Outside the Beltway

The Implosion of the Canadian Health Care System?

Steve Verdon · Monday, February 27, 2006 · 7 comments

That is what it is looking like. Russell Roberts at Cafe Hayek points to this New York Times article that paints and interesting picture in Canada. Here are the key paragraphs,

The country’s publicly financed health insurance system — frequently described as the third rail of its political system and a core value of its national identity — is gradually breaking down. Private clinics are opening around the country by an estimated one a week, and private insurance companies are about to find a gold mine…..

But a Supreme Court ruling last June — it found that a Quebec provincial ban on private health insurance was unconstitutional when patients were suffering and even dying on waiting lists — appears to have become a turning point for the entire country.

“The prohibition on obtaining private health insurance is not constitutional where the public system fails to deliver reasonable services,” the court ruled.

In response, the Quebec premier, Jean Charest, proposed this month to allow private hospitals to subcontract hip, knee and cataract surgery to private clinics when patients are unable to be treated quickly enough under the public system. The premiers of British Columbia and Alberta have suggested they will go much further to encourage private health services and insurance in legislation they plan to propose in the next few months.

Private doctors across the country are not waiting for changes in the law, figuring provincial governments will not try to stop them only to face more test cases in the Supreme Court.

Looks pretty bad. My guess that this is a Pandora’s Box for the Canadian government and now that it is opened it will be very, very hard to close. How do you tell somebody who has cancer that they can’t fork over the money for a diagnostic test, but instead have to wait and possibly die? Each such case is a politician’s nightmare (think Terri Schiavo).

The problem is that a badly designed health care system will have rotten incentives. Think of it this way, suppose a law was passed making the price of lobster 1/100th its current price. The obvious result is that there would be far fewer lobsters on the shelves. People would purchase the existing inventory, and at these low prices lobster fishermen would switch to other more profitable catches. We saw this kind of thing with the price controls during the past oil crises. And we see the same thing in Canada with one huge difference: unlike lobster there aren’t many substitutes for health care services.

As with the lobster example, there is a shortage of both nurses and doctors in Canada. This should be obvious. Where is one place that the government can control costs? Doctor and nurse salaries. Fix those at a fairly low level and the rate of increase and you can help control costs. Since doctors and nurses are almost all highly intelligent and motivated people they will see that they can get more for their work in other occupations or in other countries. So you end up with a shortage of doctors and nurses. The exact same logic applies to hospitals, MRIs, and other things as well. The population is largely unable to go someplace else to get an MRI scan so if you have only three MRIs throughout the entire nation, there isn’t much the people can do about it.

To make the who system work Canada has to make all other alternatives illegal (note by the way we saw the same thing with the Clinton Health care proposal). If this were not the case, then it would exacerbate the problem with doctors and nurses. Seeing that there is more money in private practice doctors and nurses would leave the government system for the private companies. This would make the waits and service via the government system even worse. Given the existence of private health care companies there would soon be private health insurance companies as well. Pretty soon the only people left on the government program would be those who can’t get insurance or are extremely poor. By this time you’d have a health care system that looks quite a bit like the U.S. system.

On top of it, I’d argue that there are in effect uninsured people in Canada and lots of them. What is the benefit if you have government insurance if you still have to wait 10 months to get an MRI, and 18 months to get the procedure done? For 18 months you don’t have health care that you need. In effect you have no insurance as you sit there in pain and missing out on large portion of your life.

I’d say things are about to change in Canada. Whether the change is for the better or not will depend largely depend on the politicians. This latter point makes me think it wont be for the better, but who knows maybe the Canadian courts will keep the politicians from mucking things up too much.