Uneconomic Healthcare: Rising Costs, Longer Wait Times, and the Argument for Private Sector Involvement

Many countries have experienced rising healthcare costs in recent decades and this phenomenon has stimulated a lively debate about the policy options available to governments for mitigating those costs. In Canada, per capita public healthcare expenditures will be roughly $6,057 in 2014–reflecting a staggering total of $215 billion that year.

An important feature of the Canada Health Act, enacted in 1984, is access to healthcare, i.e. ensuring that all Canadians have equal access to public healthcare in every province. Accessibility is a contentious issue, however, and some folks argue that prohibiting Canadians from purchasing private health insurance interferes with their constitutional right to equal access in Canada. (As a result, there have been several lawsuits addressing the issue of private health insurance and many individuals seek treatment abroad.)

In 2014, the Fraser Institute released a study, titled “Waiting your Turn: Wait Times for Health Care in Canada,” that reveals the median waiting time for medically-necessary treatments in Canada to be 18.2 weeks, which is significantly higher than other OECD countries. Echoing this assessment of Canada’s public healthcare system, the Common Wealth Fund (CWF) published a report recently that ranks Canada last in terms of “timely access to healthcare.” Nova Scotia’s average wait time is 32.7 weeks, which is considerably higher than in other provinces. (In Ontario, for instance, the average wait time is 14.1 weeks.) Health Minister Leo Glavine recently admitted that Nova Scotians wait too long for basic medical procedures, and although he touched upon the impact of unions in the province, the provincial government is primarily responsible for healthcare outcomes in Nova Scotia.

The distributional variation in Canadian wait times is staggering, particularly in the Maritime provinces, which have the longest wait times in the country. As previously mentioned, one could argue that unusually long wait times for medical procedures represents a constitutional violation, and from the economic perspective, a healthy workforce should result in greater efficiencies, less absenteeism, and higher productivity levels. Furthermore, in “The Human Capital Model of the Demand for Health,” economist Michael Grossman argues that “health can be viewed as a durable capital stock that produces an output of healthy time.” Because health depreciates as one ages, he also argues that people increase their healthcare expenditures as they age to maintain the same output of “healthy time.”

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Nova Scotia’s population is also ageing considerably faster than the national average and this phenomenon requires larger investments into healthcare infrastructure. In the 2013, for instance, Nova Scotia’s government allocated $3.9 billion or $ 4124 per capita expenditure for healthcare services. Although healthcare expenditures have been rising in all provinces, Atlantic Canada’s ageing population and relatively poor economic performance will create serious fiscal challenges in coming years. Specifically, as the population ages, the demand for medical treatments will rise and eventually exceed the supply, resulting in longer wait times and rising healthcare costs. (Because the provincial government retains a monopoly on most, if not all, medical procedures, public healthcare spending will rise out of necessity.)

Eliminating restrictions that prevent individuals from accessing private healthcare, which would theoretically reduce the burden shouldered by the public healthcare system, is one option available to the provincial government in Nova Scotia. More broadly, implementing measures that facilitate private sector involvement in the province’s healthcare sector would serve to reduce wait times, increase accessibility, and improve healthcare outcomes for all residents in the province. However, in my future blog, I can discuss more about the importance of private sector involvement and its positive impacts on reducing waiting time.

Rinzin Ngodup is an AIMS on Campus Student Fellow who is pursuing a graduate degree in economics at Dalhousie University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies

Derailing Economic Growth on Cape Breton Island

In a quote that could be easily mistaken for a passage from Ayn Rand’s Atlas Shrugged, Cape Breton Regional Municipality (CBRM) Mayor Cecil Clarke said of the St. Peter’s-Sydney line closure, that “The wider economics of Nova Scotia and Cape Breton Island are larger than those of the shareholding interests right now of Genesee & Wyoming.” Politicizing economic development, as has been done in Cape Breton, is a slippery slope and the millions in financial support from federal, provincial, and municipal governments to keep the Sydney Steel Plant afloat is evidence.

Genesee & Wyoming, a short-line railroad holding company based in Connecticut, decided to close the St. Peter’s-Sydney portion of the Truro-Sydney rail line, which moves more than 22,000 cars annually, transporting paper, coal, lumber, petroleum products, and chemicals. Since 2003, business has declined threefold, despite that company receiving a $20.6 million subsidy to provide services to customers on the Island. The latest rate hike increased prices by more than 300 per cent and left the company with only three customers. Michel Huart, Genesee & Wyoming’s legal counsel, has told the Nova Scotia Utility and Review Board that prices were likely to increase again in 2015 if the company operates that line.

CBRM, the Cape Breton Student’s Union, Sydney and Area Chamber of Commerce, and Cape Breton Partnership are lobbying for the railway to continue operations, arguing that it is crucial to existing customers and necessary to develop the Sydney port.

In a market economy, businesses respond to incentives and invest where there is an opportunity for growth. The companies responsible for operating the St. Peter’s-Sydney section of the rail line, however, have received $20.3 million for offering their services to local companies. Yet, despite this subsidy, Genesee & Wyoming would rather shut down the line east of St. Peter’s junction. If a company literally refused to take free money to continue operating that line, the benefits of doing so must be very small, if there are any.  Elected officials in Cape Breton, in addition to the business community there, would like the line to remain ere it is because it provides jobs, easy access to raw materials, and the three remaining customers would have logistical challenges receiving cargo via transport truck. They also argue that it is vital to the development of Cape Breton, particularly because of the Sydney port.

CBRM received government funding to dredge the harbour in 2012 and ostensibly, all that is left is building a container terminal in the Sydney port. The federal and provincial governments, in addition to private investors, have not been eager about the project, however, and the lack of potential customers has some people very concerned about the future of it. According to city councillors and business owners, the problem is that Genesee & Wyoming are shutting down a rail line that operates roughly one train per day and is in need of upwards of hundreds of millions to meet the capacity of larger container ships: without this line, the port will never be developed and Cape Breton will miss out on a great opportunity–or so they say.

This situation is the same we face every few years, but with different actors. Fundamentally, the community has the cause and effect backwards: economic growth comes before economic development, not the other way around. Time, and time again, we call for the government to dredge our harbour, save our railway, build a container terminal, subsidize the steel plant, and the list goes on.

It is nearly impossible to place economic development before growth, particularly because of the risk involved with investing in a community without medium or long-term prospects for growth. There is a reason why the only “big jobs” in Cape Breton are government jobs: private companies do not want to invest in a hostile climate suffocated by government regulation. Imagine the reaction of high-level managers from companies around the world when a company decides to stop operating a rail line that has three customers, even though they received $20.3 million in subsidies.

Nova Scotia, and more broadly, Atlantic Canada, must begin promoting growth before development. Approving the Donkin mine project, fracking operations, and other natural resource extraction is a step in that direction and creating a policy framework that encourages manufacturers to build plants on Cape Breton Island is another. In fact, the CBRM could have approved the operations of an iron pellet plant, creating roughly 500 jobs, but opted, instead, to create Open Hearth Park.

The closure of the St. Peter’s Junction is not about developing the port or the loss of easy transportation, it is a symbol of Cape Breton’s mentality: build it, have the government fund it, and the economic benefits will follow. It is time that our politicians and business owners rethink their relationship with economic development as something that is earned, not bought. Smart decisions will almost always ensure economic development–it is when smart decisions are not working when, perhaps, the government should take a larger role in economic development. But it must stop considering economic development as the end goal: while it is unequivocally beneficial, having a railroad for the sake of having a railroad, particularly because “Halifax has a railroad,” is not conducive to building a productive economy. CBRM’s end goal should be to increase material wealth and wellbeing.

Until the CBRM can better understand the cause and effect relationship between economic growth and economic development, it will remain trapped in a vicious cycle of economic decline.

Corey Schruder is an AIMS on Campus Student Fellow who is pursuing an undergraduate degree in history at Cape Breton University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies

Singing a Different Tune and Embracing the Unknown

Cape Breton Island has a rich culture and fascinating history, matched only by its scenic routes and picturesque landscapes. The Island is highly sought after by vacationers searching for a new spot and golfers looking to play a few rounds at the famous Highland Links Resort. In addition, it is renowned for delicious seafood, hearty people, and, perhaps most importantly, the infamous “East Coast Kitchen Party,” which is an organization that promotes Atlantic Canada’s art scene.

Tourism Nova Scotia and the Government of Canada touts this embellished description of Cape Breton Island, however, it conflicts with a harsher reality: 16 per cent unemployment rate, reliance on government transfers, and a median income well-below the national average–in 2012, $26,160, compared with $31,320 nationally. Furthermore, several rural towns have disappeared, poverty is on the rise, and thousands of Nova Scotians have left the province for a better future.

Fixing these issues requires a momentous shift in the mindset of Nova Scotians and their elected officials. A different approach to natural resource development, for instance, may be the most helpful.

Cape Breton Island, and, in general, Nova Scotia, have a tremendous supply of natural resources, from oil in George’s Bank to natural gas in the Lake Ainslie area, not to mention coal deposits spread throughout the province. There are multiple local groups, however, that have convinced the public that natural resource development is not worth the risk, culminating in the decision to extend the moratorium on hydraulic fracturing indefinitely. Prohibiting all things that carry risk is a dangerous mindset, though. On one hand, residents of Nova Scotia demand jobs, and on the other, shun opportunities that would produce them.

Cape Bretoners must begin to sing a different tune. Industry experts suggest that hydraulic fracturing–colloquially known as “fracking,” could generate nearly $1 billion annually in the province. Former “ghost towns” in Pennsylvania, for instance, have begun booming due to natural gas development in recent years: the unemployment rate in the state is 5.6 per cent, compared with 6.1 per cent nationally, and as a whole, the industry supports roughly 1.7 million jobs in the country. Moreover, natural gas is a much more sustainable and environmentally-friendly alternative to coal and oil. Lastly, the correlation between fracking and earthquakes is weak and instances of pollution occurred due to breaches of government regulation.

Although there are risks associated with fracking, as is the case with any venture, those who are concerned about them exaggerate their scale and probability. Instead of banning the practice, the sensible approach would have been to mitigate the chance of disaster through sound regulation. Furthermore, natural resource development can provide support for local communities. In the United Kingdom, for example, the chemical firm Ineos offered local communities 2 per cent of profits from wells in the area to support hospitals and parks, and 4 per cent of profits to residents who own land near drilling sites. Greenpeace described this practice as a “bribe,” however, it is a common one in the United States that has delivered massive benefits to local communities. A similar approach in Cape Breton Island, and in Nova Scotia, could benefit communities tremendously, and a sound regulatory regime would reduce the risk of environmental damage.

In addition to the picturesque landscapes in the Tourism Nova Scotia commercials, the province should hoist an “Open for Business” sign. At least we could then start to improve the lives of Nova Scotians. In the meantime, however, shunning all, and every, opportunity to create jobs and generate economic growth will reinforce the status quo.

Corey Schruder is an AIMS on Campus Student Fellow who is pursuing an undergraduate degree in history at Cape Breton University. The views expressed are the opinion of the author and not necessarily that of the Atlantic Institute for Market Studies