Private Hospitals and Two-tier Healthcare

I argued previously that private hospitals could play an important role in reducing hospital wait times and may result in greater efficiencies in the Canadian healthcare system. Yet, skepticism toward private-sector involvement is rife in Canada and many folks believe that it could create a more inequitable healthcare system. In fact, one pundit argues that provincial governments need to further consolidate their control over healthcare.

The widespread negative perception of “private healthcare” in the United States reinforces the skepticism that most Canadians have toward private-sector inolvement, which is the subject of health economist Audrey Laporte’s new study, “How Markets Can Put Patients First: Economics Before Politics in Canadian Healthcare Delivery.” This study argues that “Historically, the tendency among Canadian health policy analysts and policymakers has been to compare Medicare with the American system and to conclude that since we are doing much better than Americans in so many of the standard metrics used to judge healthcare systems, notably cost and various measures of access to care, we don’t need to consider making any significant changes to the structure of Medicare.” Nevertheless, comparing Canada’s healthcare system to that of the United States is a fallacy of composition, which is when someone has a distorted belief that what is true in one instance is true in all instances.

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In the last decade, Canadian health expenditures have skyrocketed and one estimate shows that “total public health spending has grown at an average annual rate of 7.5 per cent.” Excluding federal transfers, roughly 88 per cent of Nova Scotia’s provincial revenues pay for healthcare services on an annual basis. Yet, despite these enormous outlays, Nova Scotia ranks last in hospital wait times.

One of the problems facing the Canadian healthcare system is that provincial governments determine the price of healthcare services behind the scenes and patients (who double as taxpayers) remain uninformed. Essentially, the monopolistic structure of Canada’s healthcare system results in limited choices for Canadians seeking medical care and the result is longer wait times and poorer outcomes. In fact, there has been a surge of Canadians who are seeking medical treatment abroad, which indicates that there is room for improvement. An alternative system that provided more options to individuals seeking healthcare would be a huge improvement.

According to the Health Council of Canada’s 2007 survey, 47 per cent of the sample population like the idea of having private hospitals in Canada and 67 per cent felt that the Chaoulli decision was the key to two-tier healthcare. Indeed, the coexistence of publicly- and privately-operated hospitals will create efficiencies by reducing wait times as has happened in other developed countries. These countries, such as the Netherlands, Switzerland, and France, boast healthcare systems similar to that of Canada’s, but with a few subtle improvements–including two-tier healthcare. In the Netherlands, for instance, there were 151 hospitals and 52 outpatient clinic owned by 93 private organizations in 2010 and Dutch citizens reported much better outcomes than Canadian citizens: 41 per cent of Canadians reported waiting longer than four months for a surgery compared with 5 per cent in the Netherlands.

Given the inefficiencies plaguing Canada’s healthcare system, the time is ripe to change the status quo such that all Canadians receive quality medical treatment in a timely manner. One small step toward achieving this objective would be to allow private health insurance, which would ensure that all Canadian citizens have equitable access to healthcare.

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

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

Unproductive Unionization: Labour and the Economy in Nova Scotia

The 2012 winter in Halifax was particularly bad, but not necessarily because it was cold. Instead, public transit workers engaged in strike action that lasted for six weeks in the middle of the winter and, despite earning much more than the average Canadian, demanded higher wages and better bonuses.

Public transportation is popular among students and low-income individuals who rely on it as a means of getting them to school or work and the strike displaced those riders. Once the strike ended, the Chronicle Herald conducted a survey and found that 42 per cent of voters were “still pretty angry” about the strike action, particularly because they felt that the strike demands were preposterous. (For example, the average salary of an HRM bus driver is $22/hour or $40,000, which is roughly 20-25 per cent higher than the median Canadian salary). The strike ended with a five-year renewal contract for $5.6 million ending in 2017, but there is chance that another strike will occur in the winter of that year.

Similarly, there have been several labour demonstrations and protests from the Nova Scotia Government and General Employees Union (NSGGE) and other unions representing the province’s healthcare sector, whom the essential services legislation–Bill 1 or the Healthcare Authorities Act–affected. These campaigners popularize their cause to gain support from the public by using emotional appeals such as “removing worker rights to strike = healthcare shortages.”

In the last few decades, union popularity has waned in the United States and to some extent in Canada, too, however, in Atlantic Canada, unions remain a powerful political force. In 2012, for instance, the Fraser Institute released a report on labour markets titled “Measuring Labour Markets in Canada and the United States,” which found that average unionized employment is 30 per cent in Nova Scotia and 39 per cent in Newfoundland and Labrador. (One of the reasons that report cited for these rates was the increase in public sector employment.)

Several studies show that unionization may discourage productivity rates, reduce employment prospects for new labour market entrants, and lower profits for private firms, the latter of which can affect business optimism. Economist Barry Hirsch, for instance, found that “market value and earnings [of firms] are estimated to be about 10-15 per cent lower in an average unionized company than in a nonunionized company, following extensive control for firm and industry characteristics” in his paper “Union Coverage and Profitability Among US Firms.” Furthermore, Tony Fang and John Heyword found that “the share of a plant’s workers covered by collective bargaining has a robust positive partial correlation with the probability of larger plants closing” in their paper “Unionization and Plant Closure in Canada.”

Removing worker rights in Nova Scotia does not cause healthcare shortages, but, rather, rigid government regulation that determines how many doctors and nurses to produce annually in the province does.  In fact, in many respects, there might be a correlation between union strength and labour shortages because those groups often restrict entry into a given sector. Moreover, affording employers the right to discard inefficient employees and hire more efficient replacements is a key component of building a dynamic labour market.

On the contrary, unionization can sometimes hinder labour market flexibility, as demonstrated in “Unionization and Input Flexibility in US Manufacturing, 1973-1996.” Ultimately, whereas some unions do protect worker rights, it is slightly misleading to argue that they protect the rights of every worker. Therefore, using that argument to gain public support can be deceptive. As economist Friedrich Hayek wrote, “It is one of the saddest spectacles of our time to see a great democratic movement support a policy that must lead to the destruction of democracy and that, meanwhile, can benefit only a minority of the masses who support it.”

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