Chapter 14: Education

When the US discussed improvements to its healthcare system (2010), Canada was often mentioned

Most Canadians consider our Medicare one of the best health systems in the world…But worry this may not persist

There currently are huge struggles for increased healthcare funding and overall healthcare reformHealthcare has risen from 6% of GDP in 1960 to 9%

of GDP in 2007

Chapter 13: HealthcareWhat’s Special About Healthcare?Canada vs. The WorldHistory of Canadian HealthcareHealth Expenditure TrendsThe Canadian Health ActChallenges and Future Directions

What’s Special About Healthcare?Healthcare is publicly provided for 5 (now

familiar) reasons:

1)Poor information

2)Adverse selection and moral hazard

3)Paternalism

4)Income Redistribution

5)Externalities

Poor InformationOften, consumers are fairly well informed about

the goods they buy (you know how an apple tastes, you can test drive a car, etc)

When you are sick, you may not be well informed about the treatment you buy

In addition, the expert in the field is also the person selling you the product (the doctor)Imagine if you trusted a car dealer about the “right”

car for you

Adverse SelectionIf health insurance were a private option, those

most likely to be sick would purchase itThis leads to more expensive claimsThis leads to higher premiumsThis leads to more people not buying insurance

The end result would be UNDERPROVISION of healthcare

Moral HazardIf people have health insurance, their actions

may change in two ways:1) They live unhealthy lifestyles, knowing they are

covered (unhealthy eating, unhealthy living, extreme sports, etc)

2) They over consume healthcare since it’s free (“Last night on House the woman had Ebola, so I figured I should get tested.”)

This effect can be shown through supply and demand:

7

D=MB

S=MC (constant)P0

Q

P

With insurance, x% is covered, and a patient pays (1-x)P0 and consumes Q1 (where new S=D). This causes healthcare

expenditures of Area A +B (expenditures increase).

(1-x

)P0

Without insurance, a patient pays P0 and

consumes Q0 (where S=D).

This causes healthcare expenditures of area A.

A BQ0 Q1

PaternalismSome may not purchase health insurance:

a) They don’t know how it works

b) They don’t think they need it (“I am INVINCIBLE!”)

c) They forget about it

Mandatory medical insurance (such as public healthcare) makes sure everyone is covered.

Income RedistributionCanadians generally agree that everyone

should have equal access to medical services, regardless of ability to pay. (Even the US supplies free EMERGENCY medical services, regardless of ability to pay.)

Public Healthcare redistributes income from the rich (who pay more taxes) to the poor (who may not be able to afford healthcare)Also, lower incomes may have a greater need for

healthcare, resulting in a greater redistribution

ExternalitiesHealth services typically carry positive

externalities (if people around you are vaccinated and healthy, you are less likely to be sick)

Since goods with positive externalities are underconsumed in private markets, public healthcare would increase consumption therefore increase positive externalities

Canada vs. The WorldA “snapshot” of country statistics can give us an

idea of Canada’s healthcare compared to the world:

1)Demand for healthcare can be examined through senior population (who have higher healthcare demand)

2)Number of physicians can give us and idea of health care supply

3)Life expectancy and infant mortality can give us an idea of healthcare output

Canada vs. The World4) Healthcare expenditures can give us an idea of

how much we spend on healthcare, and can then be compared to healthcare results

Note that Canada spends less on healthcare than the US, but has better life expectancy and lower infant mortality

Note also that factors other than healthcare (income support, weather, etc) also affect these healthcare statistics:

Go Canada, Go!

History of Canadian Healthcare

1940 – hospital and medical care were privately funded, with religious or voluntary organizations running some hospitals considering ability to pay

1947 – Saskatchewan introduced hospital insurance

By 1961 – All provinces had hospital insurance, with the federal government covering 50% of costs on average (physician payments were still private)

History of Canadian Healthcare

1962 – Saskatchewan started provincial Medicare

1971 – All provinces had Medicare, federal government covering about 50%

1977 – Federal government funded healthcare and post-secondary education through Established Program Financing (EPF), offering equal per capital grants to provinces (increasing with GDP growth)

1982-1995 – EPF limited and changed to give more to provinces eligible for equalization

History of Canadian Healthcare

1984 – Canadian Health Act Passed, laying out 5 conditions for EPF transfers

1996 – EPF grants replaced with Canadian Health and Social Transfer (CHST), covering health, education, and post-secondary education (Health Act still applied)

2004 – CHST broken into Canada Social Transfer (CST - welfare and post-secondary education) and Canada Health Transfer (CHT)

2006-07 – 20.1 Billion in CHT grants

Health Expenditure Trends

Jumps : 1966-1971 (Medicare), 1979-1983, 1988-1992 (10%)

Drops in 1992 to 1996 (restraints and cuts), public backlash

Spending increase 1996-2004 (response to backlash)

Health Expenditure Trends

Hospitals receive less funding due to more community and home health services

Drug costs have increased due to rising drug prices, advances in using drugs as treatments, and aging population

Canada Health ActThe Canada Health Act (1984) lays out 5

conditions for federal grants for healthcare:

1)Universality: All residents are entitled to health insurance coverage

2)Accessibility: No financial or other barriers for medically necessary hospital and physician services (provincially defined). Reasonable compensation for hospitals and physicians, extra billing prohibited.

Canada Health Act3) Comprehensiveness: All medically necessary

services (provincially defined) must be insured.

4) Portability: Coverage is maintained when a resident moves within Canada or travels outside the country (covered at provincial rates).

5) Public Administration: Health insurance administered on a non-profit basis by a public authority

2006 Per Capita Health Expenditures

While all provinces support the Act, per-capita expenditures vary widely

Government fines for violating the act have been small

Public support, not fines, enforce the Act

Challenges and Future DecisionsHealth Care Costs have been increasing:$98.8 billion was spent by government in 2005$43.2 billion was spent privately in 2005Inflation adjusted expenditures nearly tripled

between 1975 and 2002

How long until these increasing expenses cut into education, welfare, policing, protecting the environment, and infrastructure? (Courchene 2002)

Challenges and Future DecisionsHealth Care Cuts have been made:Acute care beds in hospitals have declined

23% from 1995 to 2003Average acute-care hospital stay has

decreased from 10 days in 1980 to 7.3 days in 2003

Are people right? Is healthcare in decline?

Are we doooooooomed?1) Canada’s self health ratings haven’t changed

in 10 years

2) Life expectancy has increased

3) Lower population proportion report health problems limited daily activities

4) Work-related injuries are down

5) Low-birthrate baby rate is stable since 1980’s

6) More overweight since the 1980’s, especially women

7) Death rates have declined

Noooooooo doooooooom

Challenges and Future DecisionsHealthcare isn’t in decline, but cost pressures are

incoming:

1)Aging population

2)Improving technology (decreasing some costs, making other costs available – ie MRI)

3)New (expensive) drug treatments

Challenges and Future DecisionsIncreased waiting times incited 3 reports:

1)Mazankowski Report (Alberta, 2001)

2)Kirby Report (Senate, 2002)

3)Romanow Report (Canada, 2002)

More than 100 recommendations include revolve around the issues of:

1)Cost reductions

2)Quality improvements

3)Better management

4)Better accountability

Future Issues5 big issues lie in the future of healthcare:

1)Changing incentives

2)Defining medically necessary services

3)A national pharmacare program

4)Privatization

5)User charges

Changing IncentivesCurrently, a FEE-FOR-SERVICE method is used

to pay physiciansThis encourages physicians to quickly deal with

patientsThis discourages physicians from referring to

nurses and other health providers

Kirby recommended a capitation program, where patients enrol in a group practice, who get annual payment for number of patients, adjusted for factors such as age and gender.

Defining medically necessary services

“Medically necessary services” vary from province to province

This results in significant variations in per-capita spending

Some provinces are thinking of coming up with a common listBut doesn’t “medically necessary” vary from patient

to patient?

National Pharmacare Program

Kirby and Romanow suggest that drugs be covered under a public health system

Critics argue that such a plan would be too expensive

In addition ½ the cost of prescription drugs is currently covered by employee benefit plans (Coutts 1997)

Privatization

A 2005 Supreme Court of Canada decision (Chaoulli v. Quebec) ruled that if medicare waiting times are long, restricting private medical insurance coverage violates citizens’ rights to life and security of person.

Other provinces have similar laws restricting private medical insurance

On one hand, private medical services may reduce costs and waiting times

On the other (amputated) hand, this may lead to the eventual death of medicare

User Charges

Mazankowski recommends user charges to discourage health care overuse

Kirby counters most care is beyond patient control - charges discriminate against the sick

User fees can take the form of:a) Deductibles

b) Nominal service fees (ie: $5)

c) Co-insurance (patients pay a %)

Canada is the only industrialized country that prohibits user charges for public insured health services (Senate 2002)

Chapter 13 Conclusion

Healthcare is public due to: adverse selection, moral hazard, paternalism, income redistribution and POSITIVE EXTERNALITIES

Canada has average or above-average outcomes at above-average costBut we beat the US

Provinces supply healthcare with federal contributions

Canada Health Act (1984) outlines 5 healthcare requirements for federal contributions

Chapter 13 Conclusion

Canadian health is improving, but experts agree that changes may be needed in the future due to increasing costs

Costs will increase due to population aging, technical advances, and drug advances

Current debates are: incentives, “medically necessary services”, national pharmacare, private sector roll, and user charges