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

A Win for Healthcare Reform in Nova Scotia

Economist Paul Krugman once wrote that “the basic picture one should have of the government is of a huge insurance company with an army.” Increasingly, what defines the government is more or less summed up as “public health-care provider,” which, while it may exclude the military, comes with its own well-regulated militia in the form of powerful nursing unions.

In an aging Nova Scotia, the militant tactics of nursing unions have ranged from illegal strikes to coordinated mass resignations. Indeed, Nova Scotia recently had to enact essential service legislation that pertains to the healthcare industry, making it the final province to do so, after three major labour disruptions in only seven months. With fifty bargaining units and nine District Health Authorities (DHAs), the politics of healthcare reform is an abyss for premier after premier to throw scarce political capital into, never to be seen again. Yet, it is hardly surprising that successive governments keep returning to healthcare when it accounts for more than half of the provincial budget and 13.2 per cent of Nova Scotia’s GDP–the highest rate among the provinces.

The latest attempt to simplify the system involves the majority government’s initiative to collapse the DHAs down to 2 and the 50 bargaining units down to 4 major worker categories. This development will, in turn, require Nova Scotia’s four unions representing the healthcare sector to each assume a worker category based on their own membership rates. For instance, while registered nurses (RN) are currently spread across all four unions, they will likely end up pooling in the Nova Scotia Nurses Union (NSNU) since they have the highest number of existing RNs for members.

These developments have clearly put the largest union in the province, the Nova Scotia General Employees Union (NSGEU), in panic mode. Under the new system, it may end up solely representing clerical workers and, as a result, take a big hit in its higher-wage membership. According to Metro writer Stephen Kimber, it’s a “divide and conquer” strategy that will “decimate” the NSGEU’s revenues. In a last ditch effort earlier in the year, the NSGEU implored the other unions to set rivalries aside and form a Bargaining Association (BA). This shift would have represented a major swing in political power towards the unions. Instead, the NSNU was wise enough to realize they had everything to gain by going with the government’s plan.

The new balance of power will hopefully provide a window for significant wage restraint among Nova Scotia’s healthcare workers. When the Health Association of Nova Scotia compared Nova Scotia with British Columbia in 2012, they found that Nova Scotia spends “substantially more in most categories with the exception of public health and capital.”  The report was quick to point out that “demographics, on their own, account for a relatively small proportion of growth in health spending … The main cost drivers in health-care are increased utilization of services (e.g. drugs, specialists), innovations in medical science and technology, and salaries paid to health-care providers,” which, in turn is mostly accounted for in differences in organizational structure and funding models.

There is, therefore, good reason to think that reforming bargaining units may help begin to rein-in both wage growth and strike frequency, a state of affairs sometimes referred to as “labour quiescence.” Before, the four unions competed aggressively against each other for members by demanding and advertising ever greater benefits. But, by segregating worker categories into separate unions, the benefit competition becomes undermined. Indeed, in formal economic models, when two or more unions are composed of members who complement each other, as opposed to substitute, wage restraint prevails and strike risk declines. For example, since clerical workers, LPNs, and RNs all complement each other, if any one group decided to strike it would harm the other two making their opposition more likely.

It is too early to tell whether the reorganization of DHAs and bargaining units will actually save money. Like rearranging deck chairs on the Titanic, it seems like the number of Health Districts gets tweaked every so often with little to show for it. However, more important than capturing near-term efficiencies is whether these changes will improve the chances of more substantial reforms to healthcare provision going forward.

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