Fraser Forum

Nobel Laureate economist on Canadian health care and the 'escape valve'

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The below is from a recent interview of U.S. Nobel Laureate economist Kenneth Arrow of Stanford University.

Question: It does sound like you are strongly in favour a single-payer system, though. Last year you signed, along with 266 other economists, a declaration that called on policymakers around the world to work toward universal health coverage.

Arrow: I wouldn’t say I’m strongly in favour of a single-payer system. I can find objections to it. But I still think it’s better than any other system. However, the idea of permitting private practice must not be ruled out. Similar to the U.K., there can be a single-payer system which everybody can go to, and private medical practices for those who want. In the U.K., private medicine is about 20 per cent of the total, so there is this escape valve for those who want it, but also a single-payer system that anybody can join.

Question: Perhaps the way to fix the American health care system is simply to adopt the U.K. model?
Arrow: I would say the Canadian model, rather than the U.K. model. But it’s so politically out of the question I don’t even think about it.

Arrow’s main contribution to thinking about medical care is his 1963 classic article, “Uncertainty and the Welfare Economics of Health Care,” published in the American Economic Review. By the way, I reread that article a few years ago and I recommend doing so. It’s words, not equations. And it makes some very good points. Here’s my post on it.

Now to the Arrow interview. Notice that Arrow prefers the Canadian single-payer system, in which doctors are free to practice privately, to the British National Health Service, which really is socialized medicine because it’s a government-run agency with doctors and nurses as government employees. Yet, one of the things Arrow likes about the British system is what he calls an escape valve and I have called a “safety valve”: the fact that people in Britain can pay for service outside the system.

My guess is that Arrow doesn’t know that Canada, by and large, does not have that escape valve. As I wrote in “The Inefficiency of Health Care Rationing—and a Solution,” in Steven Globerman, ed., Reducing Wait Times for Health Care, Fraser Institute, 2013:

In only four of the 10 provinces (Saskatchewan, New Brunswick, Nova Scotia, and Newfoundland) are people allowed to buy private insurance for the kinds of health care provided by the government system. These four provinces, moreover, contain less than 10 percent of the Canadian population. Also, although doctors in nine of the 10 provinces are free to opt out of the government system, since 2004, the largest province, Ontario, has prohibited doctors from opting out at all if they are providing “medically necessary” care (Flood and Haugan, 2008). The 2004 Ontario law grandfathered doctors who had already opted out but, by 2008, the number of opt-outs in Ontario, a province with over 25,000 doctors, was only 45 (Montreal Gazette, February 14, 2008). In three provinces—Ontario, Manitoba, and Nova Scotia—doctors who opt out must charge fees that are no greater than the allowable fees charged by doctors who do not opt out. In five of the seven provinces in which doctors are allowed to set their own fees—British Columbia, Alberta, Saskatchewan, Ontario, and Quebec—provinces that account for over 80 per cent of Canada’s population, government coverage is denied for patients who receive services from opted-out doctors.

My further guess is that he would favour an escape valve: letting Canadians pay for medical care when they are dissatisfied with the government option.


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