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.


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

Obamacare: An Intro

This week was the fourth anniversary of passing the Affordable Care Act (ACA), colloquially known as Obamacare. Many, including Canadians and numerous Americans, thought first that it meant universal health insurance and were subsequently surprised to realize this is not the case.

The ACA’s intent is primarily to increase the number of Americans who have health insurance. Of the roughly 46 million Americans who were “uninsured” in 2009, a substantial chunk could not afford insurance. Several others–roughly half and most of whom are young and healthy– thought it not worth their while to have it. However, if they got injured, hospitals picked up the bill, which was then dispersed among other people’s insurance premiums.

There are three provisions in the bill:

1)    Mandates requiring individuals to purchase health insurance or else suffer a significant penalty: either purchase health insurance from a private company or pay a fee to the federal government

The Supreme Court’s (SCOTUS) ruling in 2012 confirmed the bill’s constitutionality and it has been gradually taking effect since 2013. The second mandate requires employers with more than fifty employees to provide all full-time staff with health insurance or, similarly, pay a substantial fine. Alternatively stated, this means that employers cannot hire (or retain) full-time workers unless hey can also afford to pay for that person’s health insurance. Labour unions caught on to this and many of them now voice strident opposition to Obamacare. Thus far, there have been thousands of documented layoffs because of the employer mandsate.

2)    Expansion of state Medicaid programs

Canadians unfamiliar with American healthcare should know that while private firms insure a majority of Americans, Medicaid is a safety-net health insurance program for those without the means of acquiring insurance (typically the poor). It is run at the state level, which bears the cost and financial responsibility for their expansion. Because of this, nearly 33 states have refused to expand their Medicaid programs in the wake of Obamacare, citing fear of future insolvency issues. In addition, the Medicaid fee schedules for doctors seem to be so low that many of them no longer accept Medicaid patients.

3)    “Health insurance exchanges”

Essentially, an exchange is a regulated and subsidized marketplace where the uninsured can shop for health insurance policies, the price of which adjusts to their annual income. They came into effect in October 2013 and were the subject to scrutiny due to technological errors precluding consumers from accessing the website.

In sum, Obamacare is not universal health insurance. Principally, it is a mandate requiring Americans to purchase their own health insurance. If employers fail to provide coverage, individuals may hope to find subsidized policies through the marketplace exchange or become eligible for Medicaid in certain circumstances. While the implementation of each of these reforms has been shaky and mixed with unintended consequences, the policy community remains divided on whether, on balance, the bill has been a success thus far.

Michael Craig is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute

On Health Insurance in Canada

Canada’s healthcare system is a source of pride for many citizens–it forms a strong part of our national identity. Indeed, the universality of health insurance, which provides services free at the point-of-care, seems like a noble goal.

Because Canadians value healthcare so much, it is worth asking what the dangers of the current system are. Frankly, it could save lives.

Currently, as stipulated by the Canada Health Act, each province receives federal funds to run a public health insurance agency: Medicare. These funds can be subject to certain reductions in proportion to the amount of private healthcare activity occurring in a province. Thus, provincial health policy freedom is somewhat fiscally constrained by the federal government.*

Medicare tends to be associated with long waiting lists for healthcare. The Canadian Wait Time Alliance (WTA) tracks wait times in Canada, as do the Canadian Institute for Health Information (CIHI) and the Fraser Institute. These studies all suggest that wait times for medical care, while already substantial, have been slowly increasing. While difficult to objectively measure, it is entirely probable that Canadians suffer, get sicker, or die while waiting for medical care.

In parallel, the labour market for Canadian doctors is sometimes poor. About 16–20% of new medical specialists in Canada, according to the Royal College of Physicians and Surgeons, cannot find work every year.

Herein lays the paradox of Canadian health policy as it exists today. How can there be potentially thousands of unemployed Canadian doctors looking for patients and, at the same time, close to a million patients waiting for medical procedures?

Opponents of a parallel private healthcare system are right to question whether it would reduce waitlists–after all, a private system would pull doctors from the public system. However, the implicit assumption here is that every doctor starts out employed. In the current state of affairs, a modest proposal would be to allow doctors for which there is “no room” to start accepting private health insurance payments. This would not require a cent of government expenditure, and may actually help government balance sheets–the only thing that would be drawn from the public system is patients on waitlists. Additionally, this could increase access to care for those who remain in the public system.

Surely, there are better ways of retaining universal health insurance coverage for all Canadians, while addressing the systematic harms it can produce. That sounds like the kind of Canadian innovation I am proud of.

Mike Craig is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute

*A previous edition of this piece stated that, in 2014, the Canada Health Act is up for renegotiation, when in fact it is the Canada Health Accord. In addition, the Canada Health Act does not explicitly ban private health insurance at the provincial level, although this is subject to interpretation of Section 12.