get a heart by-pass, over 16 weeks to see a neurosurgeon, and nearly 12 weeks for a gynecological exam.”[v]
Another source of dissatisfaction is the apparent breach of one of the Canada Health Act’s five principals; universality. Studies have shown the existence of class disparities in the provision of health care in Canada. One study, conducted by the Commonwealth Foundation in 2001, found that 23% of Canadians with below national average income thought the health care system needed to be rebuilt, whereas only 13% of those with above national average income thought the system needed to be rebuilt.[vi] Likewise, 47% of those earning under $25,000 wanted a private health insurance option for Medicare, whereas only 39% of those earning over $75,000 wanted such an option.[vii] These results show that the lower socioeconomic groups are not as satisfied with their access to services as are the upper socioeconomic groups. The lower classes reported more difficulty accessing insured care; especially off-hours and specialty care. This could possibly be attributed to the upper class members’ greater abilities to advocate for themselves.[viii] The lower classes also had trouble obtaining uninsured elective health services, such as dental, optometry, medical equipment, and prescription drug services because they would have to pay for these services from their own funds. Many in the upper classes now have private insurance to cover these expenses, but the poor usually cannot afford supplemental insurance.[ix]
The cost of health care is climbing rapidly, not only for consumers, but also for the entire system. The national cost of health care in 1998 was 55.6 billion dollars, which is 6.32% of the Gross Domestic Product.[x] This is a smaller fraction of the GDP than the US system spends on their health care system; however, the Canadian system has hidden costs, such as the loss of productivity due to queuing.[xi] A study by Foot and Stoffman found that, “Canada’s health spending nearly doubled between the mid-1980’s and mid-1990’s, but there was no evidence that people were healthier as a result.”[xii] These findings imply that the extra spending has gone to ineffective administration of the system. In individual provinces, where most of the administering is done, 30% of the annual provincial budgets are portioned to health care. Unfortunately, these discouraging figures are on the early slope of a gathering wave.
Canada’s birth rate is low, and its mortality rate is also low. This recipe will yield a glut of seniors when the baby-boomers reach those years, accompanied by a small work force to support them. By 2030 the population of seniors will be equivalent to 40% of the working population, which must cover their health costs. Canadians over 65 currently use about half of all health care expenditures.[xiii] Foot and Stoffman observe:
“By the time you are in your late 70s, you will use hospitals five times more than your life-time average rate of use. If you survive until your late 80’s, you will use hospitals 12 times more than your lifetime average.”[xiv]
The amount of usage of the health care system is exactly the problem. There is not one group in the system to blame; they all contribute to its inefficiency. Beginning with the first-tier of the system, we can see that consumers are overconsuming. In a free-care system, expense is not a consideration; only convenience matters. For example, when given the option to receive immediate attention in the ER, or wait for a less expensive appointment with a physician, the tendency is to choose the ER because it is more convenient. “In 1997, the Regina Health District found that from 43-49% of the ER patients in its three hospitals were nonurgent cases.”[xv] In the 1973 New England Journal of Medicine article, “Distribution,” by Enterline et al., it was found that before Medicare, patients called their doctors for free consultation on minor problems, but immediately after Medicare was introduced, phone calls dropped, and personal free visits increased by the same percentage. In another New England Journal of Medicine article titled, “Effects,” also by Enterline, et al., it was found that physicians in Quebec believed that since the introduction of Medicare, frivolous patient complaints rose by 75%.[xvi] Also in Quebec, in the first two years after Medicare was introduced, the amount of time physicians spent with each patient dropped by 16%, and the number of patients seen per day increased by 32%.[xvii] This shows that the number of patients increased dramatically, but also, doctors’ behaviors changed.
In the Medicare system, doctors are paid on a fee-for-service basis. Due to the high national cost of health care, each service is assigned a relatively low rate of compensation. Low compensation, and overwhelming demand for services, are disincentives for providers. As a result, there are few Canadian medical students; and of the ones who become doctors, many leave Canada for the greener pastures of the American health care system. Canadian doctors have one primary way to raise their incomes; raise the number of patients they see.
A major trend in physician overprovision is requiring multiple patient visits, when fewer visits would suffice. Not only is the doctor/patient relationship strained by the shorter, incomplete visits, but also the patient is removed from the work force and made to suffer from his or her ailments longer by having to make multiple visits. Here is an example of overprovision:
“In Ontario, it was reported that over 200 family physicians had billed the government for more than $400,000 each in 1994-95 (Bohuslawsky, “Patient Overdose”). These high-billing doctors had pushed through an average of 67 patients a day, or one every eight minutes.”[xviii]
The RAND Health Insurance Experiment, conducted on 2,000 families in the U.S., between 1974-1982 tested for overprovision as a result of health systems. One group of patients with free-care coverage paid on a fee-for-service basis, like the Canadian model. The other group of patients with free-care coverage had HMO plans, in which the providers got paid a capitated (flat) fee. Expenditures in the fee-for-service group were 28% higher, and hospital admissions and days spent in the hospital were 40% higher than for the HMO coverage group.[xix] The only difference was that doctors had an incentive to overprovide for the fee-for-service group. A more disquieting version of this experiment was conducted by Blomqvist. He found that in California, when surgeons were paid on a fee-for-service basis, the number of hysterectomies (removal of the uterus) was five times higher than when surgeons were paid a flat salary.[xx] Although these experiments were conducted outside of Canada, and now have some years behind them, they still reveal the negative trends of overprovision, which are applicable to the Canadian system.
Overprovision and overconsumption are manifestations of a system that needs fixing. Hospital administrators, and politicians are also responsible for the problems in Canadian health care. Hospital expenses account for 40% of provincial health costs. For this reason, hospital reform has been the focus of health officials for almost a decade.[xxi] Other attempted repairs such as reducing medical payments, and limiting the time doctors can spend performing surgery, have come up short.[xxii] Politicians tend to point out obvious faults, and pour money into fixing them. This looks good to the public, whereas addressing the messy roots of problems looks bad. Perhaps this is partly responsible for why attempted solutions are treating the symptoms, and not the system.
Reform
In April 2001, the Canadian Prime Minister appointed former Saskatchewan Premier Roy Romanow to head a Commission on the Future of Health Care in Canada. The ensuing 18 month, $10 million investigation, which gathered information and public input from tens of thousands of Canadians, culminated on November 28, 2002 with the release of Romanow’s final report, Building on Values: The Future of Health Care in Canada.
The question addressed was the almost frantic question reverberating throughout Canada, “What shall we do to sustain our health care system?” The most striking recommendation that Romanow made was a drastic input of national funds into the Canadian Medicare system. The report was a profound message that Canada should not regress from the accomplishments of the Medicare system toward a hybrid privatized system; Canada should commit to restoring its national health care system to meet the ideals that it set out to achieve many years ago.
Romanow’s report makes the recommendations that he feels Canadians would agree with for restoring the medicare system.[xxiii] Each recommendation is thoroughly explained, given a timeline, and given an estimated cost. But it is the cost that has alarmed Canadians. Romanow recommends that the government cover a minimum of 25% of the cost of insured health services by 2005/2006 and it should sustain this funding floor in the future. In addition to this, Romanow has called for an initial surge of funds to get Canada back on a track for sustainability. The additional funding should be above forecasted federal funding by $3.5 billion in 2003/2004, $5 billion in 2004/2005, and $6.5 billion in 2005/2006, which is a surge of $15 billion.[xxiv] In his statement to the nation about his final report, he emphasizes this passage:
“But I want to make one thing absolutely clear. The new money that I propose investing in health care is to stabilize the system over the short-term, and to buy enduring change over the long-term. I cannot say often enough: that the status quo IS NOT AN OPTION! If the only result of these past 18 months of collective effort by Canadians is simply more dollars for health care, our time will have been wasted.”[xxv]
These renewal funds will go to the following five new programs to regenerate the sustainability of the Medicare system:
· A Rural and Remote Access Fund ($1.5B total over 2 years): to improve timely access to care in rural and remote areas.
· A Diagnostic Services Fund ($1.5B total over 2 years): to improve wait times for diagnostic services.
· A Primary Health Care Transfer ($2.5B over 2 years): to support efforts to remove obstacles to renewing primary care delivery.
· A Home Care Transfer ($2B over 2 years): to provide a foundation for an eventual national homecare strategy.
· A Catastrophic Drug Transfer ($1B beginning in FY 2004/5): to protect Canadians in instances where they require expensive drug therapies to remain healthy.[xxvi]
Romanow expands on some of these recommendations in his speech. He makes several recommendations for improving access and quality of care. One suggestion is an improved data collection system to help provinces collect health outcomes information, and to report regularly to other provinces so that the nation acts together to improve. A national personal electronic health record will improve efficiency, accuracy, and security in keeping patient records. A coordinated wait list management system between health care centers will provide more reliable wait time estimates and reduce wait times. Attention to long-term human resources strategies will attune administrators to the evolving needs of supply and demand in the health sector.[xxvii]
To address the challenges posed by the rapidly advancing pharmaceutical industry and rising drug costs, Romanow makes three suggestions: There should be a catastrophic drug transfer to help provinces provide funding for prescriptions in cases where drugs become crucial to a consumer’s health. Currently many Canadians have no drug coverage, and the majority of those without coverage are poor. The establishment of a national drug agency could monitor the pharmaceutical industry to improve costs, safety, and knowledge about drugs. And the drug patent legislation should be refined to allow for purchasing of generic versions of drugs immediately after new drug patents run out.[xxviii]
One of the thematic grievances about modernized health systems is the loss of home care services. In Canada, where doctors are paid on a fee-for-service basis, home care is especially neglected. But research has found the obvious, that home care is very valuable to improving health for many people. In particular, home mental health care, post-acute home care, and palliative home care demand attention. Romanow suggests the establishment of a national home care system.[xxix] This will become increasingly important as the population ages.
Romanow makes many smaller recommendations; forty-seven of them in total. In addition to recommendations, he issues observations, warnings and requests, which make his final report an approachable, sensible, and sensitive document. He warns politicians that inter-provincial bickering over health care is deleterious and he requests cooperation. This request has already been denied, especially by Quebec. Quebec traditionally prefers to be more autonomous than other provinces, and is upset by the centrality of Romanow’s recommendations. The province would very much like the extra funding Romanow proposes, but would like it with no strings attached so that it can use the funds in its own way. Alberta is also unhappy with Romanow’s request that all provinces report the precise usage of its federal funds.[xxx] These provinces feel that they can better attend to its peoples’ health care needs with less patriarchal central monitoring.
Another warning that Romanow issues is that if Canada does not renew the sustainability of Medicare, then the system will succumb to the privatized sector. He states:
“The grave risk we will face is pressure for access to private, parallel services – one set of services for the well off, another for those who are not. Canadians do not want this.”[xxxi]
Romanow holds strongly to the ideals of the Canadian system; universality, equity, and quality. His commission’s nationally engaging, comprehensive, transparently presented investigation, and its clearly written, persuasive final report present to Canadians what is nearly the most accessible evaluation of the medicare system possible. While there have been many other suggestions for improving the Canadian health care system, Romanow’s recommendations seem to construct a track toward sustainability.
Implications
At the end of his statement to the nation, Roy Romanow issues this pointed counsel:
“Many of the so-called “new solutions” being proposed for health care – pay-as-you-go, user and facility fees, fast-track treatment for the lucky few, and wait-lists for everyone else – are not new at all. We’ve been there. They are old solutions that didn’t work then, and were discarded for that reason. And the preponderance of evidence is that they will not work today.”[xxxii]
Romanow clearly has his biases. Although his recommendations are supported by evidence, it would be unfortunate to dismiss other “new solutions.” One new solution that is gradually garnering support from medical economists, is what Romanow would perhaps refer to as a pay-as-you-go model. A new Catastrophe Insurance/Medical Savings Account model of health care coverage could have profound implications for Canada. And even if this model is not eventually utilized to rebuild Canada’s health care system, exploring it will surely hold lessons. The Catastrophe/MSA model has also been looked at in the US as a way to reduce health care costs in a completely privatized system. For this reason, it will be valuable for other countries, such as India, which has a highly privatized system, to consider the Catastrophe/MSA model.
The Catastrophe Insurance/Medical Savings Account Model
“We generally rely on insurance to protect us against events that are highly unlikely to occur but involve large losses if they do occur—major catastrophes, not minor regularly occurring expenses. We insure our houses against loss from fire, not against the cost of having to cut the lawn.”[xxxiii]
--Milton Friedman
Health insurance around the world has become an integral part of health care systems. Yet, it has evolved its own definition of insurance. Health insurance policies that cover everything from family planning to geriatrics are costly, and may not be the best means to paying for health care. From the U.S.’s privatized health care system, to Canada’s universal health care system, to systems in developing nations, a new model is emerging to challenge the current health insurance paradigm.
Many health economists are recommending a restoration of health insurance to its original purpose. It is far more cost-effective for an employer, or country, to purchase a high-deductible catastrophe medical plan for its dependents, rather than purchasing a comprehensive plan, which covers a lot of services not used. The money saved from switching to a catastrophe medical plan, would be deposited into a Medical Savings Account (MSA). An MSA is a tax-exempt account that can be used to pay for approved medical services of the holder’s choice. The result is, instead of putting money into a comprehensive insurance plan, where unused money goes to the insurance company, the account holder pays for his own services and keeps the unused money. This new catastrophe insurance/MSA model has promising implications backed by empirical evidence.
The previously mentioned RAND Health Insurance Experiment also tested consumer paying models. One group received free care, like in the Canadian system. The other group was given money, and had to pay for their medical services (user fee group). It was found that the free care group was 28% more likely to use medical services, 67% more likely to see a doctor, and 30% more likely to be admitted to the hospital, with 20% more days per year of restricted activity than those who were in the user fee group. It costs 45% more to have a free care system. And there was no difference found in the overall health of either group.[xxxiv]
Similarly, Lohr et al. (1996) found that a cost-sharing scheme, like the catastrophe/MSA model, reduced the use of both necessary and unnecessary medical services. Yet there was no decrease in the health of the individuals surveyed. Their hypothesis is that unnecessary medical visits can be adverse to your health, resulting in necessary visits. When you eliminate both, there is no net change in health.[xxxv]
The natural conclusion to draw from these studies is that when consumers must spend their own money on health care, they spend it more prudently than when they are spending the government’s or insurance company’s money.
The Canadian government could introduce a catastrophe insurance/MSA health care system, in which it pays for catastrophe insurance for each citizen, and gives each citizen an MSA stipend based on his or her health, age, and socio-economic class. The catastrophe insurance would relieve the anxiety-producing risk of major medical expenses. And the MSA’s would reintroduce a competitive market to the health care system.
A competitive market drives progress through efficiency and incentives. Consumers would benefit most because the affects of change are amplified most at the end of a cascade. They would likely spend less on health care because they would be accountable for their own expenses. These expenses could include currently uninsured services, such as dental, home care, and medical supplies. This freedom would be beneficial to the sick and the poor who currently have trouble paying for prescriptions and other uninsured services.[xxxvi] Fewer visits to the doctor would allow consumers more time to participate in the work force. At the end of each year they could withdraw the money in their MSA’s as taxable income, or they could roll it over into their accounts for the next year. Less spending would mean lower national health costs, leading to lower taxes for consumers. Less consumption would resolve the queuing problem and raise consumer satisfaction by giving them faster access to medical services. They would also likely be more discerning over who provides their medical services.
The catastrophe insurance/MSA model would restore doctor/patient relationships. Patients would choose their providers carefully and know about their doctors before they went in for appointments. Lower demand on services would give doctors more time to spend with their patients. This would give them time to develop relationships with their patients, educate their patients, and address medical complaints that in the current system would require multiple patient visits. Increased patient selectivity would bolster competition between physicians to provide better care to attract more patients. This incentive would raise provider salaries, which in turn would make medicine a more attractive career field. Medical school admissions would likely rise, and the resultant doctor to patient ratio would improve, thus potentially leading to better national health.
Several nations are already using catastrophe insurance/MSA options to optimize their national health. The private sector in the U.S. is gradually implementing such plans, to high reported levels of success. Singapore and China have catastrophe insurance/MSA options. Shaunn Matisonn of the National Center for Policy Analysis discusses South Africa’s experience with such plans:
“For most of the last decade [the nineties]…South Africa enjoyed what was probably the freest market for health insurance anywhere in the world…In just five years, MSA plans captured half the [private insurance] market…attract[ing] individuals of all different ages and different degrees of health.”[xxxvii]
Success in other nations, empirical evidence, and advising from medical economists strongly support the new health care systems model of catastrophe insurance with MSA’s. The dust storm of politics over the current state of Medicare, makes such a change difficult to see in the near future for Canada. However, this model could emerge as a solution for other countries.
Conclusion
The Canadian Medicare system has been a grand experiment in health care systems. It has succeeded for many years, and it has set an example for the rest of the world, both in its successes and its failings. Current trends allude to its eventual collapse. In order for Canada to regain the sustainability of its touted health care system, there will need to be fundamental changes to its structure. Roy Romanow’s very thorough report, Building on Values: The Future of Health Care in Canada, makes a complete collection of recommendations for refurbishing the health care system that was once Canada’s jewel. If the recommendations are followed closely with minimal political interruption, then it seems that they could lead Canada back onto the track for sustainability in its health care system. The forthcoming, honest, comprehensive methodology used by the Commission on the Future of Health Care in Canada during its study should provide a model to other countries for how to properly evaluate and confront national health care issues. Meanwhile, a growing group of health economists are adhering to the catastrophe insurance/MSA model. Other nations can learn a great deal from the ideas and methodologies that are emerging in this period of transition for the Canadian health care system.