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Overhead, So What? Medicare Needs Competition

Appeared in The Globe and Mail, August 25, 2003
Authors:
Release Date: August 25, 2003
Last Thursday, the New England Journal of Medicine published an article claiming that administrative costs of health care in the United States are higher than in those in Canada: $1,059 (US) in the United States versus $307 (US) in Canada. The lead author, Professor Woolhandler of Harvard Medical School, has written a number of similar articles over the years, all with the conclusion that the United States should embrace government monopoly health insurance like we have in Canada.

As the authors note, American patients, doctors, and hospitals have to deal with multiple insurers, each of which has different policies and paperwork. In Canada, they only have to deal with one, government-run, insurer per province. The authors believe that competing private insurers cause high administrative costs, and that a single payer would be able to capture this waste and spend it on patient care.

Unfortunately, Canada’s experience shows that this is not the case.

In 2002, the average Canadian patient waited almost 4 months from the time his general practitioner decided that surgery was necessary until a specialist provided the care. That span of time has been growing since 1993, when it was only nine weeks.

Further, Canadians have very little access, relative to other developed countries, to doctors and high-tech imaging machines. In a comparison of access to doctors Canada ranked 17th of 20 countries. Canada also ranked of 17th of 22 countries in a comparison of access to CT scanners, 18th of 23 countries for access to MRI machines, and 13th of 14 countries for access to lithotriptors.

Remarkably, this lack of access comes at a high price. After accounting for the fact that Canada has a relatively young population, Canada spends more on health care than all multi-payer OECD countries outside the US – countries such as Germany, Switzerland, and Japan.

Despite these facts, Woolhandler and colleagues assume that arbitrarily low administrative costs are the primary indicator of a well-functioning health care system, and ignore other costs imposed by government monopoly. With some of the longest waiting times in the world and age-adjusted health expenditure higher than all other OECD nations with universal health care systems, the Canadian model is clearly not the rousing success it is purported to be in their article.

Low administrative costs, caused simply by government monopoly, do not necessarily cause a better health care system or low overall costs. Consider the automobile industry: Wouldn’t it be cheaper if we got rid of all the salesmen, advertising, marketing, and models that differ in trivial matters such as colour? If we all got our cars from the government-run factory wouldn’t we have a fairer and cheaper automobile “system”. They tried it in the Soviet Union and East Germany, and the results were Ladas and Trabants.

The article also ignores the fact that both the federal and state governments create a lot of the administrative costs in US health care. About half of US health care is privately financed, and that share is subject to an increasing burden of regulation that reduces competition and adds to costs. Private insurers in the US are basically selling government-mandated policies.

Without competition, providers have little incentive to act in the interests of consumers. Hospitals do not feel the need to provide more surgeries to reduce waiting lists or provide higher quality care because they are secure in the knowledge that patients cannot go anywhere else. Provincial insurers are not concerned with long queues for health services or a lack of access to doctors or technology because those who pay insurance fees will never stop paying or go elsewhere.

It would be a serious mistake for Americans to fall into this trap and opt for a Canadian-style, single-payer system, considering only the money saved on administration, and not the needless suffering and money lost unaccountably through lack of competition. For Canadians to take the fact that we spend less than our neighbours do on administration as a reason to be smug would be no less so.

Increased competition in health care results in better outcomes and higher quality of care for patients. A small increase in administration costs in Canada, through the introduction of competition, would be a good thing.


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