Canada’s Health Care

A Model for the United States?

åke blomqvist is an adjunct research professor at Carleton University in Ottawa and health policy scholar at the C.D. Howe Institute in Toronto.

Illustrations by Robert Neubecker

 

The shortcomings of the health care system have been front and center in the American debate over social policy for decades. Canadians are also preoccupied with health care policy, but with one big difference: while Americans are highly critical of the U.S. system, Canadians think theirs is a successful one that should be defended and strengthened. Indeed, many view Canadas universal health care model as a central element of national identity. The Globe and Mail, Canada’s leading newspaper, recently opined that the establishment of universal health care should be singled out as the most significant collective achievement since Canada became a unified country in 1867.

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To Canadians, U.S. health care reform appears chaotic, bogged down in unproductive ideological debates that Canada left behind decades ago. Why, they ask, couldn’t the United States move past the convoluted Obamacare approach, opting instead for a version of the simpler, more transparent Canadian single-payer model of financing to settle the issue once and for all? For their part, many Americans who are somewhat familiar with the Canadian system ask the same question. Indeed, during the 2016 elections, Bernie Sanders called for a single-payer solution to the problem of extending coverage beyond the Affordable Care Act.

The Canadian system is attractive for two big reasons: everybody’s covered, yet the cost of health care per person is less than half that of the United States. As a result, Canadian health care absorbs about 10 percent of GDP compared with almost 17 percent in America.

A U.S.-Canada comparison may be a good way to begin the story, but why end there? Canada is not alone in providing universal coverage. In fact, the United States is the only high-income country that does not. Moreover, in international comparisons of health system performance, Canada has not come out particularly well in recent years. In the 2017 update of an often-cited ranking of 11 high-income countries’ health care systems by the Commonwealth Fund, Canada is third from the bottom, above only France and the United States. (The surprise winner — surprising, anyway, to those disdainful of “socialized medicine” — was Britain.)

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In what follows, I offer a sketch of how Canada’s health care system is organized, and outline the way the existing U.S. hybrid system could be transformed into a Canadian-style system. In my view, however, that change would be a mistake. A single-payer model is by definition a monopoly model, and thus almost certain to operate inefficiently, whether or not it is managed by government. The United States would do better by emulating Switzerland, Australia or the Netherlands, all of which provide universal insurance but inject some degree of competition to contain costs and to provide more choice among plans, services and providers.

How the Canadian System Works

Every resident of Canada is covered by a government-funded health insurance plan. Under Canada’s constitution, though, both the details and the management of health insurance are left to the provinces. So the system has 13 separate plans, one for each of the 10 provinces and the three northern territories. (Jeopardy contestants take note: Nunavut is probably the one you didn’t remember.)

Still, the federal government retains considerable leverage because some of the revenue it transfers to the provinces to support health care finance is conditioned on the provinces’ abiding by the provisions of the Canada Health Act. So while there are minor differences among plans, they all follow the same basic principles specified by the CHA.

The most important of these principles is, of course, universality: each province’s plan has to be “available” to all residents “on equal terms and conditions.” In the past, some provinces interpreted this as allowing them to charge everyone a premium as a condition of coverage. But today the plans are financed entirely out of provincial and federal government revenue, so every resident is automatically covered at no direct cost.

The CHA also requires the plans to cover the entire cost of insured physician and hospital services — that is, there can be no co-pays. But it does not explicitly include other key health care items, notably pharmaceuticals, long-term care and dentistry. For this reason, the coverage that it prescribes is sometimes referred to as “deep but narrow.”

Many provinces have separate insurance plans that pay for part or all of the prescription drug costs for specific demographic groups, but in most provinces these plans are not yet universal. And even though many Canadians have private insurance for these add-ons, substantial numbers go without pharmaceutical coverage — or insurance for dental, vision and mental health care.

Blomqvist

 

The CHA requires the plans to cover the entire cost of insured physician and hospital services — but it does not explicitly include other key health care items, notably pharmaceuticals, long-term care and dentistry.

 

The CHA further stipulates that a province’s insurance plan must be “publicly administered.” It is clear from the language in the act that this refers only to the administration of the insurance plan, not to the provision of the services that are covered under the plan. And, in contrast to, for example, Britain, most health services in Canada are, indeed, private. As in the United States, almost all physician services are supplied by doctors in private practice, who usually are paid by the provincial insurance plans on a fee-for-service basis. Hospitals are classified as private institutions, although almost all are operated as nonprofit agencies. In contrast to the United States, the funding of Canadian hospitals through provincial insurance mostly is still in the form of annually negotiated global budgets. Recently, though, some provinces have been experimenting with activity-based funding much like the Diagnosis-Related Group method used by Medicare in the United States, which classifies services into some 500 categories for reimbursement.

As noted, the “accessibility” clause in the CHA stipulates that the provincial plans cannot charge user fees. It also contains rules that implicitly prevent doctors and hospitals from “extra billing” — that is, from requiring patients to top up the payments they receive from the provincial plans. The core of the Canadian universal single-payer health care system, therefore, is tax-financed government insurance that automatically covers every resident for the full cost of any medically necessary physician and hospital service.

It is a single-payer system in the sense that, for the doctors and hospitals that treat insured patients, the provincial insurance plans are generally their only source of income. The reimbursement structure is determined in centralized negotiations between provincial governments and provider organizations. Most provinces have rules that prevent, or at least discourage, these providers from supplying services that are privately paid for. By the same token, the provinces discourage the sale of private insurance policies that cover services included in the government plan.

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A Canadian System for America?

If you ask the average Canadian to describe the main differences between the Canadian and American insurance systems, you’ll get a two-pronged answer. First, the United States does not have a government program that guarantees universal access. Second, almost all health care is paid for privately, out of patients’ own pockets or from their private insurers. The first part of the answer is right, but the second is decidedly not.

According to the OECD, governments (federal, state, local) in the United States currently pay for close to half of all health care. Most of it comes through the federal Medicare program, which covers every American aged 65 or over, or from state-based Medicaid plans for low-income households that are jointly funded by the states and the feds. The government share in Canada is higher, of course. But not much higher, since a range of health-related costs are not covered by the public plans. In recent years, the figure has been around 70 percent.

To transform the U.S. system into a version of the Canadian single-payer model, the first step would be to create a single government funded insurance plan that would automatically cover every American. In principle, this could be done either at the federal level by expanding Medicare so that it covered everyone (not just the elderly) or at the state level by expanding Medicaid to become a universal program. The latter approach would create a system similar to the Canadian model in that there would be a network of state-administrated plans, rather than a single nationwide plan.

As in Canada, one would then expect a degree of federal-state cost-sharing, with states being compensated with additional revenue transfers for taking on the responsibility of insuring the elderly who are covered under Medicare in the current system. The federal-state transfers would presumably be conditioned on state plans’ meeting certain common standards along the model of the CHA in Canada. But that’s hardly a stretch: the funding of state Medicaid plans already follows this model. Nor, at least conceptually, would it be hard to set common standards to include universal coverage, an end to premiums and co-pays, and regulation making it difficult to provide or receive medical care outside the state-financed system. While decentralization might allow for some variations by state, everyone, rich and poor, would be entitled to the same care.

 
I suspect that most Americans, even among those who are eager to make coverage universal, would view a made-in-Canada model as unrealistic in political terms and unlikely to work well in practice.
 
Why the Canadian System is not Ideal

But just because the American system could be converted to a Canadian-like system doesn’t mean it should be. And I suspect that most Americans, even among those who are eager to make coverage universal, would view a made-in-Canada model as unrealistic in political terms and unlikely to work well in practice. I share their skepticism.

Yes, all Canadians are insured. But the systems in many other affluent countries also offer this advantage, and, in my view, international rankings such as those by the Commonwealth Fund and others are right when they suggest that the Canadian model doesn’t measure up to the best of them.

By definition, a system in which all physician and hospital services are financed through a single government plan implies a monopoly in the financing market. Since it is a government monopoly, it will not exploit its market power to enrich private shareholders (there aren’t any). But while elected politicians have incentives to please both taxpayers and patients in managing the monopoly, they are surely influenced by provider interest groups representing everyone from physicians to nurses to hospital administrators to drug companies.

In Canada, several of these groups are organized to bargain over compensation. And there is no invisible hand of the market to balance their interests against those of patients and taxpayers or to minimize resource waste. Fee and wage settlements have typically resulted in periods of rapid growth in spending followed by gradually deteriorating quality of care as the provinces scramble to contain costs and the wrath of taxpayers. Episodically, hospital emergency departments become overcrowded, waiting lists for non-priority surgeries grow longer, and so on. According to the Fraser Institute, wait times for certain kinds of medically necessary surgery reached record lengths in 2016, averaging 20 weeks. (The Fraser Institute, it should be noted, is no friend of the single-payer system, but its data on wait lists are widely cited in Canadian media.)

Attempts to end the stop-go cycle in health spending and make the system more efficient have been opposed by provider groups because change is seen as a threat to their incomes and working conditions. The sense that the system is in disrepair and incapable of fixing itself has contributed to the low rankings that Canada has received in international comparisons. Meanwhile, the inability to check costs is also widely cited for the slow pace in broadening universal coverage to include pharmaceuticals.

Of course, the United States and Canada operate in very different political environments. In Canada, provincial governments’ bargaining positions have been weakened by recent Supreme Court decisions that have strengthened the position of unions in the public sector. While provincial medical associations are not classified as unions, physicians’ fees are nevertheless determined in collective bargaining between doctors and the provincial governments. And in several provinces, most recently in Ontario, doctors have won the right to binding arbitration if an agreement cannot be negotiated.

With state and federal governments in the United States operating under different rules, it is conceivable that they would be better able to contain the influence of key interest groups, allowing them to run a single-payer system more efficiently than has been possible in Canada. Moreover, an American single-payer model could be designed to allow federal and state officials to collaborate more effectively in financing and managing the system than has been possible in Canada.

There, a lot of political capital has been wasted in negotiations about how health care costs should be shared rather than expended on reforms that could increase the system’s bang for a Canadian dollar. But effective control of interest group influence, and intergovernmental collaboration in the broader public interest, are tall orders anywhere. On balance, switching to a single-payer approach would be a highly risky bet.

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So, What are the Alternatives?

A single-payer system may be the most direct route to universal coverage, but universality could be (and has been) attained even in systems in which there are multiple plans and citizens have some degree of choice with respect to insurance. Examples of countries that operate this way include Switzerland, the Netherlands and Australia. Even in Britain, where everyone is automatically covered by the National Health Service, which functions as both payer and provider, residents can buy private insurance to help pay for care from privately practicing doctors and private hospitals.

In Canada, the monopolies of the provincial health insurance plans are reinforced by a plethora of rules. It is illegal — or, at best, unattractive — for private insurers to cover the cost of services otherwise available through the provincial plans. Other regulations prohibit or discourage doctors from supplying services outside the provincial plans.

Rules to restrict private insurance and independent practice may have been necessary to overcome physicians’ resistance, which was initially strong. There was even a doctors’ strike in Saskatchewan — when universal government insurance was introduced. Today, however, universality is not under threat, so the rules now largely serve to eliminate choice and competition on behalf of a system that does not need protection. Nevertheless, many Canadians strongly support them on equity grounds. When the only health care available is what is offered through the provincial plans, everyone who is sick will receive the same care, regardless of ability to pay. Moreover, requiring everyone to get care through the plans is seen as indirectly helping the poor get quality service by tying their interests to those of the middle class.

The support for these principles is strong, even among government officials who have devoted considerable legal resources to defending them in cases in which doctors/patients have challenged the rules because they wanted to supply/receive private care. Wealthy patients can, of course, seek care in the United States or any of a dozen other countries. And some do, especially when waiting lists for surgery and diagnostic tests in their home provinces become long. But as travel for foreign country care entails high out-of-pocket costs and inconvenience, the number of people willing to use this escape hatch remains small.

It is hard to tell to what extent the lack of competition from private insurance or independent providers has contributed to the mediocre performance of Canada’s health care system in international rankings. (In a recent one, Canada is ranked no better than 9th out of 11 in the subcategory of health care outcomes.) But it is a fact that none of the countries that are ranked above it follows a single-payer model that is as strict as the Canadian one. In Switzerland and the Netherlands, coverage is universal, but residents have a choice among many plans that compete in various ways. In Australia, all residents are automatically covered by a state plan similar to the Canadian provincial plans. But Australians are allowed to buy private insurance that covers treatment in the country’s many private hospitals. Those who choose this path receive a subsidy from the government to offset a portion of the premiums.

Most Canadians who support that country’s single-payer system probably do so because they believe that it both saves money and improves the welfare of low-income households. It does both these things — provided the benchmark for comparison is the U.S. system. But why limit oneself to that oddly narrow view of the world?

 
A half-century ago, Medicare was denounced as “socialized medicine” and only narrowly became law. Now, it is far too popular to touch.
 
What the United States Should Do

While the United States remains the only advanced country that still cannot claim universal coverage for its residents, the fact that ideologues attempting to roll back the Medicaid expansion and subsidies for private insurance initiated by Obamacare have met so much opposition suggests that the appeal of universality is too strong to resist indefinitely. The path is not yet clear, but the direction of change is. A half-century ago, after all, Medicare was denounced as “socialized medicine” and only narrowly became law. Now, it is far too popular to touch.

Canada’s single-payer model is universal (if not fully comprehensive in what it covers). And it is much less costly than the current U.S. hybrid system, in part because it reduces administrative costs and eliminates marketing outlays. But these virtues don’t constitute a good enough reason to focus long-term reform efforts on replicating it south of the border. In my view, the negative consequences of monopoly, in terms of efficiency and incentives for innovation, are pretty serious drawbacks, especially when better options are available.

It’s hard to imagine a scenario in which America would make an overnight about-face and adopt a universal system, even one that contained strong elements of competition along the lines of, say, Switzerland or Australia. But if the structure of the Affordable Care Act is left intact, incremental reforms might ultimately lead to universal coverage without any one insurer dominating the market. If that were to happen, one might even imagine a day in which Canadians look to the United States for inspiration in reforming their own system. Or at least (if you find that hard to swallow) look more sympathetically at models such as Australia and the like.

main topic: Health
related topics: Public Policy, Regulation